The Best Overseas Tax Havens for Americans

The Reality of Moving to a Zero-Income Tax Jurisdiction.

I’ve been a semi-professional guitarist since I was 15 years old. The world of guitars is one of the seas in which I swim.

At least once a week, my newsfeed includes a clickbait article on the “X Best Guitarists Ever.” It’s usually the same faces in varying orders of greatness.

Inevitably, there’ll be huge arguments in the comments section about who deserves to be ranked where. My position is that the whole exercise is silly.

As the Romans used to say, de gustibus non est disputandum: In matters of taste, there can be no disagreement. Who’s to say who was better—1930s jazz master Django Reinhardt or modern electric guitar wizard Jeff Beck? Apples and oranges.

Foreign tax jurisdictions are similar. There are apples AND oranges… which suits YOU best?

For example, about two dozen countries don’t levy any income tax. Most of them are island nations (e.g., Bermuda, Cayman Islands), Gulf states with huge oil wealth (Kuwait, Qatar), or basket cases (Western Sahara, Somalia). Even the ones you might want to live in, like Bermuda, or Monaco, are extraordinarily difficult to get residence.

In any case, since the U.S. levies income tax on its citizens everywhere in the world, moving to a zero- or low-tax jurisdiction won’t help you unless you fall into one of two categories:

1. Most of your income is earned within the foreign country. If you are a digital nomad, for example, you can avoid U.S. tax on up to $120,000 of foreign income via the Foreign Earned Income Exclusion (FEIE) since your work is performed abroad. But if your income comes from dividends, interest, rent or other passive income streams, you are still liable for U.S. income tax. For most retirees, that means moving to a no/low-tax jurisdiction won’t help.

• You renounce your U.S. citizenship. Expatriating involves ending your legal connection to the U.S. and paying a big “exit tax” on your global wealth. The IRS adds together the value of everything you own and pretends that you “sell” it on the day you expatriate, and charges capital gains tax on the “proceeds.” If you don’t have much wealth, you can avoid the exit tax, but on the other hand, you’re probably not paying much as a U.S. citizen right now. Why move to a sandspit in the Caribbean and renounce your citizenship?

My point is that looking at foreign tax jurisdictions isn’t just about tax rates. It’s about the whole package. So instead of focusing on the numbers, you need to ask more pertinent questions:

• Does the jurisdiction have a double-tax treaty with the U.S.? If it does, any tax you pay to the foreign country is deducted dollar-for-dollar from your U.S. income tax. If the income tax rate is less than the U.S., you’ll still owe the IRS something, but not as much.

• How does the jurisdiction tax property? Many countries have much lower property taxes than in the U.S. If you live in a high property tax area like New York or California, for example, you may generate the biggest tax savings not via income tax, but by selling your U.S. property and using it to buy real estate in a foreign jurisdiction with low property rates.

• Would the cost of living in your new jurisdiction offset any potential tax savings? It would be great to live in Monaco, but I have a feeling you’d end up spending a lot more than you’d save in tax on accommodation, healthcare, food, and other necessities.

• On the flip side of this, what social benefits would you get by becoming a resident of the foreign jurisdiction? For example, let’s say you move to a European country whose income tax is less than the U.S., but not nothing. But in return for that foreign income tax, healthcare is essentially free.

I’m sure you get the point: Just as there is no best-ever guitarist, there is no “best” foreign tax jurisdiction. It depends on your circumstances, your goals, and what’s possible and practicable in terms of residence and citizenship considerations.

That’s precisely why I’m going to be presenting a special seminar on April 27th to take a deeper dive into these issues. It’s called How to Pay Zero Taxes and at this event, I’ll guide you through three legal, feasible blueprints for paying zero U.S. tax.

Get all the details here.