25 Best Countries to Start a Business
In this article, we take a look at the 25 best countries to start a business. You can skip our detailed analysis of the friendly business policies and go directly to the 10 Best Countries to Start a Business.
Businesses thrive only when certain policies, a suitable economic framework and institutionalized principles like rule of law and transparency are present in a country. Absent these conditions, a country becomes economically unattractive and can make it hard for businesses to grow and turn a profit.
For instance, a country with a high corporate tax rate, coupled with poor human capital, excessive government regulations, poor state of rule of law and unreasonably strict antitrust legislation can derail its market prospects.
By far, the most important condition for businesses is a free market, where markets are run by the market forces of supply and demand. Free markets usually provide most of the conditions needed for ease of doing business.
Free markets are efficient because they allow incentivization through profit motive, but high corporate tax rates can prove to be demoralizing, which is why nearly 40% of multinational corporate profits are relocated to tax havens every year, according to research from UC Berkeley and University of Copenhagen. Speaking of the US, it loses 16% of the corporate tax revenue.
For example, according to a Reuters report, Alphabet Inc. (NASDAQ:GOOG) in 2017 reported $23 billion in profit in Bermuda, a small British island territory with zero corporate tax rate. Alphabet Inc. (NASDAQ:GOOG) did it through a Dutch shell company, in a tax-avoidance technique known as Double Irish With a Dutch Sandwich.
Corporations do it by reporting profits in countries with low taxes, where they move their intellectual property and license it to their subsidiaries using the so-called arm’s length principle in transfer pricing.
Corporate tax rates have been falling around the world to encourage business growth and discourage tax revenue flowing out of the corporations’ home countries. According to the Tax Foundation, the unweighted mean statutory tax rate has reduced worldwide by 42% from 1980 to 2022. In the US, corporate taxation as a percentage of GDP has consistently declined since World War 2, making up only 1% of the GDP as of 2019.
Another important factor is predictability, which is guaranteed through rule of law. Weak rule of law can create uncertain business conditions and may discourage investment, leading to low access to capital for startups and new businesses. With that said, let’s now move on to the 25 best countries to start a business.
Our Methodology
We have defined ‘best countries to start a business’ as ones that have lower than average corporate tax rates, less government regulations, good fiscal health, high trade and business freedom, high access to capital, healthy contract enforcement and strong rule of law.
We find that a sum of countries’ rankings on different indexes satisfy the above definition. In this regard, we first selected the top countries on The Heritage’s Economic Freedom Index, and the World Bank’s Ease of Doing Business Index. Although the two indexes account for corporate taxation, we selected the top common countries on the two indexes and ranked them in a descending order of low corporate tax rates separately.
Finally, we calculated the average rankings for the countries based on their rankings on the economic freedom index, ease of doing business index and our own rankings based on corporate tax rates. For our list, we then adjusted their rankings based on their average rankings and ranked the countries in a descending order of high business friendliness.
For countries with the same averaged-out rankings, we’ve used their rankings on ease of doing business index as the tiebreaker.
Note: Hong Kong is not listed on the economic freedom index for political reasons. However, Hong Kong is known to have strong free market institutions. Therefore, we have ranked it solely on the basis of its rankings in corporate tax rates and the ease of doing business index.
Here are the 25 best countries to start a business:
25. North Macedonia
Economic Freedom Index Ranking: 53
Ease of Doing Business Ranking: 17
Corporate Tax Rate Ranking: 3
Average Ranking: 24.3
North Macedonia is located in Southeast Europe, and the country has business-friendly policies in place. The regulations pertaining to the market are generally low and not overly rigid, and North Macedonia has a low corporate tax rate of 10%.
Moreover, improvement in the cadaster system has resulted in enhanced security and speed in property registration. However, North Macedonia still has some weaknesses in rule of law and judicial system.
24. Malaysia
Economic Freedom Index Ranking: 42
Ease of Doing Business Ranking: 12
Corporate Tax Rate Ranking: 15
Average Ranking: 23
Malaysia is located in Southeast Asia. It ranks twelfth on the World Bank’s ease of doing business index, and has a corporate tax rate of 24%. The country has a strong mechanism for protection of property rights and its tilting system is considered reliable by the economic freedom index. However, the judicial independence in Malaysia is, at times, compromised by the executive.
23. Canada
Economic Freedom Index Ranking: 15
Ease of Doing Business Ranking: 23
Corporate Tax Rate Ranking: 18
Average Ranking: 18.6
Canada ranks 23rd on the ease of doing business index and 15th on the economic freedom index but the country has a corporate tax rate of 28%, moderately higher than other countries on the list.
22. United Arab Emirates
Economic Freedom Index Ranking: 33
Ease of Doing Business Ranking: 16
Corporate Tax Rate Ranking: 2
Average Ranking: 17
United Arab Emirates has one of the lowest corporate tax rates on the list, at just 9%. However, it ranks relatively low on the economic freedom index because of lack of transparency and independent judiciary. Regardless, rule of law of is generally well-maintained in the country.
21. Iceland
Economic Freedom Index Ranking: 13
Ease of Doing Business Ranking: 26
Corporate Tax Rate Ranking: 10
Average Ranking: 16.3
Iceland is located in the Scandinavian region of Europe. The country has a corporate tax rate of 20% like most countries on the list. The laws that govern businesses in Iceland are consistent with OECD standards and the country has 32 preferential trade agreements in place.
20. Mauritius
Economic Freedom Index Ranking: 30
Ease of Doing Business Ranking: 13
Corporate Tax Rate Ranking: 5
Average Ranking: 16
Mauritius is one of the best countries to start a business in 2023. The country has a low corporate tax rate of 15%. The infrastructure in the country is well developed and the regulatory framework is lax. Further, Mauritius has preferential access to a market of more than 600 million consumers.
19. Latvia
Economic Freedom Index Ranking: 18
Ease of Doing Business Ranking: 19
Corporate Tax Rate Ranking: 10
Average Ranking: 15.6
Latvia is located in the Baltic region of Europe, and since market reforms, the country has become one of the most open to business countries in the world. Latvia has a decent tax regime for startups and access to capital in the country is easy. Latvia has a corporate tax rate of 20%.
18. Germany
Economic Freedom Index Ranking: 16
Ease of Doing Business Ranking: 22
Corporate Tax Rate Ranking: 6
Average Ranking: 14.6
Germany has a low corporate tax rate of 15.8%. It ranks number one on the aggregate logistics performance index, indicating strong infrastructure. The capital markets in Germany are already among the best in the world, but the country intends to improve them further, for instance, by reducing the minimum capital amount for companies to go public, from $1.34 million to $1.08 million.
17. United States
Economic Freedom Index Ranking: 25
Ease of Doing Business Ranking: 6
Corporate Tax Rate Ranking: 12
Average Ranking: 14.3
United States is one of the best countries to start a business, with a corporate tax rate of 21%, and an ease of doing business ranking of six. It has the one of the largest capital markets in the world, accounting for 41% of the global equity. Contract enforcement is also strong in the country, enforced by an independent judiciary.
It is home to some of the biggest companies in the world, including Alphabet Inc. (NASDAQ:GOOG), Amazon.com, Inc. (NASDAQ:AMZN) and Apple Inc. (NASDAQ:AAPL).
16. Australia
Economic Freedom Index Ranking: 12
Ease of Doing Business Ranking: 14
Corporate Tax Rate Ranking: 16
Average Ranking: 14
Australia is the largest economy in Oceania, and its strong rule of law and infrastructure, efficient regulatory framework and strong access to capital make it one of the best countries for businesses.
15. United Kingdom
Economic Freedom Index Ranking: 24
Ease of Doing Business Ranking: 8
Corporate Tax Rate Ranking: 9
Average Ranking: 13.6
The UK ranks eighth on ease of doing business index, and has a low corporate tax rate of 19%, making it one of the best countries to start a business. The UK is home to several of the world's biggest companies like Unilever. In addition, it is also a host country for corporations like Amazon.com, Inc. (NASDAQ:AMZN) and Apple Inc. (NASDAQ:AAPL).
14. South Korea
Economic Freedom Index Ranking: 19
Ease of Doing Business Ranking: 5
Corporate Tax Rate Ranking: 16
Average Ranking: 13.3
South Korea is located in the far east. It ranks fifth on the World Bank’s ease of doing business index. The country has a skilled workforce, with a corporate tax rate of 25%.
13. Switzerland
Economic Freedom Index Ranking: 2
Ease of Doing Business Ranking: 36
Corporate Tax Rate Ranking: 1
Average Ranking: 13
Switzerland is one of the best countries to start a business, owing to one of the lowest federal corporate tax rates in the world, at 8.5%. However, Cantonal-level corporate taxes are more burdensome than the federal tax.
12. Finland
Economic Freedom Index Ranking: 9
Ease of Doing Business Ranking: 20
Corporate Tax Rate Ranking: 10
Average Ranking: 13
Finland is another Scandinavian country on the list. It has a corporate tax rate of 20% and the country has one of the best human capitals in the world.
11. Georgia
Economic Freedom Index Ranking: 26
Ease of Doing Business Ranking: 7
Corporate Tax Rate Ranking: 5
Average Ranking: 12.6
Georgia is located in Eurasia, and has one of the lowest federal corporate tax rates in the world, at 15%. In recent years, the country has made huge changes to its policies to attract investment and foreign companies in a bid to boost the economy.
Click to continue reading and see the 10 Best Countries to Start a Business. Suggested Articles:
Disclosure: none. 25 Best Countries to Start a Business is originally published on Insider Monkey.