Tax & Residency Friendly Countries

Tax Friendliest Places On Earth

Our First Annual Retire Overseas Index released this month named not the best countries in the world for retirement but the best cities. This is because your choice as to where to retire overseas must be localized. You aren’t going to retire to a country but to a specific spot within that country.

Still, some factors are, indeed, country-relevant. Specifically, our new survey considers two that have to do with the countries in question (not only the specific destinations being highlighted)–namely, taxes and residency.

In truth, the local approach to taxation can be of little concern for the would-be retiree to a foreign country. While each country on our list has its own tax code, some more onerous than others, you may not need to care. If, resident in your new country as a retiree, you will have only retirement income (that is, Social Security or pension income), then your tax situation should be unchanged from what it would have been had you retired back home…or anywhere else.

Most countries do not tax retirement income. If you’re an American receiving Social Security, you’re paying U.S. taxes on that income. Retired to another country, you’d continue paying U.S. taxes on that income, but you should not pay any additional tax in the country where you’ve relocated.

It’s with non-retirement income that taxes can become an issue. If you have capital gains income, for example, you may or may not owe tax on it in the United States and you may or may not owe taxes on it in the country where you’re residing. It depends where the gains were earned and where and how you take payment of them.

Likewise, if you’re working (either for yourself, in your own business, or for someone else), you may or may not owe tax in the country where you’re residing, depending on many particulars of your situation.

Some countries charge property tax, some don’t. Don’t invest in a home of your own wherever your relocate, and you don’t have to worry about this one way or the other.

Of the countries featured in our index, the least tax-friendly are Argentina, Colombia, France, Italy, and Mexico. Each of these countries taxes you on your worldwide income. Earn money in the country, and you’ll be taxed on it whether you live there or not. Set up an offshore business online, and, technically, you can be liable for tax on that income in these countries if you’re a resident.

With corporate tax rates that can reach 34%, operating a business and earning income in these countries means with a hefty tax burden.

The winners in this tax category are Belize, Panama, Malaysia, and Uruguay. These countries operate on a jurisdictional tax basis, meaning you pay tax only on income earned in the country. And Panama even exempts interest income earned in the country. As a result of their approach to taxation, you can live and run a business in these countries without incurring any local tax liability.

The second country-relevant category considered in our index this month is residency. More than half (specifically, 11) of the 21 countries featured in our index receive “A’s” in our Residency Options category. This is a “retire overseas” index. It makes sense that destinations it features would offer top opportunities for establishing full-time residency in retirement.

Typical in Latin America is what’s called a pensionado visa; this is the most straightforward option for the would-be retiree interested in taking up full-time residency. For this, you need to prove a minimum amount of regular monthly income from some defined source. The minimum amount required varies country to country, from US$600 (in Nicaragua) to US$2,000 (in Belize) per month. Some countries (including Panama and Colombia, for example) stipulate that the income must be “pension” income (Social Security qualifies); others (such as Belize and Ecuador) are more flexible.

You can qualify for Belize’s version of a pensionado visa program (called the Qualified Retired Persons program) by showing reliable income of at least US$2,000 per month from any source). The following countries featured in our index all offer pensionado visa options, with the indicated minimum income requirements:

  • Belize, US$2,000
  • Colombia, US$966 (at current exchange rates)
  • Ecuador, US$800
  • Nicaragua, US$600 (plus US$150 per dependent)
  • Panama, US$1,000 (plus US$250 per dependent)
  • Uruguay, US$500 (this is the minimum according to the law; note that, in practice, you’re going to have to show closer to US$1,000 per month in income as a couple)

In addition, the Philippines, Malaysia, and Thailand all also offer pensionado-like visa programs. Malaysia’s program is called Malaysia My Second Home.

The common benefits of being a pensionado retiree include exemptions from duty when importing personal belongings, household goods, and, usually, your car into the country with you. In addition, Panama, for example, offers pensionados discounts on almost everything they buy while in the country, from hotel rooms, restaurant meals, and in-country flights to doctor visits, prescription drugs, even closing costs when purchasing real estate.

Vietnam receives a “C” in our residency options category. It is possible to live in this country as a retiree, but Vietnam does not offer a formal pensionado-like visa or any special benefits or discounts for retirees resident in the country.

We give Croatia an “F” in this category. Not only does this country not offer any form of a retiree visa, but, further, it is not very retiree-friendly. You’ll have trouble establishing full-time residency in Croatia.

Why then is Croatia on the list? Visit this beautiful, historic, special country once, and you’ll understand. It’s one of our favorite places on earth. We recommend it (heartily) as a part-time option.

Kathleen Peddicord

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