What is territorial taxation?

Definition

Under a territorial tax system, only income with a source inside the country is taxed. Income earned abroad — foreign salary, overseas business profits, offshore investment returns — generally falls outside the tax net.

Examples

• Singapore — territorial system; top personal rate 20%, corporate rate 17%, no capital gains tax.
• Hong Kong — territorial system; top personal rate 16%, corporate rate 16.5%, no capital gains tax.

By contrast, worldwide systems tax residents on all income regardless of where it arises:

• United States — worldwide; 37% top personal, 21% federal corporate.
• United Kingdom — worldwide; 45% top personal, 25% corporate.

Why it matters

For internationally mobile individuals and companies, a territorial system can dramatically reduce the tax due on foreign earnings. It is a key reason Singapore and Hong Kong attract regional headquarters and globally active professionals. Note that “source” rules can be technical — where income is treated as arising is not always obvious, so professional advice matters.

Data basis: Government tax authority data via taxesmap.app, as of 2026