Offshore Tax Havens
The words "expat", "retirement" and "tax haven" are used together so frequently that you would think it possible to just open a book, pick a tax-free country from the list, and move there.
Well, actually, it is that easy, but it's not a good idea without doing some tire kicking first.
It doesn't make a lot of sense to pick up your family and move to a new country simply to take advantage of its tax benefits. This is especially true when you can actually live almost anywhere in the world that you want to without incurring any significant tax liability if you know how to legally play the game.
If you break apart the phrase "Tax Haven" you are left with two words. One of those words is "Haven". Trust me on this, there are plenty of countries that may be expat tax-friendly, but I wouldn't describe the quality of life as being anywhere near a haven.
The key to selecting a retirement country is to find one that provides the best overall quality of live, not just the best tax treatment. Some of the major considerations include:
- Language differences
- Type and stability of government
- Religious freedom and tolerance
- Racial tolerance
- Quality of Life
- Cost of living
- Environmental issues
- Tax structure
Every country has its plusses and minuses, so take the above list and prioritize it to suit your own needs. Then use it as the basis for scoring the countries that you are considering moving to.
The perception of what makes an acceptable tax structure is truly in the eyes of the beholder. For example, many Americans become expats to escape the relatively high income tax structure in their country. But "relatively high" to what?
U.S. income tax on retirement income can be as low as 12.5% with some tax planning and 0% if 100% of the retirement income comes from a tax-free retirement savings account. Compare that to the U. K. where VAT and income tax can consume 50% or more of your retirement income, and suddenly the U.S.A. looks like a Tax Haven to the guy in Liverpool.
Rules for Legal Tax Avoidance
There are plenty of perfectly wonderful places in the world that do not exempt expat retirement income from taxes, yet they open loopholes that are so big you could drive a Humvee through them.
Many countries do not consider you to be a resident for tax purposes unless you spend more than 182 consecutive days living there. That's exactly the kind of loophole that has created the "six and six" economy that attracts Canadians to Florida every winter where they languish in the sun for six months without paying a penny in U.S. income tax.
Of course, you have to be able to afford to maintain two part-year residences, but that doesn't seem to be a problem for a lot of retirees.
Our advice is for you to put tax structure on the bottom of your country selection scorecard. Then take the time to find a country that will make you look forward to living every day there to its fullest. Once you have the spot picked out, you can let your accountant help you find the loopholes in the tax laws.