7 Countries Where You Can Live Tax Free

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7 Countries Where You Can Live Tax Free

Why establish tax residency? With most Western countries around the world having marginal tax rates upwards of 30-40%, it is not surprising that second residencies and passports are on the rise as people begin looking for low tax alternatives.

Written exclusively for Expat Network by Mark John of Offshore Protection

Thanks in large part to the clampdown of offshore tax havens and the greater push for transparency by the OECD and the EU, merely opening an offshore account or moving your business offshore does not free you from your tax obligations.

There are two different types of strategies that are worthwhile to pursue if you are looking to move to a no tax jurisdiction.

Becoming a resident in:

A country that has 0% taxation; or
That has a territorial based taxation system

The only way to completely eliminate your tax burden in this day-in-age is to move your residency.

Why a Tax Residency?

Getting a residency in a zero-tax country not only reduces your overall tax obligation, but it also secures your future lifestyle in a country where you are treated as a first class citizen.

The idea put forward by Flag theory, is to diversify all parts of your life: business, accounts, passports so that you are not beholden to any one authority. Having a residency that suits your needs is an important part of any global risk reduction strategy as it gives you security, maximizes your individual autonomy while at the same time reduces your overall tax obligation.

In order to put this strategy in place the goal is to find a country that offers incentives to non-residents and foreign capital.

Though there are many offshore jurisdictions that are true tax havens, tax laws around the world have changed drastically in last decade for many westernized nations in an attempt to prevent assets from leaving the country.

Consequently western nations have adopted Controlled Foreign Corporation (CFC) laws to stem the flow of capital to no tax jurisdictions.

As a result the most effective way to reduce your tax obligation is to find a country that does not tax worldwide income.

Second Residency in Tax Free Countries

Bahamas

You can get a tax-free residence in the Bahamas if you are not short on capital. The residency program requires a hefty real estate investment of 250,000 USD, however the upside is that the investment required can later be your new second home.

The Bahamas friendly non-resident tax friendly laws have a lot to do with its offshore financial market which provides a large portion of the islands revenue.

Vanuatu

Vanuatu has a great residency program that offers special 15 year residency visas for investors and landowners. It also offers citizenship by investment opportunities for non-residents looking to acquire a second passport for a 150,000 USD investment.

Government fees for Vanuatu residence are a bit high, but because they offer attractive citizenship programs it is worth the relatively higher price tag.

Costa Rica

Costa Rica has been one of the hotspots from American expats for years and its no surprise. The requirements make it possible for anybody with 2500 USD a month income can become a resident.

What is perhaps most attractive about this program is that in just two years you can apply for full permanent residency. Costa Rica has no standing army as well as no taxes on worldwide income and has a way of life that is “pura vida” as the locals call it, making it a simple, relaxed, and enjoyable place to for your second residency.

Guatemala

If you long to live and soak in Mayan culture then Guatemala may be for you. It has a territorial taxation system so all foreign sourced income remains tax free.

One of the benefits of living in Guatemala is that you can live very cheaply. It has become an incredibly popular destination for alternative lifestyle enthusiasts with a number of European and Americans expats settling down permanently.

Getting a residency is simple and with provable income of USD 1000 a month you can apply for residency. The good news is that they have a fast track citizenship program that allows you to get full citizenship in just 5 years.

Nicaragua

Nicaragua is perhaps one of the most affordable places to live in South America. It has a very attractive residency option where they allow you to acquire residency if you life more than 183 days a year in the country and can prove you have a 750 USD monthly income.

Nicaragua is perhaps one of the cheapest residency opportunities in the world. The only reason why it isn’t flooded with applications is that the country is not as developed nor does it have the infrastructure like other South American countries.

Panama

Panama has attracted non residents and foreign capital through its residency and offshore financial services.

Panama has a Friendly Nations Visa program that allows 70 member countries the opportunity to apply for long-term residency for USD 5000 which together with an investment in a local business can get a full-blown passport in as little as 5 years.

It has become quiet popular destination for non-residents looking for another alternative place to live due to its climate, price and accessibility.

Paraguay

Paraguay has a very inexpensive second residency program similar to Panama that allows long-term residence with a USD 5000 bank deposit. Residents are allowed to apply for a passport and obtain citizenship after living in the country for three years. To be eligible you just need to stay in the country for half a year.

Though the passport may not be as popular as a European passport, there are few countries in the world where you can acquire citizenship as easily. Foreign sourced earnings are not taxed so you can see how easily it might be to save big by moving here.

Takeaway

While it is nice to not have to pay 50% taxes on all your earnings, its even nicer be welcomed as a first-rate citizen in a second country.

Whatever your circumstance, finding a second place where you can call home is a luxury you will not regret.

Moving Abroad Checklist

Initial Considerations

Will your partner be travelling with you?

If so, what will they be giving up in your present home and will they be able to continue with their career in your new home? You will need to check whether a separate visa is required for your partner to work or if your visa gives that right. If they are unable to work you will need to decide on the effect on your finances and what alternatives are available to give a fulfilling life (home business, training, voluntary work).

Are you taking family with you?

Moving with family raises many exciting opportunities, but also can create challenges. The HSBC Expat Explorer survey indicates that expat kids can take six months to settle in to their new country (see article). Getting young or even older children to prepare to move and leave their friends and family behind can be a challenge and should be thought through.

The options for education is another area that needs to be thought through.

Moving your child to a new country with a different education system can be a great opportunity to broaden their experience, but if they are close to key exams the timing can make this inadvisable. If you do take your family with you, it is important to decide between joining the local school system or choosing an international school.

Where will you be living?

Whether you will be living in a house or apartment, furnished or unfurnished, these decisions will affect what you need to take with you. The time you are planning to live overseas will also affect whether you should leave your property at home empty, rent it out or sell it. See the article Sell, Store or Ship.