The Most Tax-Friendly Places to Retire Abroad

These overseas retirement spots will reduce your tax burden.

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You don’t want to organize a new life overseas around the tax code, but sometimes lower taxes can converge with a pleasant retirement locale. It is possible to relocate to the overseas Shangri-la of your fondest daydreams while, at the same time, reducing your tax burden, maybe to zero.

[See The 10 Best Places to Retire in 2012.]

Many countries are relatively tax-friendly when it comes to retirees. A foreign resident’s pension or Social Security income is often not taxed. This is the case in Panama, Belize, Costa Rica, Uruguay, Ecuador, and Malaysia. Retire to one of these countries with only pension or Social Security income, and you will have no local income tax liability.

Things get more complicated when you have passive (investment) or earned (wages or business, including self-employment) income. The first thing to understand when considering your tax burden as a retiree overseas is that tax rules vary greatly from jurisdiction to jurisdiction. A few countries including the United States tax residents on their worldwide income. These are places where becoming a legal foreign resident is expensive.

Some countries tax foreign residents on a remittance basis, which means they expect their share of any money you bring into the country, such as Thailand. This can work to your advantage if you earn your money outside the country and are able to live on little. In this case, you could earn millions of dollars a year, from either passive or earned income, but, as long as you kept most of your millions outside the jurisdiction where you’re residing, you wouldn’t owe any tax on it locally.

[See 6 Affordable Places to Retire Abroad in 2012.]

Some countries tax foreign residents only on income earned locally. In this case, you could not only earn millions outside the country, you could even theoretically bring your millions into the country to spend as you like. As long as you didn’t earn the money locally, the local tax collector would have no claim. This is as good as it gets from a tax-planning point of view.

Of course, income tax is only one tax you might be liable for living overseas. In addition, countries impose sales tax (these rates vary dramatically and are typically highest in Europe), property tax (this is not a concern if you rent, rather than own your own home), and capital gains tax (this is probably not an issue for retirees except for gains related to the sale of real estate).

[See The 10 Sunniest Places to Retire.]

As you consider the total potential tax liability as a foreign resident in some of the world’s top overseas retirement havens, take a look at the following figures. Note that the world’s most tax-friendly jurisdictions for foreign residents overall are Belize, Panama, Malaysia, and Uruguay.

Argentina

  • Income tax: 9 to 35 percent on worldwide income
  • Sales tax: 21 percent
  • Property tax: None in Buenos Aires; 1.2 to 1.5 percent outside Buenos Aires
  • Capital gains tax: None
  • Tax on foreign retirement income? Yes
  • Belize

    • Income tax: Up to 45 percent on income earned in Belize only
    • Sales tax: 12.5 percent
    • Property tax: 1 to 1.5 percent
    • Capital gains tax: None
    • Tax on foreign retirement income? No
    • Colombia

      • Income tax: Up to 33 percent on worldwide income
      • Sales tax: 16 percent
      • Property tax: Up to 1.6 percent
      • Capital gains tax: 33 percent
      • Tax on foreign retirement income? Yes
      • Costa Rica

        • Income tax: Up to 25 percent on income earned in Costa Rica only
        • Sales tax: 13 percent
        • Property tax: .25 percent
        • Capital gains tax: None
        • Tax on foreign retirement income? No
        • Croatia

          • Income tax: 12 to 40 percent on worldwide income
          • Sales tax: 23 percent
          • Property tax: .70 euro to 1 euro per square meter
          • Capital gains tax: 25 to 40 percent
          • Tax on foreign retirement income? Yes
          • Ecuador

            • Income tax: Up to 35 percent on worldwide income
            • Sales tax: 12 percent
            • Property tax: .25 to .5 percent
            • Capital gains tax: Taxed as ordinary income
            • Tax on foreign retirement income? No
            • France

              • Income tax: 17.8 to 53.3 percent on worldwide income
              • Sales tax: 19.6 percent
              • Property tax: The two property-related taxes amount to about .2 percent
              • Capital gains tax: 31.3 percent
              • Tax on foreign retirement income? Yes
              • Ireland

                • Income tax: Up to 41 percent on worldwide income
                • Sales tax: 21 percent
                • Property tax: None
                • Capital gains tax: 25 percent
                • Tax on foreign retirement income? Yes
                • Italy

                  • Income tax: Up to 43 percent on worldwide income
                  • Sales tax: 20 percent
                  • Property tax: .4 to .9 percent
                  • Capital gains tax: Taxed as ordinary income
                  • Tax on foreign retirement income? Yes
                  • Malaysia

                    • Income tax: Up to 26 percent on income earned in Malaysia only
                    • Sales tax: 5 percent
                    • Property tax: 6 percent
                    • Capital gains tax: None
                    • Tax on foreign retirement income? No
                    • Mexico

                      • Income tax: Up to 30 percent on worldwide income
                      • Sales tax: 16 percent
                      • Property tax: .275 to 1.35 percent
                      • Capital gains tax: Taxed as ordinary income
                      • Tax on foreign retirement income? Yes
                      • Panama

                        • Income tax: Up to 30 percent on income earned in Panama only
                        • Sales tax: 7 percent
                        • Property tax: Up to 2.1 percent (some properties are exempt)
                        • Capital gains tax: 10 percent
                        • Tax on foreign retirement income? No
                        • Philippines

                          • Income tax: 5 to 32 percent on worldwide income
                          • Sales tax: 12 percent
                          • Property tax: 1 to 2 percent
                          • Capital gains tax: 6 percent
                          • Tax on foreign retirement income? No
                          • Spain

                            • Income tax: 24 to 49 percent on worldwide income
                            • Sales tax: 18 percent
                            • Property tax: 3.3 to 3.4 percent
                            • Capital gains tax: 19 to 21 percent
                            • Tax on foreign retirement income? Yes
                            • Thailand

                              • Income tax: Up to 37 percent on income remitted to Thailand
                              • Sales tax: 7 percent
                              • Property tax: None if owner-occupied
                              • Capital gains tax: None
                              • Tax on foreign retirement income? No
                              • Uruguay

                                • Income tax: Up to 30 percent on income earned in Uruguay only
                                • Sales tax: 22 percent
                                • Property tax: .25 to 1 percent
                                • Capital gains tax: 12 percent
                                • Tax on foreign retirement income? No
                                • Kathleen Peddicord is the founder of the Live and Invest Overseas publishing group. With more than 25 years experience covering this beat, Kathleen reports daily on current opportunities for living, retiring, and investing overseas in her free e-letter. Her book, How To Retire Overseas—Everything You Need To Know To Live Well Abroad For Less, was recently released by Penguin Books.