I’m often asked where can I live Offshore and pay the least amount of taxes?
If you’re earning good profits from your investments there’s no real reason why you need to stay where you are. In the internet age, in most instances, you could just as easily trade from overseas as you could from your current place of residence.
One of the key questions though is where to go Offshore? There’s no point in ‘jumping out of the frying pan and into the fire’. You need to ensure that wherever you move to overseas the net result will be a reduction in the amount of tax you pay each year across the board. If you want to avoid tax altogether on your income and/or capital gains as applicable you essentially have 4 choices:
- Nil tax havens
- Countries with no income tax
- Foreign Source exempt havens
- Countries with no Capital Gains Tax (“CGT”)
Nil Tax Havens
These are simply countries that do not have any of the three main direct taxes:
• No income tax or corporation tax
• No capital gains tax, and
• No inheritance tax
Many of the nil tax havens you’ve probably heard of or read about in novels. You may even have holidayed in some of them. They include:
• The Cayman Islands
• St Kitts and Nevis
• The Bahamas
• The Turks & Caicos Islands
Although there are no taxes in these Offshore Jurisdictions, the tax haven governments still need to generate some revenue to provide public services. They may therefore impose small fees for Offshore Company Incorporation documents or annual registration fees for companies. However, these charges are fixed and usually small.
If you’re looking at living in one of these Offshore Jurisdictions and generating profits from financial investing or trading most of these charges won’t apply and you should be able to live with little state involvement in your affairs. The only tax charges that would then affect you would be import duties or local sales taxes.
Countries With No Income Tax
The below mentioned countries generally speaking do not levy a tax on income regardless of where the income is/was sourced:
- Cayman Islands
- The Bahamas
- Saudi Arabia
- Brunei Darussalam
Re UAE: While expatriate employees don’t pay for social security in the Arab country, U.A.E. citizens must make monthly contributions of 5 percent of their total earnings for social security. Employers of citizens also have to make monthly contributions of 12.5 to 15 percent of the worker’s base salary for social security and pensions.
Re Qatar: Qatar nationals have to pay 5 percent of their income for social security benefits, while employers contribute 10 percent for the fund.
Re Oman: Oman citizens must contribute 6.5 percent of their monthly salary for social security benefits.
Re Kuwait: Kuwaiti nationals must contribute 7.5 percent of their salaries for social security benefits; their employers make an 11 percent contribution.
Re Bahrain: For social security benefits, Bahrain citizens contribute 7 percent of their total income to the government, while expatriates pay 1 percent. Employers must also make a contribution of 12 percent of a citizen’s income for social insurance, and pay 3 percent for expatriate employees.
Re Bermuda: While there is no income tax, Bermudan workers may be asked by employers to contribute just under half of a 14 percent payroll tax
Re Saudi Arabia: No tax on salaries applies in SA but self-employed expats are taxed at the rate of 20% (Saudi employees also pay 9% social security levy)
Re: Brunei Darussalam: In BD employees must pay 5% to a Social Security Fund
Foreign Source Exempt Havens
These countries do levy taxes and sometimes they can be pretty high. However, what makes them tax havens is the fact that they only tax you on locally derived income. In other words, if all your income is derived outside the tax haven you will not pay any tax.
Good examples of foreign source exempt tax havens are:
• Costa Rica
• Hong Kong
Many of these also don’t have any CGT. The net result is that share or financial investors could certainly live in one of these countries to avoid tax on an overseas investment portfolio.
If you are actively trading from the country there is a risk that the local tax authorities could tax the income. In practice though many financial traders, providing they are trading on international markets, would not be subject to any local taxes.
Countries With No Capital Gains Tax
A Capital Gain is a profit made on the sale/disposal of a Capital Asset (eg a piece of real estate, or a business or a parcel of shares).
Countries who do not levy CGT Include:
- New Zealand
- Hong Kong
- Malta (no CGT on gains made outside of Malta)
- Puerto Rico
- Isle of Man
- Sierra Leone
- Sri Lanka
Note re Singapore: For those who trade professionally buying and selling securities frequently to obtain an income for living (ie professional “traders”) these trading profits will be considered income and subject to personal income tax rates.
Note re Taiwan: No tax is collected from individual investors whose annual transactions are below T$1 billion ($33 million). Transactions above T$1 billion will be charged with a 0.1 percent tax.
Note re Thailand: There is no separate capital gains tax in Thailand. If a capital gain arises outside of Thailand it is not taxable. All earned income in Thailand from capital gains is taxed the same as regular income. However, if an individual earns a capital gain from buying and selling a security in the Stock Exchange of Thailand, it is exempted from personal income tax.
Note re Turkey: The Capital gains tax rate on share certificates for residents is 0% as of 2013 for two years of holding period