Dateline: Kuala Lumpur, Malaysia
Where can Americans go to enjoy a comfortable lifestyle and live relatively tax-free?
But finding tax-free for Americans that work with the various rules and limitations of US citizenship is much more complicated than for those who come from a country with a territorial or residential tax system. So, today, let’s look at which countries offer the best tax living options for US persons looking to live abroad.
I’ve said before that if you have ever considered moving from California, Illinois, or Massachusetts to a state with much lower tax rates like Florida, there’s no reason not to consider going a little farther.
The big problem is making sure you go somewhere you’ll be treated best in every aspect of your life.
What do you value about where you’re from? What cultures do you enjoy? What amenities are you hoping to find where you move? While you’ll have to make some changes to your lifestyle, there’s no reason to go somewhere where you’ll have to suffer a huge culture shock.
And after talking to hundreds of different people looking to take their lives offshore and listening to the comments of thousands of others, we’ve developed this list of countries with no taxes for Americans looking to go where they are treated best.
1. Puerto Rico
The location at the top of our list isn’t technically a country. While Puerto Rico is a part of the United States, tax laws Act 20 and 22 have created different tax benefits that can allow Americans living in Puerto Rico to legally reduce their taxes down to somewhere between 0-4%.
It’s a popular option.
What I’ve told people in the past and even more recently, however, is that any time you see information or a program name plastered everywhere, you want to be careful. There are going to be people who take the hype and make it sound easier than it actually is.
I have had some interesting conversations with several tax lawyers I work with, and the bottom line is that Puerto Rico is definitely overhyped. It’s not a solution for everyone, and it requires a lot of planning to make it work. But if you’re following the rules and doing things properly, you could see some great benefits.
For example, you can’t move to Puerto Rico and sell the company you’ve owned for 20 years the very next day and get a capital gains exclusion. Simply moving to Puerto Rico is not enough to no longer pay tax. The benefits are going to take a little more work, time, and planning.
Puerto Rico is interesting in that, unlike other places, getting there sooner and keeping your business can benefit your tax strategy. Depending on what kind of income you generate and if you’re generating capital gains, running your business longer can be a good idea.
And if you’re trading, Puerto Rico could be a good opportunity for your business to pay a single-digit tax rate.
Again, Puerto Rico isn’t going to work without proper planning. If you’re running businesses all over the world, you’re going to need to rectify that with Puerto Rico.
The big concern is that people won’t treat their situation with the concern they need to because they technically haven’t left the country. I’ve seen people in the comments section of our videos and articles say things along the lines of how they plan on slipping into a cigarette boat and shooting off to Miami in the dark of night.
“Nobody will know!”
Or they’ll talk about spending six months of the year in Puerto Rico and then five months and 28 days in California. Making this option work for your tax strategy doesn’t mean just “putting in the time.” There are several tests you’re going to have to satisfy.
All in all, Puerto Rico is a decent option for business owners who like the idea of living there. It’s also a great option for Americans who want to keep their US citizenship while engaging in more passive income strategies.
You only need to make sure you know how to make it work before you rush off and try it.
In our second spot is an actual country. I’ve been to Panama several times, and from what I’ve seen, the country really appeals to Americans.
Some people call Panama City the Miami of Latin America. While it certainly isn’t a cheap place to live and doesn’t give me all the things that I personally look for in a city I want to live in, I know a lot of Americans like living in Panama.
If you prefer living outside of the city, there are plenty of areas around Panama City with thriving expat communities. If your goal is to find people that make you feel at home, you’ll be able to find a lot of that in Panama.
On the tax side of things, Panama has a residential taxation system, which means that if you’re running a business or other financial activity outside of the country, they aren’t going to tax it.
Now, with any of these so-called territorial tax countries, there are always questions about how to properly plan your residence strategy so that you don’t run into any problems. Are you running the business from inside the country? How does that all work?
Not having a proper strategy in place could mean that you end up paying taxes on your business there as well.
Generally speaking, Panama is a pretty tax-efficient option for an American who wants to run a business where the actual activity is happening somewhere else. Someone who, theoretically, would be able to spend the entire year in Panama.
Portugal is another one of the great countries for Americans with no taxes. One of the things that I know from growing up in the US is that people love the idea of Europe. I remember girls cooing over the idea of going to Spain in my high school Spanish classes.
Even today, I hear from a lot of folks who like the idea of living in Spain. We’re working with a few folks right now that have made Spain part of their strategy.
Portugal is the lower tax, less bureaucratic version of Spain.
Unlike Puerto Rico, Portugal has a tax exemption that only lasts for ten years. You won’t find an indefinite tax exemption, and you will have to create proper plans and strategies to make Portugal work, but if you can get it to work, you can live there tax-free.
[Update 2020: Portugal recently amended the non-habitual resident tax law making this program low-tax rather than tax-free. Foreign pensions received by non-habitual residents are now subject to a flat rate of 10%.]
If you’re interested in living inside the European Union without the notoriously high taxes, Portugal is a good option.
If you don’t want to be living the Trifecta lifestyle, bouncing around to different bases every three to four months of the year, Portugal is not a bad place to put down roots. You have to make sure you plan it properly.
The added bonus is that there’s the possibility of getting a European Union citizenship, which can open up more options for you and help you build out a passport portfolio.
I mention Georgia on this list as one of the best countries with no taxes for Americans because Georgia loves Americans more than anyone else.
And I once dubbed Georgia the “next America.”
While some of Georgia’s immigration procedures have gotten more difficult over the years, and the boat has probably sailed as far as “easy residences” go, it’s still quite possible to buy a home in Georgia relatively affordably. It’s still possible to go through the immigration process. And US citizens can even show up in the country and stay for 360 days on a tourist visa.
Georgia has a territorial tax system and has been doing some very interesting things with its economy lately. Georgian companies, for example, follow the Estonian model in a sense where you can, theoretically, pay no tax on your retained earnings in your company until you take the money out.
The challenge for Americans is that, like many other countries in the world, Georgia’s tax system doesn’t quite match up with the US tax system. For that reason, and because Georgia does eventually tax your company when you take the money out at 20%, having a company there might not be the best option for your situation.
Georgia is a great country to consider for your lifestyle, but not necessarily for setting up a business.
Again, you’ll want to take the time to properly plan how to make Georgia a part of your strategy. The territorial tax system isn’t quite as pure there, and you might get caught in a few bad situations if you don’t properly plan.
That said, you can earn money in a foreign corporation, you can make investments overseas, you can do all kinds of deals and pay essentially no tax if you live there.
And if Georgia does interest you as a place where you could be living full-time, keep in mind that the residential rental income tax is incredibly low. You could buy some cheap real estate and earn money while you’re there.
Overall, Georgia isn’t a bad place to be.
Many people like Southeast Asia, and for Americans looking to make a life there, both Malaysia and Thailand could take up the fifth spot on this list.
I personally call Malaysia home for a part of the year.
What puts Malaysia over Thailand for fifth is that it appeals to a bigger audience. Thailand attracts a young crowd. Malaysia caters to everyone, including those no longer in their twenties, perhaps even with families and kids.
If this is your situation, Malaysia is going to give you a bit more of what you’re used to in the United States than Thailand will, and maybe even more than anywhere else in Southeast Asia.
One reason for this is the apartments you’ll be able to find. Looking through listings in Singapore, Thailand, or the Philippines, you’ll be able to find some big apartments, but the standard size is going to be relatively small.
When I was younger and looking around Bangkok for an apartment, the average was 42 square meters (or barely 500 square feet) for a two-bedroom.
Malaysia, on the other hand, has lots of wide-open apartments and homes. It’s the only country in Southeast Asia where you can have the so-called “landed property.” If you want your own home with a yard, Malaysia is going to be your best option.
Alongside that, many Americans often feel more comfortable in Malaysia because of how widely English is spoken. In fact, going to Malaysia, and especially Kuala Lumpur will allow you to live a very multicultural lifestyle without making sacrifices to your quality of life.
In Kuala Lumpur, you can have the western comforts of excellent health care or get a coffee at the megamall (one of the best in the world) and still be able to go out with locals to one of my favorite Indian restaurants.
It’s like living in the US, but only the good parts.
No country is perfect, but from a tax perspective, you can live there and save. Again, there will be some planning involved, but your foreign source of income will be exempt. Depending on what you’re doing, you pay either zero in taxes or very little.
A Holistic Offshore Strategy
There you have them – my top five picks for the best countries that are tax-free for Americans.
Six if you count Thailand, which isn’t a bad option at all. For younger people especially, Thailand is often a popular place to go. I don’t see nearly as many 45-year-olds who are intrigued by Thailand, but all of these could make for good options for US citizens looking to reduce their tax burden by living overseas.
But, whether you like Thailand or not, these five countries can be great options for Americans looking to go offshore and go where they’re treated best.
Here are some of our best articles on the topic to help open your mind to all the possibilities:
- How To Legally Lower Your Taxes
- Get Second Residency and Pay No Tax In These 18 Tax-Free Countries
- The Best Zero Tax Countries in The Americas
- The Best Countries without Taxes in Asia
- The Trifecta: How to Travel Less as a Tax-Free Nomad
- Espace the Rat Race to Become a Tax-Free Global Citizen
- How to Get Cayman Islands Residency and Pay Zero Tax
- The Zero-Tax Citizen: Tax-Friendly Second Passports
- Residence Planning for Lower Taxes: 6 Ways to Use Zero Tax Residence
- Seven Tax-Friendly Countries for High-Net-Worth Individuals