We always tell people that taxes should just be one element of what you consider when you look at your offshore strategy… the main purpose is to provide yourself with a great lifestyle overall.
That said, you can certainly end up paying more or less tax overseas, depending on where you choose to base yourself… for your personal income or your business… based on local rates of taxation.
You may not save on what you owe Uncle Sam… but if local rates of taxation are low, you will save overall because you can avail of the Foreign Earned Income Exclusion (FEIE) and you won’t be taxed in two countries, thanks to tax credits.
Your business can benefit too, thanks to local tax incentives…
On the other hand, choose a jurisdiction with higher overall taxes than the United States, and you could end up paying more taxes than you would back home…
So, location, location, location does matter for taxes…
What you want, ideally, is a country that only taxes income made in that country—your worldwide income from foreign dividends, pensions, Social Security, or even online work, is therefore not taxed locally.
Countries that practice this “jurisdictional” or “territorial” taxation policy are sometimes referred to as tax havens.
Before choosing where to live, invest, or do business, analyze all aspects of the “where” you’re considering. A country’s approach to taxation is an important consideration, but only one of many you should undertake.
As I’ve said, don’t choose a place to live or retire based solely on the jurisdiction’s approach to taxation. Living somewhere you’re not happy just to save on your tax bill isn’t worth it in the long run…
That said, if you’re looking for some of the best places in the world to potentially reduce your tax burden, take a look at this week’s video…
Got a question? Want to see us cover a particular topic? Write to me here.
Happy trails,
Kat Kalashian,
Editor LIOS Confidential
Video Transcript
Intro
Hi, I’m Kat Kalashian for Live and Invest Overseas, and today we’re talking taxes. Such a fun topic. But what’s actually fun about taxes is the possibility of reducing them as much as you possibly can.
Today we’re going to reveal the world’s top three tax havens. Of course, you should not move somewhere to live or retire based solely on that place’s approach to taxation. Living somewhere that you’re not happy just because it helps you save on your tax bill isn’t worth it in the long run. That’s not a recipe for happiness in life.
But before you choose where to live, invest, or do business abroad, you should analyze all aspects of life in that place—and a country’s approach to taxation is an important consideration. That said, it’s only one of many factors you’ll need to think about.
So, without further ado, here are three havens offering the chance to both lower your tax bill and upgrade your lifestyle at the same time.
Number one: Panama.
Panama continues to be one of the best options for reducing your tax burden. As a resident of Panama, you won’t pay any tax on foreign-earned income, nor on bank interest, certificates of deposit, wealth inheritance, or U.S. Social Security. So it’s a pretty sweet deal.
Property taxes in Panama are also very reasonable, with new properties exempt for up to 20 years depending on their value. And Panama’s Pensionado Program—its retirement visa program—grants retirees a one-time exemption on the import of household goods and a $20,000 exemption from import duty for a new car.
Income earned in Panama is taxed locally at a progressive rate from 15% to 25%. On the whole, Panama definitely takes the number one spot as a tax haven.
It’s also very close to the United States—just a couple of hours away depending on where you are. Panama uses the U.S. dollar and is in the same time zone as much of the United States, making it a very easy turnkey move if you’re looking to combine lifestyle benefits with tax advantages.
Next on the list is Uruguay.
Unlike the other tax havens featured here, Uruguay’s tax code doesn’t fully exempt foreign-earned income. Tax-resident foreigners in Uruguay enjoy tax exemption on foreign-earned income only during their first 11 years in the country.
After that, certain types of income—specifically dividends and interest—are taxed at 12%.
Do you think you’ll live in Uruguay for 11 years? Who knows. After ten years you might decide to move somewhere else—Paraguay, Bolivia, Argentina, Brazil, Colombia, Panama—or perhaps even Europe or Asia. So it can be a good opportunity to take advantage of that first decade of tax exemption and see where life leads.
Uruguay residents pay a 12% tax on locally sourced income, and property tax in the country can be up to 1.2% of the property value. Moveable property located overseas may also be taxed, and rental income is subject to a 12% tax.
While Uruguay has no inheritance tax, it does impose a wealth tax on assets located within the country. Overall, the picture is still fairly positive—but Uruguay doesn’t stack up quite as well as Panama, nor as well as our final location.
Finally on our list is Belize.
Like Panama, Belize imposes no tax on a resident’s foreign-earned income. In addition, Belize has no capital gains tax and no inheritance tax.
Property taxes are very low, and the Belizean population is determined to keep it that way.
The Belize Qualified Retirement Program—known as the QRP—isn’t just for retired people. As long as you’re over 40 years old, you can apply for this type of residency and enjoy incentives such as permanent exemption from Belize taxes on income, sales, and estates, as well as import taxes on household goods and vehicles.
You can even import things like a boat, an airplane, or a golf cart. And believe me—if you live on one of Belize’s islands, you’ll want that golf cart.
Local income is generally taxed at a flat rate of 25% on income over $10,000. If you establish a Belize International Business Company (IBC), you are not subject to taxes in Belize and are not required to file a return—because an IBC cannot conduct business within Belize itself.
If you do wish to do business locally, however, you would need a Belizean local corporation. Some tax incentives for local businesses exist and can lead to five- or ten-year tax holidays. The standard local business tax rate is 25%.
There you have it—the world’s top three tax havens and some details about what your obligations would be in each of them.
Do you have any experience or concerns about doing your taxes once you move or retire overseas? Let us know in the comments.
And don’t forget to like and subscribe for more valuable information like this every week from Live and Invest Overseas.
Happy trails!
