States that allow businesses to operate without income tax in the US (2025)

You are starting a business in the US or have income in the US. You want to reduce income tax.

You wonder how to reduce your US state/federal income tax or even get it free. You are confused about which state to choose to form a company in the US to save on income tax costs.

In this article, GLA will point out Top 9 states with no income tax for foreignersThis will help you choose the most economical state to form a US company that suits your company's business model. 

1. Overview of income tax in the US

Income tax in the US is divided into levels:

1. Local income tax.
2. State income tax.
3. Federal Income Tax. 

1.1. Local income tax

Local income tax is imposed by the governments of cities or school districts. This type of tax is not fixed but is only collected for the purpose of raising funds for specific campaigns and activities that are about to take place in the locality.

1.2. State income tax

State income tax is a tax levied on taxable income or gross income as determined by the state government. Taxpayers must report all of this income on their annual federal income tax withholding report.

1.3. Federal tax 

Federal income tax is a tax that American companies and individuals are required to pay and applies to all states.

The federal income tax rate is 21% starting in 2018 under the Tax Cuts and Jobs Act.

2. Overview of income tax rates in US states

State income tax will be applied by US state governments with tax rate regulations including: states without state income tax, states with fixed state income tax rates and states with progressive tax structures. 

Federal income tax will be calculated as a % of your income.

As your income increases, your federal income tax rate will increase. No matter what your income level is, you don't have to pay all of your income tax at that rate, but you will pay a percentage of your income tax based on your income bracket.

For example, if your US income is $50,000 and you are single, you will pay 10% on the first $11.000 and 12% on income from $11.001 to $44.725. After that, you will pay 22% on the remaining amount because part of your $50.000 of taxable income falls into the 22% tax bracket.

The total bill would be about $6.300 — about 13% of your taxable income — even though your top tax bracket is 22%. That 13% is your effective tax rate.

From here, it can be seen that when you establish a company in the US, you can choose states to exempt state income tax, called state income tax.

However, you are not exempt from federal income tax because all US citizens, foreigners, and foreign companies present and earning income in the US are required to pay federal income tax. 

3. 9 US states have no income tax

List of US states exempt from income tax includes: 

1. Alaska.
2. Florida.
3. Snowfall.
4. South Dakota.
5. Tennessee 
6. Texas.
7. Washington.
8. Wyoming.
9. New Hampshire.

The list of typical taxes in the US includes:

1. State income tax (Income tax).
2. Sales tax.
3. Property tax.
4. License tax.
5. Fuel tax.
6. Estate and Inheritance taxes, etc.

When nine states eliminate state income tax, other tax rates tend to be higher to make up the difference.

If you want to choose the most tax-optimized US state for your business, you need to determine your business goals and listen to legal and tax consultants to have a strategy for choosing the right state.

4. How does GLA help you open a company in the US to optimize taxes?

GLA with knowledge, experience and practice in supporting foreign companies and foreigners to establish companies in the US in a complete package, is a professional consultant for many US companies and will support you:

• Choose a state to set up a US company with no income tax that suits your business and company's orientation.
• Support to open a company in the US quickly, accurately, legally, with the best cost on the market.
• Support for registering US taxes such as: sales tax, corporate tax.
• Support annual tax declaration, financial reporting for US companies.
• Support opening traditional bank accounts, digital banks for US companies. 

5. Frequently asked questions when setting up a company in the US

Highlights

• Choosing a state to establish a company in the US without income tax will help businesses optimize taxes and operate effectively.
• The 9 states that do not levy income tax in the US include: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming and New Hampshire.
• Besides choosing the optimal state for corporate income tax, you can also consider 5 US states with sales tax exemption policies for starting a company.