This week I’m going into the GCC Inbox to answer a question I’ve received several times over the years.
Thanks to your blog my wife and I will be retiring early next year. We are Americans and want to move abroad for a few years, in part for the adventure but also to minimize our taxes in the early years. This should help with sequence of return risk. Most of our retirement income will come from qualified dividends and long term capital gains, same as you.
We like the idea of being in one place most of the time. Are there any countries you think would be good to use as a base?
Any time you become a resident of a country you become subject to their tax laws, so it is important to choose wisely. There are only 3 ways to have zero tax burden:
- have income sufficiently low such that total tax burden is zero
- reside in a country with no taxes on income or capital gains (or no taxes on foreign “retirement pensions”)
- reside in a territorial tax country (one that doesn’t tax income sourced outside their borders) and have no locally sourced income.
There are countries that have no income tax or only tax local sourced income? Yes indeed, about 59 of them.
Nine Tax Friendly Countries for Early Retirement
As a nomad with a tax-minimization hobby, I’ve spent some time exploring these options by reading tax law and visiting countries of interest. Here is my top list of 9 potential tax friendly countries for early retirement. We have been to all of them.
We spent about 6 weeks in Malaysia in 2015. The big city of Kuala Lumpur is vibrant and alive, with a dynamic restaurant and coffee shop scene. Georgetown / Penang is a former British colony with a number of expats, with everything from a Crossfit gym to quality burgers. People are really open and friendly too, with a mix of Malay, Indian, and Chinese heritage. Malaysia is a territorial tax country with a simple residency program called My Second Home.
You could say the Philippines is the birth place of the GCC early retirement plan. This is where I was vacationing when I first realized life would be better without a job, and Winnie and I have been back twice since. The beaches, the seafood, the scuba diving are all amazing. The Philippines are a territorial tax nation for non-citizens. Residency visas (SRRV) can be had with proof of income of $1,500 per month plus a bank deposit of between $20k-$50k, depending on age.
We spent 8 weeks in Guatemala in 2013 and it was amazing. They have everything from Caribbean coastal towns to lakeside mountain villages to Mayan ruins. And everything is incredibly good value / low cost. Residency permits can be obtained with proof of only $1,000 in monthly income. Guatemala is a territorial tax country.
- British Virgin Islands
The BVIs are a lovely territorial tax island chain in the Caribbean, and a popular sailing destination. We spent 2 weeks in the BVIs back in 2011 where we chartered a sailboat with friends. Sailing aside, we enjoyed dinners ashore and explored the small seaside towns. People were warm and friendly, the food pricey yet delicious, and the beers heavenly. Residency can be obtained with proof of sufficient income.
We spent a few weeks on Caye Caulker, Belize in 2013 eating lobster, swimming with manatees, and eating lobster. Did I mention eating lobster? Cost of living is really low and Belize is a territorial tax country. It’s possible to apply for Belize residency for as little as $1,000 (see their QRP program.)
Belize is also a good place to setup an Overseas Corp.
We spent a few weeks in Portugal in 2015 and it was wonderful. The food is incredible, the costs low, and the quality of life is top notch. Technically Portugal taxes residents on all world wide income, but for new residents there is an exemption through their non habitual residence program. This allows for a 10 year period with no taxes on foreign sourced income (details from pwc here – pdf.) (Note: this might be changing soon due to other EU countries suing Portugal for stealing all their taxpayers…)
The best part of this program is you don’t have strong physical presence requirements… you are free to move about the rest of the EU. We love Spain too, but if Spain is going to tax us and Portugal isn’t, well… It is possible to get residency through proof of income or via purchasing 500k Euros worth of residential or rental real estate. (Naturally, we would prefer the former.)
Taiwan is a small island off the cost of China with a relatively low cost of living and great biking and hiking. Quality of life is high, but it can be difficult to get residency unless you do something crazy like marry a citizen. Technically, Taiwan is a territorial tax country with no taxes on capital gains. However, if total worldwide income exceeds $200k USD then an AMT applies. Fortunately, it hasn’t been too difficult to keep annual income below $200k. (so far)
- The United States
The US is very tax friendly to early retirees and it is possible to have $100k+ in income with zero tax bill (example: those Go Curry Cracker people.) It is possible to also eliminate State taxes by residing in one of the 7 States with zero income tax (Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming.)
- All of Them
If you can’t decide on just one country, why not sample them all? By visiting each country as a tourist, there is no need to consider the specific residency or tax requirements of each. We did this for years, slowly moving from place to pace in the true spirit of location independence.
We don’t have photos of every country (yet) but there are about 50 of them on our Instagram.
The above list is not nearly exhaustive, instead more of a sample of the places we looked into most closely. Because we haven’t formally lived in most of these, there may be tax or residency nuances that I’m not aware of. Be sure to do your own research before making a big life decision like moving abroad.
Why do some countries have no income tax or only tax locally sourced income?
Operating an income tax system has costs. In countries with a small or transient population, these costs can exceed potential tax revenue. Similarly, it can be difficult or impossible to track worldwide income of all residents. Instead, other taxes may exist.. import duties, VAT, real estate transfer taxes, natural resource taxes, taxes on hotels and resorts, etc… Therefore “tax-free” doesn’t necessarily correlate with low cost.
Why would no/low tax countries want you to visit / reside there?
One person’s spending is another person’s income. By paying rent, dining out, traveling, etc… we are providing income to others who live and work in each country. For many countries (and States) the influx of outside dollars is the life blood of the local economy.
Of course, always. Some US States are uber aggressive in collecting taxes even from those who have moved on to other States or countries. It is important to ruthlessly slash all ties with these States (e.g. California & New York) in order to prevent future unsuspected tax liability. This can also apply when moving from country to country… ruthlessly slash ties to aggressive tax nations when moving on.
If you move to a country that taxes worldwide income for residents (most of them) they may not recognize tax advantaged accounts in your home country. For example, those 401k and IRAs might not be tax advantaged in your new home. Be sure to investigate.
Do you seriously pick which countries to visit based on their tax system?
I can neither confirm nor deny that, Senator.
What is our favorite on this list?
Long term we will probably end up with a home base in either Taiwan or the United States. Or both. But hopefully we manage to visit the other 50 or so tax friendly countries before then.