Are you taxed so much in the USA that you consider moving abroad? Do you ever wonder if there is a foreign country where you can live tax-free? Even better, a foreign place you can be your own boss and not have co-workers? Well that may be possible but there is a price to pay.
Guide to Tax-Free Living Abroad for Americans and other Expats
Generally speaking, there are four different ways that income tax is approached in other countries. The first approach would be a country that doesn’t have any kind of income tax for any resident. However, the odds that you’d want to live in a country like that are slim to none. Remember you get what you pay for. We publish regular country guides about living in foreign countries. Some of the latest ones are Living in Ecuador, Living in Costa Rica etc.
Countries like Kuwait, Oman, Qatar and UAE, which are all located in the Middle East, do not have any type of income tax so yes, it is tax-free. While you may be able to put up most of your income toward retirement, minus your living expenses, they aren’t exactly on the top ten places to move to.
Then there is the island life in places like the Bahamas, Bermuda, the British Virgin Islands as well as Caicos and the Caymans. Or maybe you’d prefer Anguilla in the Caribbean, the Turks or Vanuatu in the South Pacific. Perhaps beautiful Monaco or living in the area of the Indian Ocean in the Maldives is appealing to you?
Maybe an extreme remote area like Andorra sounds wonderful, but this year they are going to start having income tax. However, Borneo, an island in Southeast Asia is still income tax free, but is extremely remote. While it is an income tax free country, it has a pricey cost of living.
Another approach to income tax is being taxed according to your jurisdiction. Residents in these countries are taxed on only the income they earn in that country. Any income they make outside of that country is tax-free. In this scenario, you may have to pay an income tax to the country where you make your living, but if that country doesn’t have an income tax, then you pay nothing in taxes.
To make that approach even better, they are places where you may want to live too. Those countries include places like Belize, Panama and Uruguay which also have ideal banking selections as well. Then there are countries that have this same jurisdiction taxing approach but may not be as ideal in banking matters. Those countries include Costa Rica, Malaysia, Nicaragua and Paraguay.
The jurisdiction tax approach offers a subset as well called remittance-based taxation. While there isn’t that many countries that offer this, two of the best would be Ireland and Thailand. You can live in these countries and no matter what country you make your income in, you don’t pay any tax at all. There is one catch though. You can’t bring the money you earned into your resident country.
So it stands to reason that you have to have some money to live on, Right? Well as long as you work your finances right, you will minimize the impact of the taxes you’ll need to pay. These are great residents for those who have a consulting business with clients in the same country as well as in other countries too. Another side note to this tax free approach: If Ireland is where you were born, you are taxed on your income no matter where you earn it, even if you don’t receive it while living in Ireland.
Then we have a third approach to living tax-free and you can live in just about any country, including Canada. Residents are taxed on their income from anywhere in the world. This means that no matter what country you reside in, you are taxed on all of you earnings, no matter where they are earned, in that country. So what if you move and are no longer a resident in that country? Then you no longer have that tax obligation, with one exception: If you earn any income from investments, say rental property for example, you’ll still be taxed on that income.
Then there is the taxation of countries like the USA and Eritrea. These countries tax their citizens regardless of where they are living or what country they earn an income. However, Eritrea has a simple process with their taxation. Their nonresident citizens are charged a flat tax based on any income they earn around the world.
Nonresidents in the USA however, have a more complicated system when it comes to calculating and filing their tax returns. The system has been made so complicated, we have a formed an industry around the subject. This in turn has created a job market for tax preparers.
When an American does not file the correct forms they can be fined by the IRS. If they fail to report all account information from offshore bank accounts and other offshore financial assets, they are fined by the IRS. An American that owns a business offshore and doesn’t file the proper forms can be fined by the IRS. Even if the American does not owe any taxes on any of these matters, failure to file the proper forms results in fines being levied against them.
Now you need to think for yourself. Do you really want to live tax-free anywhere? So, which country would you choose?