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Home Taxes

Most Tax-friendly

Kathleen Peddicord by Kathleen Peddicord
Jul 09, 2009
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Most Tax-friendly

Most countries are relatively tax-friendly when it comes to retirees. That is to say, a foreign resident’s pension or Social Security income typically is not taxed anywhere in the world–except, of course, in your home country. In other words, if you retire from the United States to Panama, you pay tax on your pension income only in the United States, not in Panama. If this is the only income you’ll have as a retiree overseas, then tax-planning isn’t an issue for you. For you, one jurisdiction is as tax-efficient as another.

Things get more complicated when you have passive (investment) or earned (wages or business, including self-employment) income to report. Unfortunately, tax rules vary greatly jurisdiction to jurisdiction.

A few countries (including the United States) tax residents on their worldwide income. These are places where you want to avoid becoming resident at all costs. Unfortunately, as an American abroad, you can’t escape this. You have a U.S. tax obligation based on your worldwide income no matter where you reside. As long as you carry a blue passport with an eagle on the cover, you must file a U.S. tax return every year. This is not to say you will necessarily owe tax. Careful planning often can reduce or even eliminate your U.S. tax on earned income. Still, the filing requirement remains.

Some countries tax on what’s called a “remittance basis,” meaning they expect their share of any money you bring (remit) into the country. This can work to your advantage if you earn your money outside the country and are able to live on little. In this case, you could earn millions of dollars a year, from either passive or earned income, but, as long as you kept most of your millions outside the jurisdiction where you’re residing, you wouldn’t owe any tax on it locally.

Again, as an American, you’d still have a tax obligation to Uncle Sam, but that’s a separate matter. To the tax collector of the country where you’re living, you’d owe tax only on the money you brought into that country each year to cover your living expenses.

Some countries tax foreign residents only on income earned locally. In this case, you could not only earn millions outside the country, you could even bring your millions into the country to spend as you like (theoretically speaking). If you didn’t earn it locally, the local tax collector would have no claim. This is as good as it gets from a tax-planning point of view.

Four key jurisdictions where this is the case right now are Panama, Belize, Uruguay, and Malaysia. As a foreign resident in any of these jurisdictions, you won’t pay taxes on your pension income (as I said, though, you can take this much for granted most everywhere in the world); however, in these four countries neither will you pay income tax on any income from outside the country, be it passive or earned. If you have a brokerage account in the United States, for example, that earns you US$10,000 a year in interest, you’ll pay no tax on that income to these countries’ tax collectors.

Working as a consultant in one of these countries, for example, with clients outside the country, you could pay zero local tax. A German fellow I met several years ago had set himself up in Kuala Lumpur, Malaysia. He was an engineering consultant whose clients were various companies in the Middle East. All his income was earned outside Malaysia, meaning he was liable for no income tax in the country. As he was German, living outside Germany, neither did he owe income tax in that country. He was living and working completely income tax-free.

Kathleen Peddicord

Tags: Tax Planning For The Overseas Retiree
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Kathleen Peddicord

Kathleen Peddicord

Kathleen Peddicord has covered the live, retire, and do business overseas beat for more than 30 years and is considered the world's foremost authority on these subjects. She has traveled to more than 75 countries, invested in real estate in 21, established businesses in 7, renovated historic properties in 6, and educated her children in 4.

Kathleen has moved children, staff, enterprises, household goods, and pets across three continents, from the East Coast of the United States to Waterford, Ireland... then to Paris, France... next to Panama City, where she has based her Live and Invest Overseas business. Most recently, Kathleen and her husband Lief Simon are dividing their time between Panama and Paris.

Kathleen was a partner with Agora Publishing’s International Living group for 23 years. In that capacity, she opened her first office overseas, in Waterford, Ireland, where she managed a staff of up to 30 employees for more than 10 years. Kathleen also opened, staffed, and operated International Living publishing and real estate marketing offices in Panama City, Panama; Granada, Nicaragua; Roatan, Honduras; San Miguel de Allende, Mexico; Quito, Ecuador; and Paris, France.

Kathleen moved on from her role with Agora in 2007 and launched her Live and Invest Overseas group in 2008. In the years since, she has built Live and Invest Overseas into a successful, recognized, and respected multi-million-dollar business that employs a staff of 35 in Panama City and dozens of writers and other resources around the world.

Kathleen has been quoted by The New York Times, Money magazine, MSNBC, Yahoo Finance, the AARP, and beyond. She has appeared often on radio and television (including Bloomberg and CNBC) and speaks regularly on topics to do with living, retiring, investing, and doing business around the world.

In addition to her own daily e-letter, the Overseas Opportunity Letter, with a circulation of more than 300,000 readers, Kathleen writes regularly for U.S. News & World Report and Forbes.

Her newest book, "How to Retire Overseas: Everything You Need to Know to Live Well (for Less) Abroad," published by Penguin Random House, is the culmination of decades of personal experience living and investing around the world.

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