A sovereign state in free association with the United States (Compact of Free Association).
3% Gross Revenue Tax (GRT), confirmed via TaxAtlas, applying to the gross revenue of nearly all businesses operating in the FSM in place of a traditional net-income corporate tax - the tax applies regardless of profitability, since it is levied on gross receipts with very few allowable deductions. Distinctly and separately, FSM Code Title 54, Chapter 3 (the "Corporate Income Tax Act of 2004") imposes a flat 21% tax specifically on "major corporations" incorporated in the FSM, confirmed directly via the primary statutory text (Section 321) - a major corporation is defined (Section 312) as a non-bank FSM corporation formed on or after January 1, 2005 with shareholders' equity or paid-in capital of USD 1,000,000 or more (or USD 10,000,000 or more at the control-group level, or any captive insurance company regardless of capitalization). Major corporations remitting this Chapter 3 tax are exempt from the Chapter 1 Gross Revenue Tax instead (Section 323), confirmed via both the primary text and FSM Supreme Court case law (Chuuk v. FSM, 22 FSM R. 85) - the two regimes are alternatives, not cumulative. The 21% rate applies to taxable years ending on or after March 31, 2011; a higher 25.5% rate applied to taxable years ending on or before March 30, 2011. Taxable income is determined per IFRS or GAAP as regularly used in the major corporation's principal shareholder's home jurisdiction, with a foreign tax credit available for income taxes the major corporation itself paid to a foreign country on that same income.
The Federated States of Micronesia levies a wage and salary tax on employment income: 6% on the first USD 11,000 of gross wages, 10% on wages above that threshold, with no tax-free threshold. Employers withhold at source. Investment income, interest, and dividends are generally not subject to income tax at the national level. Note that a separately reported "5% sales tax rate" figure from another source likely reflects state-level sales taxes or fees - the FSM's four states (Yap, Chuuk, Pohnpei, and Kosrae) each have fiscal autonomy and may levy their own state-level sales taxes, distinct from the national government's tax system, which has no VAT/GST at all (see below).
5% sales tax reported.
The FSM's national tax system is built on three separate national taxes under Title 54 of the FSM Code: an import tax, the Gross Revenue Tax described above (applied to almost every person or company earning money from FSM activities, other than employees), and a wages and salaries tax withheld by employers, confirmed via an FSM government tax-advisor assignment description. FSM comprises four states (Yap, Chuuk, Pohnpei, and Kosrae), each retaining some degree of fiscal autonomy and able to levy additional state-level taxes or fees, confirmed via TaxAtlas. The FSM Supreme Court has held that Chuuk state is constitutionally entitled to 50% of Title 54 Chapter 3 corporate income tax collected by the FSM from major corporations incorporated in Chuuk specifically, confirmed directly via the case Chuuk v. FSM (22 FSM R. 85, 2018) - illustrating a real, litigated revenue-sharing dimension between the national government and individual states.
Confirmed via a complete, direct review of the full primary text of FSM Code Title 54, both Chapter 1 (Taxation of Wages, Salaries, and Gross Revenues, sections 111-157) and Chapter 3 (Income Tax Regime for FSM Corporations, sections 311-378) - the entirety of FSM's national income tax law, reviewed via the FSM Law official code repository (fsmlaw.org). Neither chapter contains any provision requiring an FSM resident (individual or FSM-incorporated entity) to include in their own taxable income the undistributed profits of a separate foreign (non-FSM) entity that they own or control. FSM's entire tax system is strictly territorial: the Gross Revenue Tax presumes revenue is FSM-source but allows apportionment to exclude non-FSM-source revenue (confirmed by direct case law, Bank of the FSM v. FSM, 5 FSM R. 346 - revenue from banking transactions in Honolulu and Chicago held not taxable since not derived from FSM sources), and the separate "major corporation" income tax regime taxes only the FSM-incorporated entity's own income, with a foreign tax credit for taxes that entity itself paid abroad on its own income - not an attribution mechanism reaching a different entity's profits. There is no CFC regime, and this is a definitive finding from full statutory review rather than a gap.
Confirmed via the same complete review of FSM Code Title 54, Chapters 1 and 3: no thin capitalization rule, interest-deduction limitation, or debt-to-equity ratio provision exists anywhere in FSM's national tax law. Interest is not specifically addressed as a limited or restricted deduction in either chapter.
No domestic FBAR/Form 8938-equivalent requiring FSM residents to self-report their own foreign accounts was identified. Foreign investment in the FSM is strictly limited by local-ownership requirements (51-60%) and residency requirements exceeding five years, confirmed via the US Department of State; foreign ownership of land is prohibited entirely, and the Bank of FSM is structurally protected from foreign takeover (an FDIC trigger cancels insurance status if foreign ownership exceeds 30%) - foreigners generally cannot open accounts with that bank without proof of local residence and a work permit. Separately and independently of local law, US citizens and Green Card holders with FSM accounts remain obligated to file FinCEN Form 114 (FBAR) once aggregate foreign accounts exceed USD 10,000, and potentially Form 8938, regardless of local requirements - though as a Compact of Free Association state, FSM's relationship with the US is unusually close (Americans and Micronesians may live and work in each other's territory without a visa, and the FSM uses the US dollar as its currency).
No comprehensive double tax treaty network was identified in available sources this session. The FSM's fiscal relationship with the United States is instead governed primarily through the Compact of Free Association (COFA) rather than a conventional bilateral tax treaty - the Compact Trust Fund held approximately USD 1.8 billion in July 2025 following a front-loaded USD 500 million US investment under the 2023 COFA amendment, confirmed via the US Department of State, and Compact funds remain the FSM's most significant government revenue source.