Dateline: Belgrade, Serbia
We frequently discuss the idea that governments thrive on taxing the “evil rich”. It’s no secret.
Similarly, we discuss the idea that history repeats itself and why that is cause for diversifying your talents and your assets around the world.
Governments have taken the same attitude toward taxes, including property taxes, almost since the beginning of time. Their attitude: the higher the taxes, the better.
As far back as Egypt, Babylon and Persia, countries have used property taxes to collect money from the well-off. Since the vast majority of the population was poor, governments were able to demand money from the wealthiest land owners based on the productivity of their land.
Had a great harvest? The local tax collector would happily take his piece of the action.
And since tax assessors and tax collectors were one in the same, landowners had little choice but to hand over part of their well-earned bounty to the tax authorities.
In ancient Egypt, for example, taxes were levied against a land’s production of grain, as well as cattle output and oil. While very few members of the population were literate, some of those who were took up jobs as scribes and devised one of the earliest tricks known to government: keep records of who owned what property for the express purpose of taxing it.
In exchange for scribes serving as assistants in tax collection, their efforts were often rewarded by being allowed to live whenever the king or pharaoh died. So valued were their efforts that they were the only members of the royal court not buried with the pharaoh. That’s how much the government wanted to skim cash from property owners.
Today, of course, the situation is much the same; only with “more sophisticated” methods.
Property taxes are a reality of life for almost every property owner in the world. In the Land of the Free, some homeowners pay five figure sums every year to live in modest homes in places like New York and Southern California.
Heck, people in New York are paying tens of thousands of dollars each year just to live in their own homes.
Going as far back as ancient Egypt, these mandatory tithes to the government are proof that you don’t really OWN your home or land. Rather, you are indebted to the government for the use of that land and, consequently, must pay.
Unlike many private sector services, you can’t simply buy a “lifetime membership” for annual multiple and call it a day. You must pay property taxes by the due date each and every year — and not a moment too soon.
Such is the government’s commitment to maintaining power that a business owner and friend of mine has been prohibited from paying the property taxes on his businesses’ land holdings even one day in advance.
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If you own property in the western world, not only have you taken a long position on your government’s declining currency, but you have also signed up for a lifetime of indentured servitude.
For all of your government’s efforts to promote home ownership over renting, the reality is that property owners are the biggest renters of all.
However, internationalization tells us that we can “go where we’re treated best” when it comes to almost anything.
The same is true when it comes to owning property.
You may know that I actively discourage people from buying real estate in the United States. In addition to all of the other reasons, high property taxes are one of the contributing concerns.
Sure, you could go from one bankrupt state to the next, but that’s no better than catching a falling knife. When North Dakota — allegedly one of the most free states in the USA — voted overwhelmingly NOT to do away with the state’s property tax two years ago, you learned everything you need to know about Americans’ opinions on property taxes.
Seventy-six per cent of them voted “no”, actually, even as the state’s coffers are overflowing with revenue from oil activity going on there.
Looking for states with no property tax is a common reaction for many Americans and others when the smart reaction would be to think more in terms of countries with no property tax.
That’s why owning real estate in faster growing safe haven jurisdictions not only offers better yield and appreciation potential, but also the potential for significantly lower property taxes… or none at all.
Not only is foreign real estate owned in your own name, a non-reportable asset for US persons, it also offers many other benefits, so long as you can keep carrying costs low.
Countries with no property taxes
Yes, there actually are countries with no property taxes. Tell that to US politicians and they’d tell you that if that happened the schools would all shut down and people would be illiterate.
To them, $28,000 a year isn’t enough to educate a child in Washington, DC. Or $21,000 in New York. To these politicians, property taxes aren’t high enough.
This is the problem with owning real estate in a country that charges you for doing so. The money taken from you is never enough. And, since they can depend on your money, politicians have no incentive to find more reasonable ways to pay for schools, roads, and other public works.
Heaven forbid they let the free market provide these services. There are, however, several countries around the world that would beg to disagree.
Here in Southeastern Europe, Croatia has no annual property tax. Croatia does assess what is essentially a stamp tax of several percentage points when you buy a property, but that is all. It’s one and done for as long as you own the property.
Croatia also offers a relatively generous tax plan on rental income, as well as real estate capital gains. Own a property for three years, or sell it to a family member before then, and pay zero capital gains in most cases.
Malta, located off the coast of Italy, has no annual property taxes but does assess a similar stamp fee in lieu of property tax.
The principality of Liechtenstein, one of Europe’s smallest microstates, also assesses no ongoing property taxes. While Liechtenstein has become a less favorable banking jurisdiction, you might enjoy owning property there if you’re a billionaire, or don’t mind low yields on highly developed property in a tiny country.
Meanwhile, Europe’s smallest non-theocratic micro-state, Monaco, has no property taxes. However, like Liechtenstein, be ready to pay. Also, if you wish to rent out your Monaco property, there is a 1% tax, although it is payable by the tenant.
Outside of Europe, there are a few interesting countries with no property tax. Not surprisingly, several of these are tropical island nations that would be of interest to foreigners escaping the daily grind.
Fiji does not assess property tax on freehold land. Less than ten percent of all of Fiji is freehold land, much of it set aside by the British to entice farmers to come and create agricultural goods years ago, but some suggest Fiji real estate is one of the best investments in the region.
One of my VC friends loves the place.
Owning land in Fiji is a relatively straightforward way to get permanent residency there. Fiji also has a territorial tax system that allows residents to pay no tax on income earned outside of Fiji, such as through an offshore company.
In addition to no wealth taxes or capital gains taxes, the Cook Islands in the South Pacific doesn’t assess property taxes.
The Middle East is also becoming known as a zero tax region, with many countries there touting no income taxes. Countries such as Israel don’t have property taxes, but do have a tricky system of “acquisition taxes” that vary depending on the price of property and residency status.
Dubai is a “country” with no property tax, although it also assesses a one-time fee upon purchase of the property. Other Middle Eastern countries like Bahrain are property tax-free, as well.
I would, however, be concerned about the overheating of numerous real estate markets in the Middle East.
I’ve read about other island countries with no property tax, such as Seychelles, but some of these are misleading. Seychelles, for instance, requires almost 7% of a property’s value to be paid in various stamp taxes and notarial fees at sale.
It also requires foreigners to deposit monies in advance before buying property. Plus, foreigners have to get some crazy government permission. (Their banks aren’t so good, either).
This is the very idea behind planting flags. Seychelles is one of my favorite jurisdictions for setting up a non-transactional offshore company, but I can think of a lot of places I’d rather own real estate.
There are very few countries that truly have no property tax. Many have merely allowed property owners to pay a front-loaded sum in the form of a stamp tax or other fee that eliminates the need for never ending taxation.
Given the choice between two evils, I’d rather pay a front-end fee and be able to limit my costs going forward. I also have to wonder if the presence of a significant stamp tax depresses prices slightly, as buyers must have more liquid cash upfront.
I suspect many Westerners, used to putting 1.2% down when buying real estate, would scoff at the idea of investing overseas for that reason. If you’re buying property for your own enjoyment or for yield, I imagine there may be some tiny benefit from such upfront taxes.
At least in countries with no property taxes on an annual basis, you can actually keep more of your own money in your pocket each and every year. That’s something most governments don’t want you to do.
If you’re interested in high-yield and high appreciation real estate opportunities, you can apply for a Strategy Call so we can determine your best options as part of a personalized and completely legal offshore plan.
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