Which countries should be considered for beneficial tax residency in the world

In order to find a jurisdiction where the lowest taxes in Europe do not need to hang out for hours on the Internet. The first source that indicates fairly good taxation conditions is the government-approved list of offshore countries. The latter are the jurisdictions where, according to government analysts, the taxation regime is much better.

Most often we can see the following countries in those lists:

• Andorra;
• Gibraltar;
• Cyprus;
• Monaco;
• Liechtenstein;
• Montenegro.
• Also, attractive conditions for tax residency in Europe are opening in Bulgaria, Czech Republic, Georgia.

When looking for a “tax haven” you need to pay attention not only to where the lowest taxes in the world are, but also to a number of other parameters. In particular: on the prospects that a specific jurisdiction gives, and on living conditions, on the quality of medicine. Indeed, quite often the status of a resident provides for the need to live in the country for a certain period, which one wants to live fully, in a comfortable and cozy atmosphere, feeling safe.

So, the most favorable conditions for individuals are provided in the following countries:

Andorra

Tax Residents are taxed on all global income. However, the country has no taxes on: wealth, gift, inheritance, capital gains (with the exception of capital gains from the purchase and sale of real estate in Andorra). Since 2015, a progressive personal income tax system has been introduced (one of the lowest taxes in Europe): up to 24,000 EUR – 0%; 24 001 – 40 000 EUR – 5%; from 40 001 EUR – 10%. For married couples, income tax begins with an amount of more than 40 000 EUR in the amount of 10%. Tax is also charged on interest on bank deposits , but from an amount exceeding 3,000 EUR. Capital gains tax on the sale of real estate is 15%, but every year the rate decreases and from the 13th year of ownership of the property it is possible to sell it without incurring fiscal obligations.

Bulgaria

Tax residents in Bulgaria are subject to fiscal liabilities from world income. The fixed rate of personal income tax in the country is only 10%. In addition to income tax in Bulgaria, state insurance contributions are applied: social and health insurance: social insurance – from 24.7 to 25.4%, where from 14.12 to 14.82% to pay the employer, and 10.58% – the employee; health insurance – 8%, where 4.8% is paid by the employer, and 3.2% – the employee.In the country there is no capital gains tax, but there is – on real estate. Its size is from 0.01 to 0.45%. Personal income tax at the level of 10% makes Bulgaria the country with the lowest taxes in Europe.

Gibraltar

The personal income tax rate depends on the system chosen: surcharge or gross income. The surcharge system provides for the calculation of income tax minus surcharges, while the following rates apply: the first 4,000 pounds sterling – 14%; the next 16,000 pounds sterling – 17%; further – 39%. System based on gross income: first £ 10,000 – 6%; next £ 7,000 – 20%; then 28%. Gibraltar also has social security contributions: 10% of an employee’s gross income, with a minimum £ 6.05 and a maximum of £ 30.25 per week; 20% of the employer’s gross income, with a minimum of £ 18.15 and a maximum of £ 40.15 per week; 20% of the gross income of a self-employed person, while a minimum of £ 12.10 and a maximum of £ 36.85 per week There are no tax liabilities: VAT, wealth, inheritance, property, dividend, gift and no social contributions. around £ 11,450 is exempt from income tax. The country also applies a variety of deductions, which reduce the fiscal burden and create conditions for Gibraltar to retain its status as the European country with the lowest taxes for a long time.

Georgia

The income tax rate in Georgia is quite high – 20%, but it should be noted that it is withheld only from local income. In addition, the advantage of Georgian tax residency is the low taxation rate of dividends – 5% (withheld only when distributing profits from local companies) . There are also two special regimes of interest for tax residency in Georgia: individuals with an annual turnover of less than GEL 30,000 who do not use hired employees and registered as a micro-business entity are exempt from taxation; private entrepreneurs with an annual turnover of up to GEL 500,000 can register as a small business entity and pay only 1% per year on gross income. The presence of such special statuses allows us to speak of Georgia as a country, where are the lowest taxes in Europe.

Cyprus

Cyprus is the easiest and fastest jurisdiction to obtain European citizenship and has one of the lowest corporate tax rates in Europe (12.5%). In the Republic, tax residents pay personal income tax on a progressive scale (from annual income): up to 19,500 EUR – 0%; 19,501 – 28,000 EUR – 20%; 28,001 – 36,300 EUR – 25%; 36,301 – 60,000 EUR – 30%; from 60,001 EUR – 35% In addition to income tax in Cyprus, a special contribution for defense is withheld. It only applies to dividends (17%), interest (30% in most cases) and rental income. However, the presence of a special status “non-domiciled tax resident” exempts from paying taxes on dividends, interest, rental income and military tax. In Cyprus there is no inheritance tax, on real estate, on capital gains (except for real estate transactions).

Monaco

Since 1870, there is no personal income tax in the principality, tax on capital gains, wealth, property (does not apply to French citizens). It has a tax on rental income of 1%. The almost complete absence of fiscal obligations makes Monaco the European country with the lowest taxes. However, it should be noted that it is very difficult to obtain tax residency of the principality without high income and great wealth.

Lithuania

Lithuanian residents pay a 20% tax on global income. Dividends are taxed at a rate of 15% (but the legislation provides for a preferential treatment for certain companies). In Lithuania there is no capital gains tax, inheritance tax is not withheld from close relatives, there is no gift tax or luxury tax. The country applies a social contribution – from 19.5%, which includes health insurance.

Liechtenstein

Liechtenstein has a very loyal progressive income tax system, thanks to which the principality has practically the lowest taxes in Europe. Here annual income is exempt from personal income tax: individuals in the amount of 15,000 CHF; married couples – 30,000 CHF. The maximum income tax rate is 8%, which is applied on annual income above 200,000 CHF for one individual and above 400,000 CHF for a married couple There are no inheritance, real estate and gift taxes in the principality, but there are capital gains (from 3 to 24% depending on the amount) and social security contributions (4.7% pension contribution and 0.5% unemployment insurance).

Montenegro

In Montenegro, residents are required to pay tax on world income. However, the personal income tax rate is one of the lowest in Europe – 9%. Also in the country, there is also a local income, the amount of which depends on the municipality (from 13%).

Czech Republic

The rate of personal income tax in the Czech Republic is 20%, there are no local income taxes in the country. Inheritance and gift tax is not regulated by a special law, but is considered in terms of profit and is taxed at a rate of 15%. However, the country has special regimes that establish some of the lowest taxes in Europe – 6-9%.

UAE

This is not the only country in the Middle East where income taxes are zero, but it is the only one (this is the editorial point of view – it is under discussion!) Where it makes sense for many foreigners to go to live most of the tax year, to pay taxes there. The UAE is attracted by the stability of the political system and economy. The UAE can be called a multicultural country where a foreigner will be relatively comfortable. Many people in the country speak English fluently, and local educational institutions offer curricula in English.

Bahamas

In order not to pay income tax in the Bahamas, you must spend there at least 90 days a year, but at the same time no more than 183 days a year in another country. Citizenship is not required here, the main thing is compliance with the tax residency rule. The authorities of this island state earn on value added taxes, on real estate, import duties, and royalties, as well as on official stamps – the form of fiscal stamps to pay various government fees, taxes, duties. Compared to countries with high taxes, the Bahamas has a fairly high crime rate and almost no (by Western standards) medicine. There are many foreigners in the capital, in particular tourists. The Bahamas is a beautiful country, but not everyone will find what to do there, even 90 days every year. However, as you know, there is no dispute about tastes.

Bermuda

Yes, there is no income tax in Bermuda, but all employers pay tax on the payroll fund, so there is no tax and there is a tax. For foreigners who don’t plan to work there, the Bahamas is a tax haven. Living conditions in Bermuda are even better than in the Bahamas, but the cost of this accommodation is much higher. Remoteness from the mainland leaves an imprint on the price level. For example, the price of 1 liter of milk can go up to $ 4, while a simple small apartment will cost $ 2,000 a month. The banking sector is developed on the islands, and employers have the right to invite foreigners to work under a simplified scheme. It will be expensive and beautiful to live in Bermuda, but if you work there, it will be almost heaven on earth.

As you can see, in Europe there are jurisdictions where there is not even an income tax and there is practically no taxation (Monaco, Liechtenstein, Gibraltar). But it should be noted that these countries are blacklisted offshore and therefore cooperation with them has a number of restrictions, for example, it is very difficult to transfer money there. However, they are best used to generate passive income.

If you need to obtain tax residency in Europe to optimize costs and at the same time not harm your business, then it is better to give preference to such European jurisdictions as Lithuania, Bulgaria, Czech Republic, Georgia. The latter have special tax regimes that can significantly reduce fiscal costs, without giving the bank compliance grounds for additional checks.

It is rather difficult to choose the country where the best tax residency in Europe is on your own. Indeed, in addition to the need to process large amounts of data, one must take into account that fiscal legislation is constantly changing, and jurisdictions that previously had the status of a “tax haven” may lose it. Therefore, it is better to turn to professionals who always “keep their finger on the pulse of events.”

You can consider the above-mentioned countries for starting your business or start your new job. We hope now you know on which countries you can rely on as a tax heaven.

Before introducing this article, if you are interested in our core services which are expat financial, insurance and mortgages, you can contact me here. 

The best time to consider your financial situation is when you are moving to a new country.

Introduction

An expatriate, or expatriate, is an individual who lives and/or works in a country other than his or her country of citizenship, often temporarily or for business reasons. An expatriate can also be an individual who has renounced the citizenship of his country in order to become a citizen of another country.

So an expatriate is a migrant worker who is a professional or skilled worker in his profession. An employee holds a position outside their home country, either independently or as a work assignment planned by an employer, which could be a company, university, government, or non-governmental organization.

Expats usually earn more than at home and more than local employees. In addition to wages, businesses sometimes provide their expatriate employees with benefits such as relocation assistance and housing allowance.

Life as an expatriate can be exciting and a great opportunity for career advancement and international expansion, but it can also be an emotionally challenging transition that involves separation from friends and family while adapting to unfamiliar culture and work environments. Hence the reason for the higher compensation offered to these labor migrants.

In this article, we will mainly talk about the taxes an expat should pay, what is a territorial tax and a residence-based tax, and in which countries expats do not pay taxes at all, and in which countries the taxes are the highest and lowest.

Do expats pay taxes? In many countries expats have to pay taxes, in addition to American citizens, who are required to file and pay US taxes on their global income, regardless of where they live or work. This means that expats often have to file and pay taxes both in the United States and in their country of residence.

Usually, expats pay only income taxes, as they arrived in the country for a job purpose, that is why below we will review top countries with no income taxes and top countries with the highest and lowest income taxes.

Countries with no income taxes

For those accustomed to high taxes, it may seem like a distant reality to imagine countries in which one can live without taxes.

You may be wondering how these countries generate enough income to survive without collecting taxes from their citizens?

Many low or zero-tax countries receive government revenues from other sources. This may differ depending on the country. For example, many Gulf countries do not levy income taxes because they receive huge revenues from their state-owned oil industry. In addition, there are beautiful island states such as the Bahamas and Belize, where tourism and offshore financial services make up the majority of their tax revenues and GDP.

Most of the revenue that comes from tax-free and low-tax countries comes from offshore financial sectors. This means that they offer attractive tax breaks for businesses and individuals if they register and start their own business.

Places such as Saint Kitts and Nevis, as well as Vanuatu and the Cayman Islands, are just a few of these places. These countries can attract huge amounts of foreign employers or investment thanks to tax-friendly legislation without imposing direct income taxes.

So, it is clear that there are indeed countries that do not have taxes, but the next question is whether it is really possible to become a resident of these countries in order to get rid of the need to pay taxes. The short answer is yes!

This is definitely possible. However, this is not necessarily easy and can take a significant amount of time, determination, and, in many cases, significant wealth.

United Arab Emirates

The UAE is one of the few Gulf States that has no income tax (others include Kuwait, Oman and Qatar), largely due to the revenue generated from their oil exports. In addition, the UAE does not levy withholding taxes or corporate income tax (for most types of business), and there is no foreign exchange control.

What really makes the UAE different from its neighboring countries is that it is one of the easiest Gulf countries, that allows its expats to live and work. Known for its freest economy in the world, the UAE welcomes foreign investment and expats who want to relocate and take advantage of the many high-paying job opportunities.

The UAE has recently started issuing 10-year residency visas to foreigners, which are fairly easy to obtain. It is a very comfortable and functional place to live, which is why it is one of the best tax-free countries to pay your attention to.

Saint Kitts and Nevis

Unsurprisingly, Caribbean tax havens dominate the full list of countries without an income tax. It seems that the number one decision that will make it easier for you to obtain residency or either citizenship is the island nation of Saint Kitts and Nevis.

Saint Kitts and Nevis has totally no income tax, nor any other taxes, which gives a unique opportunity to the expats to work and earn much. They derive most of their income from tourism and, you guessed it, their offshore financial industry.

Saint Kitts and Nevis is easy to get permanent residency and also offers the oldest and best-known citizenship by investment program. After the devastating damage caused by the hurricane in 2017, they are now offering citizenship at a $ 150,000 discount to their hurricane relief fund. The entire process of obtaining citizenship can take less than a year.

This can be a relatively small price to pay for wealthy people looking for a second citizenship somewhere that will provide significant tax breaks, a reliable second passport, not to mention a new home in one of the most beautiful and charming Caribbean islands.

Bahamas

The Bahamas is one of the most popular tourist destinations in the world, so as you can imagine, it is also a great place to live!

It is extremely easy to obtain an annually renewable temporary residence permit in the Bahamas for $ 1000. However, you will need to invest at least $ 250,000 in real estate in order to obtain permanent residency, which allows you to become a tax resident and therefore completely gets rid of income tax in the long run.

There is no citizenship by investment program in the Bahamas yet. The significant amount of money you’ll need to maintain a permanent residency may pay off for those looking to escape to one of the most popular beach paradises and tax havens.

Monaco

This is the one and only European country that has internationally become one of the best tax-free countries for the mega-rich people to relocate to.

Monaco is a very beautiful country, a wealthy city-state, which is located on the Mediterranean coast. It is also one of the few countries that levy zero tax on its residents and citizens.

Obtaining a residence permit and/or citizenship in Monaco is relatively easy, but extremely expensive. You will need at least a few million dollars to prove you are wealthy enough to obtain permanent residency.

If Monaco sounds like the perfect destination for you, you will join an elite group of wealthy expats leading a tax-free luxury life.

What is the difference between low tax countries and no tax countries?

The difference between tax-free countries and low-tax countries is that tax-free countries have no income tax at all, which often does not include taxation of other forms such as capital gains, income tax, corporate tax. At the moment there are more than 20 countries in the world that have no taxes.

Whereas countries with low taxes have a marginal tax rates that as a rule does not exceed 10%. Low-tax countries can be a good alternative as they often have a better track record in banking and incorporation.

Low tax countries

There are some countries with surprisingly low-income tax rates. This includes places such as:

• Malaysia
• Singapore
• Czech Republic
• Mexico
• Vietnam
• Belize

Countries with a territorial tax system tax income earned only domestically, while income earned abroad is not taxed.

For instance, if you run an online business, becoming a resident of a country which have a territorial tax system, will accordingly lead to the same thing as living in a tax-free country.

In many cases, it is easier for foreigners to obtain a residence permit in countries with low taxes and/or territorial tax systems than in tax-free countries. This is largely due to the nature of the tax-free countries’ economies, which have specific financial rules that favor certain industries.

Countries with the highest income taxes

Let’s have a look at some of the countries (mostly European) that have the highest average personal income tax rates.

Germany

Germany has a progressive tax, which means that people with higher incomes pay more taxes than people with lower incomes. The country levies a progressive tax on profits and capital that does not exceed 45%.

Sources of taxable income include agriculture, forestry, business ownership, self-employment, employment, savings and investment, rental property, and capital gains, and other income. The first € 801 in savings and investment income is tax-deductible due to the deposit surcharge. There is a 25% withholding tax on interest and dividends and a 15% tax on royalties.

Denmark

Progressive income tax in Denmark is 55.9%. Danes pay 8% tax on the Danish labor market, 8% health tax, 22.8% to 27.8% municipal taxes, social security tax of 1,135.8 CZK. ($ 167.06) per year and capital gains tax is 27% or 42%. There is a 27% withholding tax on dividends and 22% on royalties.

Job income, bonuses, fringe benefits, business income, fees, pensions, annuities, social security benefits, dividends, interest, capital gains, and rental income from real estate are taxable.

Tax deductions are available for limited contributions to approved Danish pensions, unemployment insurance, interest on debt, charitable contributions, non-refundable work travel, and double households.

Slovenia

Slovenia levies an individual income tax of 16% to 50%. Residents are taxed on their global income, while non-residents will only tax income derived from Slovenia. Six types of income are subject to taxation: employment; business; agriculture and forestry; rent and fees; dividends, interest, and capital gains; and others. Several types of businesses can be taxed at the rate of 20%. Income tax of 27.5% is levied on dividends, interest, and rental income.

Capital gains are initially taxed at a rate of 27.5%, which will be reduced to 20% if the asset is held for at least five years. This rate is reduced by another 5% every five years until the asset is held for 20 years, after which it is exempt from tax. However, capital gains acquired through derivatives are subject to a 40% rate if realized within the first year, although this rate will also decline over time.

Both royalties and technical service fees are taxed at a rate of 25%. It will be replaced by a progressive individual tax rate if they are taxed as part of an individual’s earned income.

Territorial taxes vs. Residence-based taxes

Under the territorial tax system, multinational companies mainly pay taxes to the countries in which they are physically located and receive their income. This means that territorial tax regimes generally do not tax the income that companies receive in foreign countries. On the other hand, a worldwide tax system – such as the one previously used in the United States – requires companies to pay taxes on global income, no matter where it was received.

Countries introduce territorial tax systems through so-called “participation exemptions,” which may include full or partial exemptions from foreign dividends, capital gains, or both. In this context, dividends can be used to repatriate profits earned from a foreign subsidiary back to the parent company, and capital gains arise, for example, when foreign subsidiaries are sold at a profit. The participation exemption excludes domestic tax on such foreign income, allowing companies to ignore some or all of it when calculating taxable income.

Three cases can be distinguished:

• A fully territorial tax system excludes all dividends from foreign sources and capital gains.
• Partially territorial tax system exempts only a certain share of dividends from foreign sources and capital gains income, or exempts from dividends from foreign sources, but includes capital gains income from foreign sources (or vice versa)
• The global tax system does not exempt from dividends and capital gains from foreign sources.

To understand what is a residence-based tax, let’s review an example on the US. In the US taxes are based on citizenship. This means that it taxes American citizens on their global income no matter where they live. A US citizen residing in London, Toronto, Tokyo, or Johannesburg generally has to file US tax returns and pay US taxes, even if he or she does not live in the US or travel to the US. Taxation is not based on any physical presence checks.

The source of income is also irrelevant: income earned exclusively abroad and additionally taxed abroad is also subject to reporting in the United States. Moreover, Americans overseas are usually double taxed, for example, on certain types of investment income and certain retirement savings mechanisms. In some cases, where a person who was born in the US to foreign parents on a student or temporary work visa who then returned to their home country is also subject to US taxation on their overseas income.

The world norm is to tax citizens depending on their place of residence and income. This is the concept of Residential Taxation (RBT). The ACA’s approach to RBT is to separate foreign income from U.S. income and to exempt from U.S. tax that foreign source income earned when the U.S. citizen is a qualified overseas resident.

Under the RBT, an individual is taxed only on income from US sources and not on income from foreign sources, as the US citizen is legally domiciled outside the United States. The ACA has developed a roadmap for how Congress can look at the development of RBT, but the legislation should form tax filing committees.

For completing this, tax filing committees must hold hearings and review and analyze data and research from ACA and other organizations. Constantly updating the data and making research is super important, building on ACA’s existing work with the District Economics Group (DEG).

At the moment, the US tax policy is not compatible with this century’s global economy, where the tax policy of several countries is based on more residency status rather citizenship. CBT works against the economic interests of the United States in terms of creating jobs and increasing exports, is costly and counterproductive compared to the interests of US citizens who live and work overseas, and this is simply not fair.

Which country to choose for moving?

In case the no-taxes countries are not the best match for you and your future, moving to a country with a low tax is a good alternative. The idea of ​​moving to a country without income tax is naturally attractive.

However, for many, it may be nearly impossible to move to one of the countries where there is no income tax. In most of these countries, it is difficult to establish permanent tax residency, and becoming a full citizen is even more difficult. Several countries that have territorial taxation make it easier for expats to get a residence.

Some of the top choices in this category include Hong Kong, Singapore, Malaysia, and Panama. Accommodation requirements are particularly simple in Malaysia and Panama. Panama has the added benefit of minimum physical presence requirements, meaning you don’t need to reside in Panama for more than half a year to maintain your residency (as in most other countries).

If you are a digital nomad or international entrepreneur, then becoming a tax resident of a country with a territorial tax system can actually offer the same benefits as a country without any income taxes.

What income from work is taxed?

The following list includes some of the main types of employment income that are commonly taxed:

• Salary, including vacation pay and vacation pay. It doesn’t matter how your employer pays you, as long as they use Pay As You Earn (PAYE) correctly – check, cash or bank transfer possible. It doesn’t matter how often you get paid – it can be monthly, weekly, daily, or irregular. It doesn’t matter if you get the same amount every payday or a variable amount depending on the number of hours you work.
• Delayed salary payments – although the rules can be complex.
• Costs that are not entirely, exclusively and not necessarily related to the performance of the work are paid or reimbursed by the applicant’s employer, including:
• Travel expenses between the applicant’s home and permanent place of work
• Costs of caring for a family member of the applicant, such as childcare costs.
• Other “private” expenses of the applicant
• Vouchers that can be redeemed for cash, goods, or services, such as gift certificates.
• Income from a second or third job.
• Payment instead of remuneration, such as payment by the liquidator when the company is liquidated and employees are owed earnings.
• Protective awards that can be awarded by the Industrial Court if the employer has not sent the union a formal layoff notice.
• Retainers are payments made for periods when there is no actual work being done, such as payments to school feeding staff during school holidays.
• Most benefits are lumpy, meaning an allowance that is paid to you regardless of whether you spend it in a certain way or not. However, an employee may be granted tax credits if any of the rounded amounts are spent on qualifying expenses.
• Mandatory payments such as statutory sickness benefit, statutory maternity benefit, and statutory paternity benefit.