What is the biggest mistake people make when looking for tax-friendly countries? Judging a country’s taxation policies by looking at its headline tax rates.
Very few things are straightforward in life, and taxes do not make that list. When it comes to taxes, the devil is in the details.
There are loopholes, tax exemptions, tax incentives, and many other factors to consider before choosing a country for its tax rates.
Countries with low or no personal income tax rates can impose a high corporate tax. Alternatively, seemingly business-friendly countries can levy high personal income taxes.
A bigger picture is always involved, and a country’s taxation policies must be assessed thoroughly before labeling it a high or low-tax country.
Also, the most significant factor here isn’t a country or its tax policy – it’s you.
A country that is tax-friendly for you may not work out for another person, and there are many valid reasons for it.
For example, a person not planning to set up a business in a country will have no interest in its corporate income tax rate, no matter how low it is.
That is why, here at Nomad Capitalist, we never pick a country blindly from a pool of “popular” low-tax countries and call it a day.
Here, we listen to you and your problems to figure out what’s keeping you from going where you are treated best.
Only after that do we develop a plan that works best for you, your taxes, and your life.
Regarding a tax-free lifestyle, we have talked about everything there is to talk about – and we mean everything.
We’ve talked about tax-free countries, tax-friendly countries, countries with a territorial tax system, countries with lucrative tax exemptions, and everything in between. Here’s a common misconception that we’ve discovered:
People almost automatically assume that Western European countries have high tax rates.
Although we understand where they are coming from, living or working in a Western European country doesn’t necessarily have to come with a heavy tax burden.
As we mentioned, it all depends upon your unique situation and what changes you are willing to make to lower your taxes legally.
Just because a country is considered one of the “first world” nations doesn’t mean it will tax you heavily.
That’s what this article is focused on – countries with low taxes that you’d never expect.
Countries with Low Taxes That’ll Surprise You
We’ve discussed tax havens like the Bahamas or the Cayman Islands with zero income tax, capital gains tax, and corporate tax.
Today, we’ll talk about countries that you may think have high taxes, but you can potentially live in those countries with low taxes if you plan it right.
If you are looking to move to a foreign country to live, work, or set up a business, you’ll be pleased to know that most countries on our list have special incentives for foreigners.
Western European Countries with Low Taxes
Taxes in the UK
Surprised to see the UK on a list of low-tax countries? Don’t be.
Even the countries with seemingly high tax rates can be worked in your favor through proper lifestyle and tax planning.
The UK could be an excellent option if you don’t mind paying some taxes in exchange for a high quality of life.
Let’s be real – places like Vanuatu can be great from a tax perspective, but they won’t work out for you if you also want a bustling city life in a developed country.
This is why tax planning is so subjective. You can’t just look at the numbers and see which country offers the lowest tax rates.
You also have to factor in your lifestyle and the quality of living you’re used to.
When it comes to the UK, its tax rates come second – the first problem is getting in. Over the years, the UK has become more challenging for many people to get into.
It’s comparatively more straightforward if you are eligible for Irish citizenship by descent since Irish and British citizens can live and work in Ireland and the UK.
If that’s not possible, you’d have to apply for a residence permit in the UK, which isn’t the easiest to acquire.
In the UK, the income tax rate is imposed at a progressive rate. The higher your income, the higher the tax on it.
If your taxable income is over £150,000, you’ll have to pay a whopping 45% income tax.
But in some cases, your foreign sourced income may be tax-exempt if you are a non-domiciled resident in the UK. You are considered domiciled if you live in the UK for fifteen years. So, even if you become a tax resident of the UK, you will have remittance of paying taxes in the beginning based on being non-dom. Similarly, non-residents also have to pay tax only on their UK-sourced income.
Non-residents have to pay Capital Gains Tax either:
- on UK property/land, or
- if they return to the UK
If the money you’re bringing into the country is far less than what you’re making, you can expect to save a considerable percentage of taxes on your overall wealth even with the high tax rates.
Taxes in the Republic of Ireland
The UK always seems to be in one controversy or another.
Ireland may be a better fit for people who are not a fan of constantly changing regulations. It’s also far easier to get into Ireland than in the UK.
To live in Ireland, you have to acquire the Irish Residence Permit. As for your entry purpose, there are quite a few options. Whether you want to live, study, or work in Ireland, there’s an option for you.
If you want to acquire residency through investment instead, Ireland also has an Immigrant Investor Program (IIP), also known as the Ireland Golden Visa.
Under IIP, you can invest in the country through any of the following channels:
Enterprise Investment: At least €1 million investment in an Irish enterprise
Investment Fund: At least €1 million investment in an approved investment fund
Real Estate Investment Trust (REIT): At least €2 million investment in an Irish REIT (listed on the Irish Stock Exchange)
Endowment: At least €500,000 in donation
In Ireland, like the UK, if you limit the amount of money you bring into the country, you can considerably reduce the taxes on your overall wealth.
Ireland might be a good fit for you if you want to live in Europe and enjoy a high quality of life without the political turbulence associated with the UK.
When you move to Ireland with a desire to optimize your Irish tax situation the most important thing is retaining your foreign domicile status. This allows you to access the benefits of the Irish Non-Domiciled Tax Resident Regime. Non-Irish domiciled individuals who are Irish tax residents for a year of assessment will be liable to Irish income tax on Irish source income and on foreign income to the extent that the funds are remitted to Ireland. This is known as the remittance basis of taxation.
The Irish definition of “domicile” is the same as that used in the U.K. In short, domicile is the country which is considered to be a person’s permanent home and is distinct from legal nationality and from residence. At birth, a person acquires a domicile of origin, normally the domicile of the father. No person can be without a domicile and it is not possible to have more than one domicile at the same time.
Since the question of domicile is based on your subjective intent, we recommend reviewing the domicile position with a tax advisor every few years and have the advisor note the review findings on your file.
Obtaining non domicile status in both UK and Ireland require proper corporate planning and making sure permanent establishment rules are not triggered. Our team can help you in preparing for low tax life with high lifestyle standard.
Taxes in Italy
Italy offers a lump sum tax program to high-net-worth individuals who can pay €100,000 per year as their entire tax obligation.
Considering that Italy’s personal income tax rate can go up to 43%, paying a lump sum once a year does not sound like a bad deal if you’re making enough money.
If you’re interested in Italy’s lump sum tax program, you have to move to Italy, become a resident and pay 100,000 euros annually for up to fifteen years, or as many years as you’re enrolled in the program.
Under this program, you’ll be exempt from local tax obligations. Also, you won’t have to pay any inheritance, wealth, or gift taxes.
Locally sourced income is taxed as per the standard rates.
Italy isn’t the only European country with a lump sum tax program. Switzerland and Greece are two of the most popular lump sump tax countries in Europe.
The country also has an Italian Golden Visa Program for people interested in acquiring EU residency through investment.
(The Italian Government has recently discounted their Golden Visa Program, so now might be a good time to check it out)
Taxes in Greece
Patterned after Italy’s lump sum tax program, Greece’s lump sump program offers wealthy foreigners to establish a tax residence in Greece and pay 100,000 euros annually for up to fifteen years to enjoy tax relief on their foreign-sourced income.
Under the lump sump tax program, tax residents will be exempt from reporting requirements on their foreign-sourced income.
Any foreign-held assets will also be exempt from donation and inheritance tax.
However, all income sourced from Greece will be taxed per standard rates.
Interested in establishing a residency in Greece? Read our ultimate guide about Greece’s Golden Visa.
Now that you’ve read our list of low-tax countries in Western Europe, you’ve probably figured out that, although high-taxed, many Western European countries have attractive tax programs for foreigners who don’t mind paying a small fraction of their wealth in exchange for a high quality of life and all the perks of an EU residence.
Now let’s move on to the eastern side of Europe.
Countries with Low Taxes in Eastern Europe
Taxes in Serbia
As we discussed earlier, effective tax planning isn’t just about numbers. It takes your entire lifestyle into account.
In countries like the UK and Ireland, you get greater consumer conveniences, while Italy and Greece have a hyper-romanticized vibe to offer.
So, what about an Eastern European country like Serbia?
On top of a moderate corporate tax rate, what Serbia truly offers is freedom. If you want a life of personal freedom without government regulations getting in your way, you should look into Serbia.
Bordering the European Union but not a part of it, Serbia offers a flexible tax regime that can be structured around in your favor.
With proper tax planning, you can expect to reduce your tax rate to a single digit or even potentially zero.
Taxes in Georgia
You can expect the same, if not greater, degree of freedom in Georgia, with the only exception that Georgia is a bit too eager to be part of the European Union.
The country has a territorial tax system, meaning that you can expect to pay zero taxes in Georgia with careful tax planning.
You can also expect to pay fewer taxes through tax residency in Georgia.
The (personal) local income is taxed at a flat rate of 20%, so it is still pretty lower than most Western European countries.
Property taxes in Georgia are up to 1%, making it an excellent location to invest in real estate.
Countries with Low Taxes in Central America
Taxes in Panama
Panama is a popular retirement destination. The country also made our list of the world’s best countries to retire in.
But the country’s popularity has also resulted in many “tax-haven myths” about it. Some people even think of Panama as a zero-tax jurisdiction, which isn’t true at all.
The country imposes capital gains tax and income tax on locally sourced income, both corporates and individuals.
Does this mean you cannot reduce your taxes while living in Panama? No, you absolutely can.
Panama has a territorial tax system and doesn’t tax foreign sourced income. So, with proper tax planning (the thing that we do best), you can strive to pay little or no taxes in Panama.
Panama also offers the popular Panama Friendly Nations Visa for people looking to establish a residence there.
Taxes in Costa Rica
Costa Rica is another Central American retirement haven, owing to its affordable cost of living, beautiful beaches, and mountain villages.
At Nomad Capitalist, we see a lot of interest in Costa Rica from ultra-high-net-worth individuals looking to move there for all kinds of purposes, from retirement to establishing residency.
Like a few other countries in Latin America, Costa Rica also has a territorial tax regime, giving you a huge tax advantage if you don’t plan to earn locally.
If living in Costa Rica as a resident is your goal, the country offers many routes to acquire a residence permit.
Note, however, that your residency application can take months, if not years, to get processed.
Countries with Low Taxes in South America
Taxes in Uruguay
Let’s talk about the “Switzerland of South America.”
Uruguay is one of the best countries to get a second residence in Central and South America.
Uruguay is your best bet if you want the European vibe while living in a low-tax country in the Americas. Also, it has one of the best banking systems in South America.
On top of its European lifestyle, the tax advantages in Uruguay are amongst the best in the Americas.
For starters, Uruguay tax residents can live tax-free on any foreign-sourced income for 11 years.
Moreover, the country also offers an array of tax incentives by industry, like the tax exemption on infrastructure investment, through which you can enjoy a 10-year exemption on your net wealth tax, among other incentives.
If you want to know more about moving to Uruguay, read our extensive guide on how to get Uruguay citizenship and residence.
Taxes in Colombia
Colombia is also an up-and-coming friendly country for expats.
More so, it’s an excellent location if you’re following our Trifecta Strategy.
Following our Trifecta lifestyle gives you a life of adventure, a chance to interact with a diverse group of people from all over the world, and a truly nomadic way of living.
Foreigners living in Colombia for less than 183 days a year are considered non-residents and are exempt from paying taxes on their foreign income.
As a dual citizenship country, Colombia is also an excellent option for people looking to obtain second citizenship without giving up their current passport.
Colombia hasn’t had it easy in the past, but now they are moving in the right direction with better investment opportunities and safety measures.
Live Your Life as a Nomad Capitalist
The life of a Nomad Capitalist is different than that of a layman.
To them, factors like immigration, taxation, and investment opportunities matter much more than a region’s beauty and popularity.
Safe countries with low tax rates often prove to be great bases for our clients, whether they want to live, work, or set up a business.
If an offshore lifestyle, full of freedom and opportunities, is what you want, reach out to us.
At Nomad Capitalist, we help seven and eight-figure businessmen, entrepreneurs, and digital nomads to go where they are treated best, and we would love to do the same for you.