Tax Havens

To the growing chagrin of the U.S. IRS, it is still possible for an American to take his life, his assets, his business, and his investments offshore and thereby reduce or even eliminate his U.S. tax bill completely and to do it all legally. The places where this is possible are referred to as “tax havens.”

The ultimate strategy for eliminating your U.S. tax bill is to renounce your U.S. citizenship. This is more costly today than ever, thanks to a recent 400% increase in the associated fees. Renouncing your citizenship and walking away from being an American for good is also not for everyone and not only because of the (in the scheme of things negligible) expense. This is a complicated and potentially emotionally charged decision.

Don’t despair. You have other options for making sure your tax bill is as low as possible. It all comes down to location. Where you live, where you invest, where you base your business, where you earn your income… the “where” is the key.

Here, therefore, are our top 10 “where” recommendations, the world’s top tax havens today:

Panama continues to be one of the best options for going offshore. As a resident of Panama, you pay no tax on foreign earned income, nor on bank interest, certificates of deposit, wealth, inheritance, or U.S. Social Security. Property taxes are low, and newly built units are granted exemptions of up to 15 years.

Panama’s pensionado program grants retirees a one-time US$10,000 exemption on importation of household goods and a US$20,000 exemption every two years on importation or of a new car. Income earned in Panama is taxed in Panama (at a progressive rate from 15% to 25%.

Download our free resource on what the Panama Papers really mean for offshore investors.

Like Panama, Belize imposes no tax on a resident’s foreignearned income. In addition, Belize has no capital gains tax and no inheritance tax. Property taxes are low, and the Belizean population is determined to keep it that way. Belize’s Qualified Retired Persons Program isn’t just for retired persons. So long as you’re 45 years of age or older, you can apply for this type of residency and enjoy incentives such as permanent exemption from Belize taxes, including income, sales, and estate taxes, as well as on import taxes on household goods, automobiles, boats, and airplanes. Income is generally taxed at 25% on income over US$10,000.

With a Belize International Business Company (IBC), you are not subject to any taxes in Belize, nor are you required to file a return, because you can’t do business in Belize with a Belizean IBC. If you do wish to do business in Belize, you would need a Belizean local corporation. Some tax incentives for local businesses exist and can lead to a five- or ten-year tax holiday. The standard local business tax rate is 25%.

After years of postponement, Paraguay finally introduced an income tax in 2012 at a rate of 10% on non-foreign-earned income, which is the same as the country’s corporate tax. Property tax is levied between 0.5% and 1% of a property’s cadastral value. All bond yields in Paraguay pay no income tax whatsoever, though dividends are taxed at 5%.

Paraguay’s Law 60/90 looks to entice a broad range of investment such as capital, equipment, trademarks, and technology transfers. In return for the investment, exemptions are granted on all government registration fees, custom duties, withholding taxes on repayment of loans exceeding US$5 million, and taxes on profits and dividends for 10 years on investments over US$5 million. The program is well operated, and applications are usually approved within 45 days.

Paraguay’s Maquila program, based on a similar program in Mexico, allows a local entity to sign a contract with a foreign entity to produce goods or provide services for export only. The system allows for duty-free import of raw materials and a complete tax exemption with the exception of a 1% fixed tax on turnover.

Nicaragua does not tax foreign-earned income. Locally sourced income is taxed at progressive rates up to 30%. Property is taxed up to 1% of the property’s registered value, depending on the region. If setting up tax residence in Nicaragua, you should note that Nicaragua has an inheritance tax of 1% to 4% of a property’s registered value.

The corporate tax rate in Nicaragua is 30% or 1% on income over 40 million cordobas (US$1.39 million in Sept. 2016) for small- to mediumsized businesses. ProNicaragua is one tax incentive program for investors. Under it, you can set up your own free trade zone and enjoy a 10-year tax exemption. Industries targeted by the program include tourism, food processing, outsourcing services, footwear manufacturing, auto-part manufacturing, and forestry.

Unlike other tax havens featured in this report, Uruguay’s tax code doesn’t fully exempt foreign-earned income. Since April 2011, tax-resident foreigners in Uruguay enjoy tax exemption on foreign-earned income only during their first five years in the country. After that, certain types of income, specifically dividends and interest, are taxed 12%. Until the end of the five-year exemption, dividends in Uruguay are tax free, whether they’re foreign- or local-source.

Uruguay residents pay a 30% tax on local-source income. Property tax in the country is 0.25% to 1.2% of property value, and movable property located overseas is also taxed, as well as subject to the country’s 12% rental-income tax. While Uruguay has no inheritance tax, the country does impose a wealth tax on the difference in assets and certain liabilities year over year.

Singapore does not tax residents on foreign-earned income, though foreign-sourced dividends can be taxable if received in Singapore under certain conditions. Local-source dividends are exempt from taxes as long as the company already paid the reducible 17% corporate tax. Property tax in Singapore ranges from 2% to 20%. Singapore does not tax corporations or individuals on capital gains, unless they are in the business of trading shares. The country imposes neither wealth nor inheritance tax.

Stamp duties on real estate can be expensive, having been raised by the government in response to an overheating property market in 2009. Property taxes are assessed on a property’s gross annual rental value according to a progressive scale of 0% to 16% for owner-occupied dwellings, 10% to 20% for nonowner-occupied, and 10% for nonresidential properties.

Singapore’s free-port status means that few items are assessed custom duty.

Malaysia exempts residents from tax on foreign-earned income. There are no dividends or interest taxes, and no capital gains taxes unless the gains are made from the sale of real estate, in which case the tax ranges from 5% to 30%, depending on how long you’ve held the property. Income tax on wages and salary earned in Malaysia reaches 25%, which is also the corporate tax rate.

Malaysia offers one of Asia’s best retiree visa programs, the Malaysia My Second Home (MM2H) program. Holders of a MM2H visa enjoy exemptions from taxes on real estate gains and can import a vehicle duty-free.

Malaysia also offers tax incentives for investments in manufacturing, information-technology services, biotechnology, energy conservation, and environmental protection. An investor in one of these industries can enjoy a 10-year tax holiday, capital investment tax allowances, and reinvestment allowances.

The World Bank’s 2016 Paying Taxes Study ranked Hong Kong near the top of its list for most tax-friendly nations. No wonder. Hong Kong imposes only three direct taxes: a salary tax, a property tax, and a personal income tax—all 15%. This country does not tax capital gains, dividends, interest, sales, wealth, or inheritance. Income tax in Hong Kong is based on marginal rates from 2% to 17%, with a cap at 15% of total income.

Like Singapore, Hong Kong has free-port status, meaning custom duties are rarely applied.

Unfortunately, like Singapore, Hong Kong also has a highly sought-after housing market. This made it easier for the government to introduce a 15% stamp duty for non-permanent residents to purchase property.

While New Zealand does tax residents on worldwide income (meaning it’s probably not a good option for relocation), it offers two tax advantages worth noting.

The first is that New Zealand has a double-taxation treaty in place with the United States, meaning whatever income a resident earns beyond the Foreign Earned Income Exclusion of US$101,300 (the figure for 2016) won’t be taxed twice.

The second is that no capital gains taxes are imposed, on individuals or corporations, except on the disposal of personal property related to business and property purchased with the intent of resale. New Zealand also has no property tax, meaning that land-lording in New Zealand as an individual would expose you only to personal income tax, which is assessed at a progressive rate up to 33%. (If you were land-lording via a corporation, you would pay the 28% corporate tax.)

Like New Zealand, Cyprus also has a double-taxation treaty in place with the United States. Unfortunately, also like New Zealand, it taxes residents on worldwide income.

Still, Cyprus is attractive in that it does not tax dividends or the sale of shares. Also, the country has a low 12.5% corporate tax rate.

Before choosing where to live, invest, or do business, analyze all aspects of the “where” you’re considering. A country’s approach to taxation is an important consideration but only one of many you should undertake.

In other words, don’t choose a place to live or retire based solely on the jurisdiction’s approach to taxation. Living somewhere you’re not happy just to save on your tax bill isn’t worth it in the long run. That said, the places on this top 10 tax havens list all offer interesting lifestyle options, as well.