How to Move to a Tax Haven and Pay Zero Tax

One of the most frequent questions we are asked reveals just how many misconceptions still exist about investing, living and doing business overseas. 

The question typically goes something like this: What tax haven countries can Americans move to and get citizenship in?

A desire to legally reduce taxes is at the heart of a question like this. 

However, moving to a tax haven is not the simple solution to this problem that many believe it to be. 

To effectively reduce your taxes, you must consider several moving parts.

That is why the answer to the question above is more complicated than most people would imagine. So, let’s break it down.

Can You Move to Tax Havens and Pay Zero Tax?

Before we get into moving to tax havens in more detail, let’s clear something up: you cannot simply move to a zero-tax country and eliminate your tax burden. 

It’s not always that easy. 

Do tax havens with 0% tax rates exist? Absolutely. But, the rules around your tax residence and business incorporation are where it gets more complex. 

That’s not to mention the challenges you might have when trying to gain citizenship or a residence permit. 

There are definitely ways to move to a tax haven and pay zero tax. However, taking full advantage requires careful planning and a strategy for setting up your offshore assets. 

Moving to Tax Havens – What You Need to Know

The first issue to be addressed is the idea of moving. Asking how to move to a tax haven already creates several misconceptions about what is required to legally reduce your taxes. 

If this is your ultimate goal, the solution is not necessarily to pack all of your belongings and relocate your life and business operations to one brand new country.

This is particularly true for US persons.

The US government doesn’t really care where its citizens move, just as long as they move out of the United States. 

The Foreign Earned Income Exclusion (FEIE) allows US persons who spend at least 330 days outside of the US – whether they spend that time in one country or one hundred – to exclude the first US$126,500 of their personal income from taxation in 2024.

As long as you are outside the US for at least 330 days in a 365-day period, those tax savings are yours.

And you do not need to move to or restrict your travel destinations to tax havens only. 

You do have to be careful with how much time you spend in non-tax-haven countries, though. 

Many countries around the world will consider you a tax resident if you spend 183 days a year or more in the country.

But, if you plan correctly, you can live almost anywhere tax-free.

Nomad Capitalist founder, Andrew Henderson, created the trifecta method where you have a home in three different countries and split your time between them throughout the year. 

If you spend four months a year in each one, generally, you will not be considered a tax resident in any of them.

However, not everyone enjoys the nomad lifestyle. Some people are looking for a single country where they can permanently move their lives and be free of any tax obligation. 

If this description fits you, you’ll need to understand the limited tax haven options available to you that make this possible.

Let’s begin by tackling another myth. Many people assume that ‘moving to a tax haven’ means that they have to both live in and do business from the same place.

Generally speaking, it is best if you live in one place and incorporate your business in another.

There are several reasons for this. So, let’s look at both sides of the equation by asking two new questions.

•  Where can I base myself to reduce my personal taxes?
• Where can I base my company to reduce my corporate taxes?

Types of Personal Income Tax Havens

If you don’t want to be a nomad to avoid becoming a tax resident in another country, there are three main types of tax havens where you can live full-time without being taxed by the local government. 

Zero-Tax Countries 

Zero-tax countries are what most people are referring to when they talk about tax havens. 

These are countries that have a personal income tax rate of 0%, which essentially means that they do not tax their citizens.

Zero-tax countries include places like the Cayman Islands and St Kitts and Nevis in the Caribbean, Vanuatu in the Pacific Ocean, and the United Arab Emirates and other Gulf countries.

However, many of these countries are unappealing as places to live long-term, at least for most people. The few that are appealing have strict entry requirements, such as buying a half-million-dollar house just to qualify for residence or citizenship.

Territorial Tax Countries 

Territorial tax countries use a system of taxation that only taxes locally sourced income. 

This means they only tax money you earn within the geographical limits of the country and not your worldwide income. 

Depending on how your income is earned and how you personally take your income, a territorial tax country could allow you to live tax free. But it’s not the solution for everyone.

That said, here are some of our favourite territorial tax countries:

• Singapore
• Hong Kong (in some cases)
• Malaysia
• Costa Rica
• Panama
• Georgia

Tax Exemption Countries 

Tax-exemption countries are few and far between, but they do exist. 

These are countries that normally tax their residents, and often at very high rates. However, qualifying individuals can enjoy a tax exemption of up to 100% of their income for a certain period of time.

Portugal used to offer a non-habitual residence tax scheme to both its citizens and its residents. If you qualified, you could live tax-free in Portugal for a total of ten years. 

Once the ten years were up, you got taxed at the same rates and according to the same rules as everyone else in Portugal.

While this scheme stopped accepting new applicants, a new version of it (NHR 2.0) will soon come into effect. This essentially follows the same idea, but only certain types of entrepreneurs and those working in specific highly skilled fields can qualify.

Spain, a high-tax country, has the Beckham Law, as it’s commonly known, where qualifying individuals can pay a lower tax rate of 24% (instead of 47%) for six years. 

This won’t eliminate your taxes, and Spain certainly wouldn’t be classified as a tax haven, but it is an example of using a tax exemption in your favour.

Tax exemption countries always have an expiration date.

These three options are all of the ways to pay zero or lower tax on your personal income. 

Whichever type of country you choose will affect your overall tax equation and must work in tandem with where you choose to incorporate your business.

Corporate Tax Havens

The only way to pay 0% corporate tax is to incorporate your business in a corporate tax haven. 

Places like Belize, the British Virgin Islands (BVI), the Cayman Islands, Hong Kong, the Seychelles and others offer 0% corporate tax structures.

Why can’t you live in one of these places if you’ve based your company there?

In some cases, it’s because the government has instituted laws that dictate that this can’t be the case. 

For example, under its offshore profit claim, you can incorporate your business in Hong Kong and enjoy a 0% tax rate if you live outside the country and do not have customers there. If you choose to have a permanent establishment in Hong Kong, the government will tax your business at a rate of 16.5%.

In other cases, you won’t be able to live in your corporate tax haven simply because it’s difficult to get in. For instance, Belize is more focused on the retirement population and may not grant you a residence permit if you are younger. 

Moving to the BVI, on the other hand, might be more difficult because it’s a British Commonwealth country. And, though you could move to the Cayman Islands, it’s expensive.

The Cayman Islands is also a good example of how, even if it is accessible to you, living in a corporate tax haven may not be the best value option. 

The Cayman Islands is a great destination with beautiful beaches and world-class amenities, but it also requires all residence permit applicants to buy a very expensive home in order to qualify. 

If you’re wealthy, that might be within your reach, but that doesn’t mean it’s your best choice.

We recently worked with a client whose business makes about US$3 million a year, and we asked him if he was willing to invest US$1 million to become a resident of one of the nicer islands. 

He was very hesitant about it to the point that we knew that even if he said yes, he wasn’t going to do it. 

Many people are not going to do these programs, not because they can’t afford them but because they know that there are better options available.

In general, there are disadvantages to personally living in most corporate tax havens. 

Fortunately, these disadvantages do not affect your ability to incorporate there and pay zero taxes on your company.

But, if you want to live a fully zero-tax lifestyle, you will need to turn your focus to the rest of the world to find places that will allow you to personally live there tax-free.

How to Move to a Tax Haven

There’s a lot to consider when moving to a tax haven – so much more than simply planting a flag somewhere with a 0% tax rate.

In most cases, moving to a tax haven is less like picking a spot on the map and more like balancing a delicate equation. Both parts of the equation must work together to fully eliminate your taxes.

For example, a Belize company setup would essentially be worthless if you continued to live in the United States because, as a controlled foreign corporation (or CFC), everything your company earned would be taxable in the US.

And, if you were to move to France instead to get out of the US, your situation would be even worse because you would now need to pay taxes in France, where rates are even higher.

If you decided to live in Monaco, although it is a zero tax country, between the bank deposit and the real estate requirements, it would cost you several million euros just to get in. 

Then, if you were to set your company up in Malta, you’d still be paying 25% corporate tax.

In this case, your costly investments to get into a zero-tax country would have failed to fully eliminate your taxes.

So, you have to optimise both sides of the equation.

How do you do that? You want to find a country to personally live in that meets one of the criteria we’ve discussed: zero tax, territorial tax or tax exemptions. 

Or, if you’re willing to pay a small amount of personal tax, there are plenty of low-tax countries out there. Then, you can set your company up in a tax haven.

In its simplest form, the total tax equation would look like this:

Personal Income Tax Rate + Corporate Tax Rate = Total Tax

And for anyone except US citizens, it’s usually that simple: US citizens are not as lucky as basically everyone else in the world because, for them, citizenship-based taxation throws the equation off balance.

Citizenship Considerations for Tax Havens

The United States is one of only two countries in the world (alongside Eritrea) that enforces taxation solely on the basis of citizenship. 

US citizens and permanent residents are taxed no matter where they go.

Yes, the Foreign Earned Income Exclusion (FEIE) offers some relief, but for anyone who earns passive income or more than US$126,500 of active income a year, further taxation is inevitable.

For these folks, the equation gets much more complicated and would look something like this:

Personal Income Taxes Abroad – Tax Treaty Exemptions + Corporate Taxes Abroad + US Personal Income Taxes – FEIE + US Corporate Taxes = Total Tax

Yes, it’s ugly and complicated. 

Basically, it means that if you are a US citizen, you’re not going to be able to pay zero, even if the tax rates in the countries where you live and where you set up your company are both zero. 

There’s no way around it. You will not be able to pay zero tax as a US citizen.

The only way to restore the original equation is to get a second citizenship and then renounce your US citizenship. 

Having a second citizenship alone is not enough because, until you remove your US citizenship from the equation, you cannot legally eliminate your taxes.

So, how do you get a second citizenship? The short answer is: it depends.

We’ve spent the last decade investigating the long answer to this question, but we’ll aim for a short summary here. 

First, let’s go back to the original question: ‘What tax haven countries can Americans move to and get citizenship?’

While we’ve established that you don’t need to live in a tax haven to enjoy a tax-free life, if your goal is to live in one place only and you do not want to pay taxes, you’ll need to get citizenship in a tax haven.

Unfortunately, most zero-tax countries are not going to grant you citizenship.

Zero-tax Vanuatu offers a citizenship by investment program, but there are some challenges with it. 

None of the Gulf countries are going to give you citizenship (ever), and Monaco will only give you citizenship after you’ve lived there for about 20 years.

Could you get citizenship in a territorial tax country? Maybe.

Costa Rica and Nicaragua might grant you citizenship, and Panama supposedly offers citizenship through its Friendly Nations Visa program. 

However, Panama does not have a great track record of fulfilling its promises of citizenship, so we wouldn’t count on it.

More importantly, although there are a few territorial tax countries where you can obtain citizenship, the real question is whether you want to live in them. 

Nicaragua has some nice beaches, but if you’re imagining a place like the Cayman Islands, it may not offer the life that you’re looking for.

The other challenge is that none of these countries are going to give you citizenship immediately, so you will have to continue paying taxes in the US for at least another five years before you can become a naturalised citizen and renounce. 

And this really turns into six or seven years when you take into account the processing time to get your citizenship finalised.

If you can put up with paying taxes for a few more years, then this option could be your solution. 

Simply move to a tax haven, structure your business in a way that is friendly to where you live, wait the allotted time while paying taxes back home, claim your new citizenship, and then renounce.

If you want to speed up the process, however, you should consider citizenship by investment programs, which vary in terms of cost, location and desirability.

Vanuatu, as we discussed, is not always a program that we would recommend. 

However, zero-tax St Kitts and Nevis has one of the fastest and best value programs available. It will grant you citizenship in as little as 60 days (usually four–five months) in exchange for a donation of US$250,000.

With a St Kitts and Nevis citizenship in hand, you can officially renounce your US citizenship and enjoy a tax-free life. 

St Kitts and Nevis will not tax you no matter where you live and no matter how much you earn, making this one case where you could live, work and set up your business all in one country.

However, if you don’t want to be restricted to one country and you are willing to move around to avoid becoming a tax resident, your options do open up more.

You can get a second citizenship in one of dozens of countries, renounce your US citizenship and then become a tax non-resident in your new home country. 

Once you do, with the right strategy in place, you can balance out your equation and live tax-free just about anywhere.

What if I Don’t Want to Renounce my US Citizenship?

For folks who don’t want to renounce their US citizenship, Puerto Rico offers some middle ground. If you can commit to spending the majority of your time in Puerto Rico, you can enjoy single-digit tax rates on your income.

But, Puerto Rico needs to be your bona fide residence.

This is not how we see people promoting Puerto Rico these days because you need to live there. That’s how it really works. 

Once you are there, you won’t get the savings immediately, but you will start the clock toward eliminating or reducing your taxes on both passive and active income.

In this way, Puerto Rico is a sort of tax haven for Americans. Puerto Rico’s Act 60 is for the person who wants to pay very low tax rates without having to renounce their US citizenship or revert to everything else that we’ve discussed in this article.

But it won’t be the right fit for everyone. Those set to benefit most from Puerto Rico’s tax haven offerings are the folks with bigger businesses that they hope to sell in the near future, as well as cryptocurrency investors, hedge fund managers, big traders or anyone with large capital gains.

Even if it is the right tax haven for you, you must do proper planning to make Puerto Rico work to your benefit. Typically, the people promoting Puerto Rico want you to think that it is for everyone, but it’s not.

It’s not a silver bullet.

We’d rather have the choice of all the other options than be tied down to Puerto Rico. 

This gives you the option to travel around the world, incorporate your company where you want and have a second passport. Most of all, you wouldn’t have to depend on a bankrupt island that is tethered to the US.

Moving to Tax Havens: FAQs

Find the Tax Havens Where You’ll be Treated Best

Knowing where you can move to live tax-free is not as simple as asking ‘how do I  move to a tax haven?’ 

You must ask yourself important questions not only about where you want to live but also about where to incorporate your business.  Both of those factors work together to balance out your overall tax equation.

Other factors like your citizenship, tax residence and investments will also impact how, where and how much you will be taxed. 

If you hope to legally and permanently eliminate your taxes, you cannot oversimplify a decision that is complex and requires careful planning.If you really want tax freedom, you should consider who is best placed to help you. To start the ball rolling, get in touch today.