Which country is tax free for you?
Which country is tax free for you? What do we mean by that? Well, fundamentally, you can think about it like this. Just because a country taxes doesn’t mean they’d tax you.
Now it’s worth thinking that statement over for a moment. In the meantime here’s a quick rundown of the contents we’ll be covering this week.
And just in case you are wondering, no we are not taking about some kind of under the counter tax avoidance scheme here. Just simply pointing out that there are ways to earn money tax free throughout the world. Even in places where that you might not expect.
UK tax
Let me give you an example using UK taxes. Now, of course the UK isn’t a tax free country. Not by the long shot. If you were putting together a list of countries with the lowest taxes I’m sure the UK would be somewhere near the bottom. Let’s face it there are all kinds of different taxes that people pay in Britain.
However, for most UK residents most of the time you just need to concern yourself with the big two. Capital gains and income tax. Capital gains applies when you sell something. Income tax applies when you earn something.
Let’s deal with capital gains tax first. That’s an easy one because in reality you don’t need to sell anything if you don’t want to. If you were simply living off your investment portfolio’s dividends or buy to let property’s rental income you wouldn’t pay any capital gains tax.
Sure, both rental income and dividends are classed as income but at the same time there’s a personal allowance for income tax, currently £12,570. You don’t pay tax on income earned at or below that threshold.
And when you think about it, that means a couple could earn over £25,000 annually tax free. If you look at incomes in the UK, it’s pretty clear that some people could live off that amount.
Sure, that wouldn’t be realistic in the centre of London, but I’m sure somewhere up North would be doable, particularly if you lived in your own fully paid for property.
That’s just to say a couple who could live for one year for £25K, who owned their own property outright wouldn’t have any tax to pay.
And that would make the UK a no tax country for them.
UK tax avoidance (mitigation) 101
But, what if you don’t have investments you can live off and rely solely on your job or if £25K wouldn’t be enough for your needs in the UK?
The good news is that doesn’t mean you couldn’t live tax free. There are plenty of options open to you.
If you want to stay in the UK and minimise your tax liability, there are all kinds of ways to go about it. You’ve got all sorts of tax allowances and tax sheltered products you can take advantage of. Do your own research and perhaps talk to a professional financial advisor or find yourself a tax accountant.
And if you are a bit more adventurous. How about a move overseas?
How about moving to an income tax free country where every penny you earn you keep. There are 16 of these around the world.
Or do you want to live off your rental income or buy to let yield. In which case you need to find out which country is tax free for international income. And spoiler alert there are many of these so called tax havens worldwide.
In short, there’s bound to be a country that’s right for you. So without further ado, let’s dive right in and start by taking a look at the main countries where income is tax free in the world.
Countries where income comes tax free
The Bahamas
Bahrain
Bermuda
Brunei
Cayman Islands
Kuwait
Maldives
Monaco
Nauru
Oman
Quatar
Saint Kitts and Nevis
Somalia
United Arab Emirates
Vanuatu
Western Sahara
On the face of it, there’s plenty to choose from. In fact some of them look like paradise.
However, a couple of things to bear in mind here. First, you have to get there first. At the very least you are going to require a visa and more often than not a work permit or perhaps even citizenship and those aren’t necessarily going to be easy to get a hold of.
And second, even if you get your hands on the right paperwork, that won’t necessarily mean you should go there. Some of those places may suit you. Others certainly won’t.
No income tax, won’t mean much if you can’t cover the your costs. For example Monaco, Bermuda, the Bahamas and the Cayman Islands are some of the most expensive countries in the world. You’ll need a pretty fat salary to lead a nice life style in any one of those.
How about countries with low tax regimes?
That’s why you don’t find many on that list appearing on lists of the best countries for expats.
But don’t worry. There are plenty of places that have favourable tax systems. And by favourable I mean low.
And just to be clear a low tax country doesn’t necessarily mean you will need to pay tax.
These are places that have territorial tax systems which means they don’t bother about money earned outside their geographical boundary.
In other words, if you live in a place with a territorial tax system but earn money outside, you wouldn’t pay tax. (Rather like the UK’s soon to be removed non dom system).
There are nearly 40 members of the low tax country club.
List of countries that are considered to be low tax destinations
Angola
Anguilla
Bhutan
Botswana
Costa Rica
Cuba
Democratic Republic of the Congo
Djibouti
French Polynesia
Georgia
Gibraltar
Guatemala
Hong Kong
Lebanon
Macau
Malawi
Malaysia
Marshall Islands
Micronesia
Namibia
Nicaragua
Palau
Palestine
Panama
Paraguay
Philippines
Saint Helena
San Marino
Saudi Arabia
Seychelles
Singapore
Somaliland
Syria
Taiwan
Tokelau
Tuvalu
Zambia
I’m sure it goes without saying, there’s absolutely no guarantee that a low tax country will be a nice place to live.
In fact, I’d go so far as to say many on the list wouldn’t be suitable for most people.
At the same time, there’s bound to be the odd one that would suit you.
The bottom line being there’s not going to be much of a substitute for doing your own research if you want to move to one of these low tax zones permanently.
But as a starter some low tax destinations we’ve covered do tend to consistently rank highly on lists of the best countries for expats.
Good examples being Bahrain, Oman, Singapore, Taiwan and the United Arab Emirates. And while we are on that note, Costa Rica and Panama nearly always rank highly on best places to retire lists.
Low tax zones
So far we’ve looked at countries that either don’t tax income or only tax earnings within their geographic limits meaning earnings abroad wouldn’t be subject to tax.
As well as these, there are also countries that have a low tax rate. Think of them as low tax zones.
Again, the extent of the low tax rate would depend entirely on how you earn your money in that particular jurisdiction.
There are far too many of these to list here but if you are interested in a particular country, PwC have a great tool that can give you a neat summary of the tax situation there. Just key in the country name and you’ll get the lowdown on their tax system.
You can find it here.
Which country with lowest taxes?
By now you may just have cottoned on to the fact that there isn’t really a no tax country. There’s a good chance there will be a country out there where you can avoid paying tax, but in all likelihood somebody somewhere there will need to cough up some dough.
Countries with the lowest taxes for income aren’t necessarily going to be the same ones that have a low tax rate for capital gains. Similarly, the country with least taxes levied on business is unlikely to be the country with least taxes levied on individuals.
That said, if pushed I think many international tax experts would probably say the United Arab Emirates is the country with the lowest taxes.
Neither businesses or individuals have to pay income tax, and though there’s VAT, at 5% I think it compares favourably with other jurisdictions around the world. UK VAT is 20% for example.
Which country is tax free for you? – the bottom line
So there you have it. Yes, there aren’t many, if any, tax free countries in the world. Someone somewhere usually gets the short straw. After all, that’s how governments stay in business.
But at the same time there’s every chance you can find your a country that reduces or removes your tax liability entirely. There are lots of them out there.
Which one you choose will come down to how you earn your money and what kind of place you’d like to live. Life’s not all money money money (or so they say)!
That said, for a lot of people the United Arab Emirates seems to tick the most boxes so that’s probably as good as anywhere to begin your search.