5 Countries That Offer Expats 0% or Very Low Income Tax Rates  

The Straight Facts on How to Live a Tax-Free Life Overseas.

“Ted, is it true that I can save on my taxes by moving abroad? Everywhere I look, I see promises that I won’t ever have to pay taxes again if I go to another country.” 

I get emails like that all the time. That’s understandable. There’s an entire ecosystem of charlatans out there misleading people about the tax implications of living abroad. 

So, let me tell it to you straight… 

There are two broad systems of income taxation in the world. One is “territorial” taxation, which is used by most countries. This applies once you’ve spent enough time in a country in a calendar year and become a tax resident. At that point you pay income tax on your income from all sources, including from abroad.  

But once you leave the country and establish tax residence somewhere else, you are no longer liable for income tax to that country. 

The other is “citizenship-based” taxation. It’s practiced by only two countries in the world: the tiny African nation of Eritrea, and the United States. 

Under the citizenship-based regime, you owe income tax to your home country on all your income from whatever source, no matter where you live, or for how long. Your tax obligations are tied to your citizenship.  

In its wisdom, the U.S. Congress has granted two concessions to this. 

One is that if you pay tax to another country, the IRS gives you a dollar-for-dollar credit against your U.S. tax. For example, as a tax resident of South Africa, I pay income tax here. When I file my 1040 return to the IRS, I deduct the entire amount as a credit against my U.S. income tax obligations. 

The second concession is the Foreign Earned Income Exclusion (FEIE). If you earn income from work or a business in a foreign country, you’re exempt from U.S. income tax on the first $120,000 if you’re single, and double that if you’re filing jointly. So, if our total household income here in South Africa is less than $240,000 for the calendar year 2023, we won’t owe anything to the IRS. 

Note that the FEIE only applies to earned income. That means income from work or business activity right now. By contrast, income from investments, rent, interest, or other passive sources is considered unearned income. You must pay income tax on that to the IRS even if you live permanently abroad. 

Other than these two concessions, there is no legal way to reduce your income tax obligations to the U.S. government by living outside the country.  

Nevertheless, you can still save a lot of money on tax by moving to another country. 

The key is the tax rate in the foreign country. If you move to a country that has a lower marginal tax rate than the U.S., and your income there qualifies for the FEIE, you will save on income tax.  

The grand prize, of course, is to move to a country that doesn’t tax your income at all… effectively giving you up to $240,000 of income tax-free. 

You may think that means moving to a shady “tax haven.” But that’s not the case. Some countries grant hefty tax concessions to foreign residents. In such countries, you can earn income within its borders and pay no or reduced income tax.  

If your income is below the FEIE limit, you won’t pay any income tax at all, or much less than you’d pay in the U.S.  

There are also several attractive countries that levy no or reduced income tax, whether you’re an expat or a local. 

Here are some examples. 

• Portugal: Registering as a non-habitual tax resident entitles you to a flat 20% income tax rate for 10 years. That’s a significant tax saving. You will also not pay any tax on dividends, interest, royalties, capital gains, or rental income from real estate outside Portugal, and income from employment in another country. 
• Uruguay: Non-citizens who spend more than six months per year in the country pay no income tax for the first five years. After that, you’ll pay 12%. Alternatively, you can choose to pay a 7% flat income tax permanently. Also, the country doesn’t tax foreign unearned income, such as U.S. pensions. 
• The Bahamas: The country levies no income tax. It’s possible to remain in the country for extended periods by paying $1,000 for a temporary resident permit, which is renewable. Eventually, however, you’ll need to prove that you have invested in a business or in property to be allowed to remain indefinitely. 
• United Arab Emirates: Because of its vast oil wealth, the country levies no income tax. It has recently launched a 10-year residence visa, which is renewable. 
• Anguilla: With a $150,000 donation to the country’s treasury, you get a permanent residency permit and permanent exemption from all income taxes. 

These are just a few examples of countries where you can maximize your tax benefits. There are many others.  

And I’m excited to announce that in the coming weeks, I’ll be launching a new service that will explore these opportunities on a regular basis! 

Stay tuned for that…