Territorial Tax Systems: Frequently Asked Questions
Territorial tax systems tax only income earned inside the country. Foreign-source income — capital gains, dividends, business income generated abroad — is typically exempt or only taxed when remitted. The mechanics differ in important ways from country to country.
Data as of 2026. Sources: OECD, PwC, KPMG, Tax Foundation. Not advice.
What is a territorial tax system?
A territorial system taxes only income with a domestic source. Income earned outside the country — by a resident or non-resident — is generally outside the tax net. This is the opposite of a worldwide system (used by the US, India, most of Europe) where residents are taxed on income from any source.
Which countries currently use a territorial or exempt foreign-income system?
TaxAtlas tracks 23 jurisdictions with territorial or fully exempt foreign-income treatment, including Anguilla, Bahamas, Bahrain, Bermuda, British Virgin Islands, Cayman Islands, Costa Rica, Georgia, Hong Kong, and Hungary. The exact mechanics vary — see each country page for source rules.
Is Singapore a territorial tax country?
Yes — Singapore taxes residents only on Singapore-source income plus foreign income remitted into the country. Most foreign-source income is exempt under section 13(8) if the remittance condition is met.
How does Hong Kong's territorial system work?
Hong Kong taxes profits and income with a Hong Kong source. There is no general worldwide-income tax for residents. The source determination is fact-specific and case law plays a large role for business profits.
Do I still pay tax in my home country if I move to a territorial system?
Possibly. The territorial country won't tax your foreign income, but your prior country of citizenship/residency may continue to tax you until you formally break tax residency there. US citizens remain subject to US worldwide taxation regardless of where they live (FEIE / FTC mitigate this).
What's the difference between territorial and remittance-based?
Territorial means foreign income is never taxed locally. Remittance-based (Malta, Ireland for non-domiciles, UK pre-2025) taxes foreign income only when it's brought into the country. The choice between them matters for cash-flow planning around savings, investment income, and large one-off receipts.
Are capital gains on foreign assets taxed in territorial countries?
Usually no — if the asset is foreign and the gain is realised outside the country. Hong Kong, Singapore, Panama, and similar jurisdictions generally don't tax foreign capital gains for individuals. Always confirm the source rules for your specific asset and broker.
Does a territorial system make tax planning automatic?
No. The source determination is where most disputes arise. Where a contract is signed, where work is performed, where management decisions are made, and where customers are located can all affect source. Get advice before assuming income is foreign-source.
Need help turning the data into a plan?
TaxAtlas covers the rates and rules. For the personal side — exit planning, residency strategy, business structure, or filings — request a response and we'll point you to relevant research or a vetted specialist.
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