Very few things in life are straightforward, and taxes can definitely be added to the list. What’s the biggest mistake people make when looking for tax-friendly countries? Judging their taxation policies by first looking at headline tax rates.
When it comes to taxes, the devil is in the details. There are loopholes, exemptions, incentives, and other factors to consider before choosing a country for its tax rates.
We’ve talked about countries with no tax, low tax, lucrative tax exemptions, and everything in between. But, here’s a common misconception – people almost always assume that more advanced countries will have high tax rates.
It’s not always the case. That’s what this article is focused on – countries with lower taxes than you’d expect.
Please note that this is not intended to be professional tax advice tailored to your situation. If you’re looking for bespoke tax planning, offshore banking, and asset protection strategies that work for you, feel free to reach out here.
Flexible Tax Regimes
Another term we see thrown around a lot is “tax haven.” Yes, certain countries can be termed tax havens, but not every country with a flexible tax regime is a tax haven.
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.
Also, the most significant factor isn’t a country or its tax policy – it’s you. A country that is tax-friendly may work out for someone else, but not for you.
That’s why, here at Nomad Capitalist, we listen carefully to your unique requirements to help you figure out where you will be treated best.
Surprisingly Lower Taxes
Now, we’ll cover countries with lower taxes, where you can potentially live well, 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
1. The United Kingdom
The UK could be an excellent option if you don’t mind paying some taxes in exchange for a high quality of life.
When it comes to the UK, the first problem is getting in. Over the years, the UK has become more challenging for some people to enter. Brexit certainly added to the complexity.
It’s more straightforward if you are eligible for Irish citizenship by descent since Irish and British citizens can live and work in both countries. Qualifying citizens of the Commonwealth are also eligible to enter the UK freely.
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. Income tax on earned income is charged at a basic rate, a higher rate and an additional rate – 20%, 40%, and 45% respectively. The UK’s 19% Corporation Tax is significantly lower than its G7 counterparts.
But in some cases, your foreign-sourced income may be tax-exempt if you are a non-domiciled resident in the UK. As a foreigner, you are considered domiciled if you have lived in the UK for fifteen years.
2. Republic of Ireland
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.
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 donations.
Ireland might be a good fit for you if you want to live in Europe and enjoy a high quality of life.
When you move to Ireland with a desire to optimize your 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 income tax on Irish source income and on foreign income to the extent that the funds are remitted to Ireland.
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.
Obtaining non-domicile status in both the UK and Ireland requires proper planning and making sure permanent establishment rules are not triggered.
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 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 sum 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 its Golden Visa Program, so now might be a good time to check it out.
Similarly, Greece’s lump sum program allows wealthy foreigners to establish a tax residence there and pay €100,000 annually for up to fifteen years to enjoy tax relief on their foreign-sourced income.
Under the lump sum 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.
Though they are not strictly low tax, these Western European countries have attractive tax programs for foreigners who don’t mind paying in exchange for a high quality of life.
Now let’s move on to Eastern Europe.
Lower Taxes in Eastern Europe
Effective tax planning isn’t just about numbers. It takes your entire lifestyle into account.
In countries like the UK and Ireland, you get convenience, while Italy and Greece have a Mediterranean 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 in your favor. With proper tax planning, you can expect to reduce your tax rate to a single digit or even potentially zero.
You can expect the same, if not greater, degree of freedom in Georgia. The country has a territorial tax system, meaning you can expect to pay far less tax 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 lower than most Western European countries.
Property taxes in Georgia are up to 1%, making it an excellent location to invest in real estate.
Lower Taxes in Central America
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 tax in Panama.
Panama also offers the popular Panama Friendly Nations Visa for people looking to establish a residence there.
8. 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.
Lower Taxes in South America
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 a good bet if you want a European vibe while living in a low-tax country in the Americas. Also, it has one of the best banking systems in South America.
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.
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 it is moving in the right direction with better investment opportunities and safety measures.
Nomad Capitalist has helped 1,500+ high-net-worth clients from around the world as their turnkey solution for offshore tax planning, dual citizenship, asset protection, and global diversification. Put our years of real-world experience to work for you here.