This week I’m going into the GCC Inbox to answer a question I’ve received several times over the years.
GCC
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?
Thank you.
Avid Reader
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.
- Malaysia
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.
Penang has an epic Chinese New Year celebration (photo by Winnie Tseng)
- Philippines
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.
Go Curry Cracker circa 2005, Boracay, Philippines (photo by random stranger)
- Guatemala
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.Antigua Volcano over Antigua (photo by Winnie Tseng)
- 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.
The Most Amazing Sunset Ever, British Virgin Islands (photo by Winnie Tseng)
- Belize
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.
Caye Caulker, Belize (photo by Winnie Tseng)
- Portugal
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.)
Lisbon (photo by Winnie Tseng)
- Taiwan
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)
Hiking in Taiwan (photo by Winnie Tseng)
- 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.)Summer in Minnesota (photo by Winnie Tseng)
- 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.
Questions
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.
Any gotchas?
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.
Wife and I will be moving to Ireland where she is from once aw FI in 2 years. We’re both u.s citizens. Ireland says it taxes world wide income if your domiciled in Ireland. In these type of situation, how would you not make yourself domiciled when we plan on having kids and send them to local schools, have their universal health care, own a home? Ireland’s capital gains tax is way for than u.s.
You wouldn’t.
Well, if you’re planning on having universal health care and sending kids to public schools there, perhaps you could consider dividend taxes a wash, as paying for healthcare in the US would probably be even more expensive than the (typically) reduced tax rate on investment income in most countries. If you wanted to get really crazy, you could live off of dividends exclusively (paying taxes in Ireland for those), and every 1-2 years, spend 6 months plus a day in the US, and use that time to sell any capital gains at the much more favorable US rates. Having kids, a home, and/or not being geographically mobile, does pose a wrinkle in that plan… Choose another place, or suck it up :-/.
Very good topic. When we go on the road, we’ll probably keep moving. I don’t tax will be a big consideration so I haven’t looked into it much. Register an LLC in a tax haven country and let the money accumulate there. Would that work?
Thailand is not on this list? My favorite is Belize. We stayed in Caye Caulker too. It was nice and slow.
If you own that LLC it, wouldn’t it still count as *your* worldwide income?
Read the IRS rules on “controlled foreign corporations” before attempting anything like this. In general, US citizens are taxed on their worldwide income (with the many exceptions discussed by GCC).
No, that wouldn’t work. You could use an overseas corp to eliminate SE taxes, and use the FEIE to eliminate income taxes on ~$100k earned income per year, but no option to just accumulate money for all time. See here
Thailand has residence based taxation on worldwide income.
Malaysia. While our kids are of school-going age, it’ll have to be KL, but once they’re off to college (about ten years from now), we’ll consider moving to Georgetown, where life is good but the education is hit-or-miss (mostly miss).
Not only is Malaysia a tax haven of sorts, but the cost of living is absurdly low for such a well-developed nation. Belize and Guatemala are wonderful, don’t get me wrong, but their infrastructure is not (yet) on par with Malaysia’s.
I haven’t been to Taiwan, but my Taiwanese friends all advise against moving there because (they claim) real estate is expensive, although rents are not as bad. Also, they’re not fans of the US/Int’l schools there, which I have yet to explore.
We are in our early 40s and less than three years from hitting our retirement targets – thanks, in large part, to your blog. Our kids will probably do university in the States, but they can always summer in Malaysia or meet us somewhere in between. Once we have grandkids, we won’t be able to resist moving to wherever they are, which will most likely be the US. You always come home, I guess. Unless….
Buying real estate in Taipei is “expensive” but renting is good value. The rest of Taiwan is even better.
I can’t speak to pros/cons of the International school. Hot tip: people learn at the local schools for less than $30k/year.
I love the answer — all of them! We’ve been early retired 7 years, but we are in our late 50’s. Currently we don’t travel much more than a month at a time because of our elderly parents. Once they have passed, we may sell our home and go on the road full-time. I love reading articles like this to help plan and dream for that point in our lives. Thanks.
Great article.
For a nice summary of how to establish residency in South Dakota before taking off overseas, check out this youtube video: https://www.youtube.com/watch?v=5JyRSViMwOM. If I were nomadic, I’d do this in a heartbeat.
I think this is a great list for those that want to travel during FIRE or retirement. I would choose Guatemala or Belize personally. Both sound wonderful to me.
This is such good info. We are strongly considering an overseas move (we learned about The Earth Awaits from a previous post here, and it is AWESOME) and Portugal is high up on the list. Thanks for sharing – I always learn so much here :)
Great list. Now if I can just get Mrs. Oldster to agree!
I find it is a lot easier to agree with the Mrs than the other way around ;)
Great list. They are some of the countries I have been considering although I didnt know that the USA was on the list too.
I will be 52 this year and will be retiring on my 52nd birthday in July.
I was thinking seriously about applying for American citizenship this year before I retired because I was given the impression that it would be better to apply while I still had a job. However, I am undecided if I want Amercan citizenship now though because of everything that has happened.
I am Malaysian, so the current plan now is to go home, stay there for 175 days and then come back to Seattle maintain my residency here in US.
Do you think that’s a good plan or should I just apply for citizenship in the US to avoid having to come back to the US every 180 days? I’d like to avoid having to deal with expensive health insurance in the US and stick with being self insured in Malaysia because healthcare back home is great and economical.
I can’t say one way or the other if that is a good plan. There are pros/cons to US citizenship, and the decision is highly personal.
This is an important topic we had not considered earlier but which my husband and I have recently spent some time looking into, so we have a great deal of interest in this discussion.
We had always thought that we would move to France once we retired and didn’t much consider taxes something we needed to worry about. Then my husband came across something in his readings called the French solidarity wealth tax (ISF–Impot de Solidarite sur la Fortune). Under this tax, for couples living in France, worldwide wealth–including real estate, financial investments, savings, horses, furniture, etc.–over a certain amount would be taxed every year. We then started researching it to see if we would end up having to pay anything. Just around the same time that we learned of this tax, Macron decided to revise it to be much less inclusive of all wealth (and deal instead mostly with real estate).
Moving abroad is not something that will happen too soon, but we are much more aware now that we might want to be a little bit more cognizant of rules of each different country!
Paying some French taxes would totally be worth it for the bread and cheese though.
Come to Madison, WI. We have the best bread @ Madison Sourdough, and it is the cheese state. State taxes are rough, though.
Looks like a great list … I have a soft spot for Asia and Europe so those options mostly interest me … if I could pick two spots without worry of taxes, they would around the Alps somewhere or around Hong Kong … The Portugal option opens the door to Euro travel and Hong Kong option opens the doors to the center of Eastern Asia … tooo many choices :) … my wife has relatives in Hong Kong, China, Malaysia, Taiwan, Canada and America … so a lot of that hits your list :)
New Hampshire is another state with zero state income tax (although you are taxed on dividend income). Can’t wait to travel to the Philippines. Those beaches.
There was a thread on Reddit not long ago in which a few people reported that sometimes major brokerages (Vanguard, Fidelity etc) would refuse to do business if they find out the client resides outside of the US. It’s not clear how exactly they figure that out, but it could be a bit deal. Someone there mentioned that they just send you a check for the balance of the account and do not ask questions. So, tax residency is an interesting concepts, but risks here in the US should be considered as well.
This isn’t really a thing.
You need to explain why being kicked out of your brokerage account ‘isn’t a thing’.
It’s an urban legend. Vanguard has a policy of not working with non-US residents, and this has spawned a great number of OMG stories. But they don’t just sell all your stuff and send you a check. You just aren’t allowed to add funds or trade. Pretty much any other brokerage house will happily take your money.
Did you mention that the U.S. taxes its citizens on all income world-wide? So if you keep your U.S. citizenship and live abroad, you still need to pay regular U.S. (Federal) income tax. Don;t forget that.
Don’t forget!
No tax on seniors pension income in Aus on assets < $A3,200,000. Cost of living ~$A30,000 / yr for home owner couple. No-contribution state pension (means tested welfare) $35,233.62 for home owning senior couple with optimal $A279,000 assets. No tax on other income < $A36,400 non-senior couple or < $A57,947.36 ($A70,286.10 next year) senior couple. Australia is tax friendly for resident citizen seniors.
Regarding U.S. States with no income tax: though Tennessee has no income tax, there is a tax on investment income which for an early retiree is much more significant.
https://www.bankrate.com/finance/taxes/state-taxes-tennessee.aspx
Typo, “cost of China” vs “coast of China”.
What are your thoughts on Singapore?
While we have strong plans to explore abroad for many years, as Alaskans born and bred we know we have a good thing going. No state income tax, no local sales tax where we live, and once you hit 65 an exemption on real estate taxes up to 150k, plus 20k if it is your primary residence. All that and the Alaska Permanent Fund Dividend and a Medicaid expansion state. I know we’re not as sexy as Portugal tho…..
Have you considered Puerto Rico? No dividends or capital gains tax, and you pay a 4% tax if you have a business there. It’s their Act 20/22.
Hmm. Are there any colder countries that are ER friendly? Aside from parts of the US, those are all very warm places.
Portugal is very warm? You can look through the list of 59 tax-free and territorial tax countries I linked above.
I wouldn’t necessarily say that tax friendly and ER friendly are 100% synonymous, but could be.
I may keep my options open then on retiring in the Philippines my birth country for the tax benefits. Although I’ve been mulling on moving back to Canada where I’m also a citizen just for the free health care so I can retire before 65 or stay here in NY for my grandkids and keep working. So many options, don’t know what to do.
If you change your tax residency to one of these countries and cease to be a tax resident of the US/other country do you need to pay an exit charge in terms of capital gains on your former holdings. Or is it just easier to keep the US holdings and do the foreign taxes exemption thing?
You are always a tax resident of the US unless you renounce citizenship. There is an exit tax for that.
It’s complex.