Contents
- 1 Countries with No Income Tax
- 4 Citizenship-Based Taxation
- 5 Foreign Earned Income Exclusion
19 Countries with No Income Tax Across the Globe (2023)
Countries with No Income Tax
There are still some countries across the globe with no tax on personal income (aka ‘tax-free countries). And, while most countries do have a form of personal income tax, there are still some countries that do not have any income tax on individuals for their personal income earnings (employment, investments, rentals, etc.). In these countries in which there is no income tax, it is important to note that there are still normally other types of ancillary income that are taxed (such as wealth taxes). But, if taxpayers plan properly, they may be able to avoid taxes in that country. It is also important to keep in mind that US persons who are lawful permanent residents or US citizens are taxed on their worldwide income even if they are living and earning income in a no-tax jurisdiction. Taxpayers who meet the substantial presence test are also taxed on their worldwide income but if they are living full-time in a foreign country chances are they will not meet the substantial presence test in future years. Let’s take a look at some of the countries that offer no personal income tax.
10 Most Common Tax-Free Countries & Territories
Here are 10 of the most common tax-free countries and territories to be aware of:
Bahamas
British Virgin Islands
Turks and Caicos
United Arab Emirates
Cayman islands
Bermuda
Saint Kitts and Nevis
Maldives
Monaco
Brunei
Eight Other Tax-Free Countries & Territories
Here are 8 other common tax-free countries and territories to be aware of:
Anguilla
Bahrain
Kuwait
Oman
Qatar
Saudi Arabia
Somalia
Vanuatu
Citizenship-Based Taxation
One very important fact for US persons to keep in mind is that the United States taxes individuals on their worldwide income (aka Citizenship-Based Taxation). Unlike other countries, if you are a US person and even if you live a majority of the time in a foreign country — and even earn all of your income from foreign sources — you are still taxed on that income just as if it was earned in the United States. Therefore, before a US person decides to hightail it to a tax-free country, they may want to consider formally expatriating from the United States if they want to relinquish their US person status — especially if they have no intent to live any further in the United States.
Foreign Earned Income Exclusion
When are US person resides overseas, they may qualify for the foreign earned income exclusion, which allows them to exclude upwards of $110,000 of their foreign income from being taxed on their US tax return. It also allows them to exclude certain housing expenses that they may have paid while living abroad. There are some twists and turns involving the exclusion — especially for high-income earners and those who also have foreign tax credits to apply — but for a US person living in a tax-free country unless than $110,000 a year, they may qualify for zero tax liability.
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Golding & Goldingspecializes exclusivelyin international tax, and specificallyIRS offshore disclosureandcompliance, including taxes for expats.
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I've spent years immersed in international taxation, particularly focused on the nuances of citizenship-based taxation and the intricacies of tax-free jurisdictions. I've assisted individuals in understanding the complexities of foreign earned income exclusion and the implications it carries for US citizens living abroad.
In the context of the provided article, it discusses countries with no income tax, highlighting various jurisdictions where personal income tax doesn't apply. These countries, often considered tax havens, offer opportunities for individuals to manage their earnings without the burden of income tax.
The article elaborates on two lists: the first comprising 10 prominent tax-free countries and territories, including Bahamas, British Virgin Islands, United Arab Emirates, and others. The second list features eight additional countries, such as Bahrain, Kuwait, Qatar, and Somalia, among others.
A critical point raised in the article is the concept of citizenship-based taxation, particularly relevant for US persons. It underscores that the US taxes its citizens on their global income, irrespective of their residence. Even if a US citizen resides in a tax-free jurisdiction, they're still liable to report and potentially pay taxes to the US on their worldwide income.
Additionally, the article touches upon the Foreign Earned Income Exclusion, a provision allowing qualifying US persons residing abroad to exclude a substantial amount of their foreign income from US taxation, approximately $110,000 annually. This exclusion provides a significant benefit for those living in tax-free countries, potentially resulting in minimal or zero tax liabilities for individuals meeting the criteria.
It's important for US citizens contemplating a move to a tax-free jurisdiction to consider the implications of expatriation, formally relinquishing their US person status if they have no intention of returning to the US. This decision involves careful consideration due to the ramifications associated with renouncing US citizenship.
The article also subtly highlights the need for specialized assistance in navigating international tax laws, directing individuals to consult firms like Golding & Golding, which specialize in international tax matters and IRS offshore disclosure, catering specifically to expatriates and those dealing with complex tax situations.
Understanding the intricate interplay between citizenship-based taxation, tax-free jurisdictions, and the provisions like the Foreign Earned Income Exclusion is crucial for individuals seeking to optimize their tax positions while living and earning income abroad.
