Where And How To Retire Tax-Free

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No-Tax Retirement Options

Americans spend more on taxes every year than they do on food, clothing, and housing combined.

It helps if you live in a low-tax state and city. Then you can be spending less than some of your fellow Americans living in higher-tax zip codes. However, I’d say that the idea isn’t that you should think about moving from Philadelphia, say (where your total state and city tax burden can amount to as much as 17% of your income…this on top of your federal obligation), to Sioux Falls, for example (South Dakota imposes no state income tax), or to Stafford, Texas (where you’ll pay no property tax).

No, no…that’s not the answer.

Here’s the answer: Move to a no-tax foreign country!

That’s how to make your retirement dollars stretch a whole lot further.

As you compare tax burdens between where you’re living now and any foreign country where you’re considering taking up residence, remember that your federal tax hit is only the beginning. Start with federal income tax rates…but then remember to add state, city, and local rates.

Sticking with our example, as a resident of Philadelphia, Pennsylvania, your total income tax burden could be 17% (in state and city income tax, depending on your level of income) plus, say, 35% (in federal income tax, again, depending on your income)…or 52%!

But, remember, again, that this isn’t the full story. Income tax–federal, state, city, etc.–isn’t the only tax we pay.

In addition, Americans pay at least 7.65% of their annual salaries in Social Security. That brings the total for our friend living in Philly to more than 59%. Poor guy.

Then there’s sales tax.

In Europe you don’t notice sales tax, as it’s already added in to the sticker price for whatever you’re buying, but European VAT (value-added, or sales tax) ranges from 17.5% to 25%. This is one reason shopping in Europe is more expensive than shopping in the United States even if the currency rates are at parity.

It’s also why, when we were living in Europe, we made a point of shopping for clothing, for example, and electronics when traveling (in the States, say, or in Asia).

Then there’s property tax.

This can be a big part of your overall tax burden living in the United States…and it can disappear altogether when you move overseas, for many countries don’t impose property tax at all. When they do, they tend to be far kinder about it than the U.S. tax authorities.

Croatia and Ireland are two examples of European countries that currently impose no property tax. France charges a tax that works out to less than one-quarter percent (.25%) of the property value.

Most Central American countries charge some kind of property tax, but, again, nothing like you’ll pay in the States. And Panama offers a property tax exemption on construction (not land).

Then there’s wealth tax.

This is something most Americans don’t consider at all, even though some U.S. states charge it. Wealth tax is imposed either on your worldwide assets if you’re resident in the country or simply on your assets in the country if you’re not considered resident for tax purposes. France and Argentina, among other countries, impose a wealth tax.

Yikes. Consider the full tax story all at once like this, and it’s easy to see why it’s so hard to save any of the money we manage to earn.

Want to minimize your tax burden? Here’s what you do:

Be a citizen of one country, resident in another, and hold your assets in a third. With the exception of U.S. citizens, who are taxed on their worldwide income no matter where they reside, setting yourself up according to this three (or more) country rule can allow you to pay zero or close to zero in taxes each year.

Even U.S. citizens residing overseas get a tax break on their earned income (for the time being…Obama has indicated he’d like to change this), thanks to the foreign-earned income exclusion.

Furthermore, as an American abroad, you may not be able to escape your U.S. federal income tax burden…but you should be able to organize things so that you are no longer liable for any state or city income tax…or for Social Security.

Choose a jurisdiction that imposes no property tax, no wealth tax, and no or low sales tax…and your tax situation can improve dramatically.

The world’s top tax havens right now? There’s no clear-cut answer to that question. It depends, first, on your jurisdiction of citizenship. If you carry a UK passport, the United States could qualify as a tax haven for you.

Most universal tax haven I know is Monaco. Reside here, and you could pay no taxes of any kind, period. However, to reside here, you’ll have to gain permission from the prince. Sorry, I’ve never had the pleasure of making his acquaintance, so I can’t help with an introduction.

The Isle of Man is a tax haven…Malta is a tax haven…Andorra qualifies…

So does Belize…and, in some ways, Uruguay and the Dominican Republic.

World’s most user-friendly tax haven? That’d be Panama.

Lief Simon

P.S. The tax advantages and benefits for foreign residents in Panama will be one of the featured topics during our upcoming Live & Invest in Panama Conference.

Tax Free Havens

“You mentioned recently that, ‘For non-Americans, Belize offers the opportunity for tax-free living.’ So, being an American, they want to tax me in Belize?

“By the way I am really enjoying receiving your information. I have found it very informative and well written! Thanks.”

— Mark G., Panama (sept. 09, 2011)

No, it’s not that Belize will tax you as an American foreign resident. It’s that Uncle Sam will tax you as an American no matter where you’re resident.

The United States is one of only a few countries in the world that taxes its citizens on their worldwide income no matter where they live. That is to say, as an American abroad, you never lose your obligation to the U.S. Internal Revenue Service. When you take up residence elsewhere, therefore, you have two tax obligations (the one to the IRS that you never lose and a second to the new jurisdiction where you’ve become resident).

This is not to say that you pay double the taxes. It is very possible to organize your financial affairs as an American abroad to reduce your tax burden significantly, even to live tax-free. Belize is an excellent choice if your agenda is tax mitigation.

These are the kinds of particulars we address in great detail together during every Live and Invest in Belize Conference. Our next one is scheduled for Nov. 14-16.

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“Kathleen, I’ve been receiving your Overseas Opportunity Letter for about a year now. My question may seem like a silly one, but what I’d like to know is, are there any overseas retirement destinations that have an affordable cost of living and that aren’t hot?

“I may be in the minority, but places with climates like the climates in Central America and Southeast Asia would not be comfortable environments for me. Any advice?”

–Bess K., United States (sept. 09, 2011)

Most Central American destinations, including Belize, Nicaragua, and Panama, for example, have mountain areas that can be much cooler and more temperate than coastal regions in these countries.

Uruguay is probably the best choice in South America for mild weather. Winters aren’t too cold, though summers at the beach can get hot for a month or so. All in all, though, Uruguay has four mild seasons.

In Europe, you could consider southwestern France. Again, you’d have a month or two of hot summer weather but, overall, four mild seasons.

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Live and Invest Overseas is the world's savviest source for top opportunities to live better, retire in style, invest for profit, do business, and own real estate overseas. Established in 2008, the Live and Invest Overseas' editors and correspondents have more experience researching and reporting on top opportunities for living well, investing for profit, doing business, and owning real estate around the world than anyone else you'll find.