Most people decide to consider tax haven residency as they begin to build a strong business, after they have amassed a significant investment portfolio, or as they consider their standard of living in future retirement years. By gaining residency in a tax haven or otherwise beneficial, individuals can legally minimise or eliminate their personal taxation.
Don’t be fooled though, making the move to a tax haven is not a simple task. While trying to obtain residency in one of these countries, there can be significant costs, a load of hassles and depending on where you choose, a significant cultural barrier. Let’s start with the basics.
Are You Willing to Leave Your Home Country?
This is the most important question of the topic, because if you’re not willing to physically spend a significant amount of time outside of the country where you are currently a tax resident, it’s pointless going any further. Depending on where you are from, your home country will offer some tax residency tests to determine if you are a resident for tax purposes. The most basic of these tests start with the number of days in which you have spent in that country. As a general rule, if you won’t or can’t leave your home country for the majority of the year, they will consider you a tax resident. Here are some over-simplified examples:
If you are wondering why the United States isn’t in that list, it’s complicated. We’ll discuss this when we delve deeper into how to become a non-resident for tax purposes. As you can see, if you’re not spending less than half the year away from “home”, it’s not necessarily impossible to claim tax residency elsewhere, but it’s going to take some work.
The real solution here is gain tax haven residency by establishing a home in a new country. If you can genuinely find a happy life in a new country that offers no or low taxation, your holidays to home will be exactly that – holidays, rather than some debatable time that you spend back in your country of prior tax residence.
So What Are Your Options?
It’s time to break out your analysis skills. When considering tax haven residency it’s important to remember that no country is perfect. What works for one person won’t work for another. Start to ask yourself the following questions:
- What is the climate?
- Is there a major airport nearby? Is it cheap to fly to home or your favourite destinations?
- Will I feel safe?
- How much of the year am I willing to spend in this country?
- What is the cost of living?
- Am I willing to pay some tax for the right country?
- What language is spoken?
- How welcoming are the people?
- What religion is practised there? Can I accept that value system?
- Do I need a work permit in the country, or can I only work for myself?
- How much (if anything) do I need to invest to gain residency?
This is before you consider subtleties such as whether or not there is a surf beach or golf course nearby, whether or not you can get your favourite snacks in that country or how reliable the internet is. Here are a handful of options you might find worth considering:
- Maximum income tax rate: 10%
- Residency requirements start with a €400,000 investment with €50,000 bond and only a 90 day requirement, down to the cost of a company formation but the requirement to spend the majority of your year in the country.
- Said to be one of the safest countries in the world.
- Cost of living is very reasonable, though real estate is more expensive.
- The official language is Catalan, though Spanish, French and Portuguese is widely spoken.
- Andorran citizens only make up around 30% of the population, meaning you’re not going to feel like the odd one out.
- There is no airport inside Andorra. The nearest practical international airport is Barcelona, around 3 hours drive by car.
- Andorra could be considered one of the most beautiful tax havens around.
- Living in Andorra can be cold in Winters as it is high in the mountains.
- Located between Spain and France, many desirable holiday locations are located nearby.
- Panama has a territorial tax system, meaning that both corporate and personal income from outside of the country is tax exempt.
- Maximum income tax rate: 27%
- The “Friendly Nations visa” is possibly the cheapest and easiest residency program around, assuming your country is on the list. Setup costs are likely under US$10,000.
- Panama is claims to be one of the safer countries in Central America. Only you can decide if this is safe enough for you.
- The climate is warm year round. The wet season can bring torrential rain.
- Depending on your standard of living and what you like to consume, cost of living can range from very cheap to very expensive. If you want to live in a Casco Viejo townhouse with high quality finishes and eat the same cereal you did at home, it’s going to be an expensive exercise.
- The official language is Spanish. English is rare outside of the major tourist areas.
- Panama City airport is well serviced to North America, but less so to the rest of the world. Expect connecting flights.
- The country has Catholic values, which may suit many expats.
- Panama is a developing country. There is beauty (and opportunity!) behind the trash, but only you can tell if you are able to look past the imperfections and find a country that you can spend time in.
- It doesn’t feel much more cosmopolitan than sitting at a rooftop bar in Casco Viejo, the city’s old slums, now reborn.
- Territorial tax system – offshore tax is exempt
- Maximum income tax rate: 25%
- The “Malaysia My Second Home” (MM2H) visa is even easier to get than Panama’s Friendly Nations visa, it does cost more however. Applicants under the age of 50 will need a RM300,000 deposit in a Malaysian bank account to be eligible.
- There is no time requirement to be in the country to retain your residency status.
- Flying out of Kuala Lumpur airport is about as well connected as it gets. Worst case scenario, a cheap flight to Singapore will see you on your way.
- Cost of living is increasing, but if you would be eating our anyway, Malaysia is very affordable. Penang, a popular location for expats is significantly cheaper than Panama City.
- Though not as regulated as other countries in South East-Asia, the Malaysian real estate market is probably not as free as you are used to.
- The official language is spoken, however English is widely spoken in much of the country – more so than Panama.
- Sunny, warm and often humid, you either love or hate the climate in Malaysia.
- Malaysia is a country with mostly Islamic values.
- Do yourself a favour and make it to the East coast of Malaysia before it is completely developed. Divers will love to island hop through this area.
- A short term incentive, New Zealand offers a four year tax exemption on foreign income for new migrants and returning citizens.
- Maximum income tax rate: 33%
- Unless you are Australian, like most developed countries, you’ll need to jump through hoops to get a visa.
- For those that enjoy their space, New Zealand is about as good as it gets. There’s lots of space on the South Island.
- Cost of living is moderate – to be expected from such a developed country.
- New Zealand is a very safe, very clean country.
- Auckland is a very well connected airport.
- So long as you keep a property for more than two years, there is no capital gains tax.
- Used to film the Lord of the Rings trilogy, New Zealand is a spectacular country that is well worth the visit.
There Are Plenty of Options for Tax Haven Residency
This is nowhere near an exhaustive list. It’s importantly to think outside of the box when it comes to your residency. Tax havens are not necessarily countries that have a 0% tax rate, it all depends on how the individual uses the laws in that country. If you are using flag theory for example, territorial taxation can work very well for you.
Some other options worth considering include:
- The Bahamas
- British Virgin Islands
- Cayman Islands
- Costa Rica
- Hong Kong
- Norfolk Island
- Turks and Caicos Islands
- United Arab Emirates
Make a short list and see these countries for yourself. What works for one person will not work for another and a country on paper is very different to seeing it and living it in person. It’s part of the fun!