Live Tax-Free Abroad: The Best 9 Countries For Expats With Territorial Tax Systems

If you want to pay zero income taxes, you don’t need to move to expensive countries like Monaco and the UAE or territories like the Cayman Islands. A common misconception is that the options to live in a low-tax country are limited, always at the expense of facing higher living costs. However, this is not always the case.

There’s an alternative way to crack the system and get the best of both worlds: an affordable cost of living and zero income taxes. But how can you do this? 

Contrary to other countries that tax their residents on their worldwide income, a handful of jurisdictions allow you to keep all the money you have earned as long as it is generated outside their borders. 

That’s what you get with territorial taxation. 

In this article, you will discover our top 9 countries that offer territorial taxation, allowing you to pay zero tax on your foreign-sourced income and use your money however you please. 

From Asian tigers to slices of paradise in Latin America, this article will reveal the top 9 countries with a territorial tax system. Keep reading to find out more. 

Traditional tax havens like the Cayman Islands, the Bahamas, and Gulf countries have a high cost of living. However, countries like Nicaragua and Paraguay offer low taxes and more affordable expenses

TERRITORIAL TAXATION VS. OTHER TAX SYSTEMS 

Taxation can often feel like a heavy burden, especially when your hard-earned money seems to be endlessly eaten away by the taxman. In many OECD (Organization for Economic Co-operation and Development) countries, taxes are constantly increasing, and there's even talk of a global minimum tax on multinationals’ profits. The more you earn, the higher the tax bracket you find yourself in.

Understanding the different tax systems can help you make a strategic decision about where to establish your tax residency:

• Residency-Based Tax Systems: Taxes are levied based on where you live. If you reside in a country that uses this system, you pay taxes according to that country's laws on all worldwide income. Examples include the UK, Canada and France. 

• Citizenship-Based Tax Systems: Citizens are taxed on their global income regardless of where they live. This system is less common and can lead to complex tax situations, especially for those living abroad. The only two examples are Eritrea and the United States.

• Territorial Tax Systems: Only the income earned within the country is taxable. Income from outside the country isn't subject to tax, making it a favourable option for those earning abroad. 

WHY CHOOSE A TERRITORIAL TAX SYSTEM?

Choosing a country with a territorial tax system offers various benefits for expats who earn their incomes outside their countries of residence. Here’s why opting for this system can be a game-changer for your financial freedom:

• Minimal Tax Burden: In countries with a territorial tax system, generally, you only pay taxes on income earned within the country’s borders. Although exceptions exist, income generated abroad remains tax-free, offering substantial savings to digital nomads, remote workers, foreign retirees, or investors with international earnings. 

• Improved Financial Freedom: Retaining more of your income allows you to invest in your future, whether growing a business, saving for retirement or building a diversified portfolio. With minimal tax obligations, you can allocate your resources in ways that suit your financial goals.

• Potentially Lower Cost of Living: Traditional tax havens, such as the Cayman Islands, the Bahamas, or Gulf countries, tend to have high living costs. However, some territorial tax countries, such as Paraguay or Nicaragua, offer a combination of low taxes and affordable expenses, thereby allowing for more disposable income. 

• Simplified Tax Compliance: International tax laws can be daunting, forcing you to be careful not to make mistakes. However, a territorial tax system simplifies your tax obligations, helping you stay compliant. 

• Attractive Residency Programs: Countries with territorial tax systems typically offer welcoming residency programs to attract foreign investment. Benefits include fast-tracked residency and even pathways to citizenship.

Income tax for individuals in Ireland can reach up to 40%, but as a country with territorial taxation, you can benefit from the non-domiciled status

TOP 9 COUNTRIES WITH TERRITORIAL TAXATION

Remember that to benefit from territorial taxation, you must become a tax resident of a country with this tax system. So, as a general rule, expect to spend more than 183 years in your country of choice. 

Below, you will find our top 9 countries for leveraging this system. Note that our ranking considers not only the existence of a territorial tax system but also other important factors such as cost of living, lifestyle and residency options. 

#9. IRELAND

Ireland is popular in the business world and is commonly referred to as the regional headquarters of tech companies in Europe. Indeed, compared to other countries in the EU, Ireland has excellent tax benefits, such as a 12.5% corporate tax. Now, the income tax on individuals can really get as high as 40%, so how can you benefit from territorial taxation in Ireland? Through the non-domiciled status, also known as non-dom. 

Generally speaking, if you have ties in a foreign country other than Ireland (your ‘domicile’ as per Irish tax law), your foreign-sourced income is tax-free as long as it is not transferred to Ireland. In other words, the income you generate must be kept in a country other than Ireland. Note that your domicile will be determined on a case-by-case basis, and your Irish-sourced income will be taxable. 

Also, keep in mind that the cost of living in Ireland is high, making it the second most expensive country in the European Union and the fourth most expensive in the EEA, according to Eurostat. The economy suffered from the financial crisis of 2008, but after embracing policies aligned with economic freedom and free markets, it grew so fast that in 2022, its per capita income surpassed the $100,000 USD mark.  

Costa Rica has had a territorial tax system since 1946. The rule for foreign income is simple: you dont pay income tax in the country if the money was earned abroad

#8. COSTA RICA

This is one of the many Latin American countries boasting territorial taxation on our list, but that does not mean it is just another choice. Costa Rica comes with lots of benefits, such as good weather, locally-grown food, friendly people, and even the finest coffee beans in the world. When it comes to taxes, Costa Rica has a long tradition of territorial taxation dating back to 1946. 

Many Americans and other expats have flocked to Costa Rica because of its year-round good weather, beautiful nature, and compelling tax benefits. The rules for taxation on foreign-sourced income are simple: You don’t pay income taxes in Costa Rica if your money was earned abroad. 

The cost of living in Costa Rica is relatively high compared to other Central American countries like Nicaragua, Honduras, and even Panama. Rents in San José can easily range between $500 USD and $1,000 USD, depending on where you live. Also, property in beach towns can get more expensive. 

Costa Rica offers multiple visa options, both temporary residency and permanent residency. For example, if you work as a freelancer or have a business, you can opt for a freelancer visa. Or, if you are a retiree, you can go for a pensionado visa.

Hong Kong follows the principle of territorial taxation, meaning all foreign-generated income is tax-exempt. This is why many multinationals establish their regional headquarters there

#7. HONG KONG

While living in the UAE, Hong Kong was one of the countries we considered moving to due to its beneficial tax regime and thriving financial industry. The major downside is the expensive housing market, forcing many residents to pay top dollar for tiny houses. Besides that, Hong Kong is a prime location for travel enthusiasts, as it is well-connected to the rest of Asia, with many flights stopping at the international airport. 

Hong Kong’s tax system is based on the principle of territoriality, so as a general rule, all income generated abroad is tax-free. This is one of the reasons why many multinationals, also known as multinational entities (MNE) in Hong Kong’s law, establish their regional headquarters here. Note that the Foreign-source Income Exemption (FSIE) Regime was updated, and some income may be liable to tax. 

The cost of living in Hong Kong is extremely high, especially when considering the housing market. To illustrate this, consider the construction cost per square metre is $4,500 USD, which is more expensive than in cities like London. The price of other expenses like groceries may be high, as food must be imported, but surprisingly, dining out can be rather cheap, especially if you choose Hong Kong-style restaurants. 

Residency options are varied, including special visas for investors and entrepreneurs. Hong Kong is expat-friendly and open to attracting talent and capital, as well as a reputed financial center and offshore jurisdiction. 

Belize, in addition to being an exuberant paradise with great cultural appeal and lifestyle, is also an offshore financial center, making it a prime destination for expats and investors

#6. BELIZE

This tropical haven boasts a beautiful Caribbean coastline, coral reefs and a diverse cultural heritage. Nature and adventure enthusiasts can explore lush jungles filled with wildlife or dive into the Great Blue Hole, further proving the country’s paradise-like status. The country’s festivals, music and cuisine, reflect a blend of Creole, Mayan and Mestizo influences; you can try delicious dishes such as rice and beans, stewed chicken and tamales. Although this country is English-speaking and a Commonwealth member, expect some Latino influence.

Beyond its cultural and lifestyle appeal, Belize is a popular offshore financial center, making it a prime destination for expats and investors looking to mitigate their tax bills. In addition to affordable, high-quality real estate and an English-speaking population, the country’s territorial tax system offers significant savings. Belize offers an appealing lifestyle and a favourable tax regime, making it an ideal location if you want to pay little to no tax while basking in the sun. 

The country’s economy relies heavily on tourism and agriculture, so prices may fluctuate depending on where you live. If you opt for locally-grown food, you can expect more affordable prices than if you want imported ones. To put things into perspective, rents in Canada, according to Numbeo, are over 225% higher than in Belize.

Residency options, whether permanent or temporary, are available in Belize. Those interested in pursuing permanent residency may achieve it in various ways, such as working for an employer, being self-employed or even as a rentier or pensionist.

Singapore is one of the most business-friendly countries with low taxes in the world. It also has a territorial tax system, meaning your foreign income will be entirely yours

#5. SINGAPORE

Our list can’t be complete without one of the business-friendliest, low-tax countries in the world: Singapore. Ever since its independence, this tiny city-state has worked on attracting foreign investment to compensate for its lack of natural resources; these days, it is one of Asia's financial and transportation hubs, generating thousands of jobs and boasting one of the highest per-capita incomes in the world.

And guess what? Singapore also has a territorial tax system. If your income is foreign-sourced, it is completely yours unless received through a partnership. Otherwise, any money earned from work, business or investments outside Singapore would be tax-free (e.g., dividends from foreign investments or salaries from a job overseas).

Even though Singapore is one of the tax- and business-friendliest countries on Earth, it comes with a hefty price tag. In 2022, the per capita income was over $70,000 USD, and rentals are costly. Moreover, a 60% property tax applies to foreigners from countries other than the United States, Iceland, Liechtenstein, Norway or Switzerland. 

Residency options, whether permanent or temporary, are numerous. For example, high-net-worth individuals (HNWIs) can opt for the Global Investor Programme, which is suitable for business people in multiple industries.   

Uruguay is among the safest countries in Latin America. While it may not initially appear tax-friendly, obtaining tax residency grants you a full exemption on foreign income for 11 years

#4. URUGUAY

Uruguay is a country between Argentina and Brazil, offering many perks expats often look for, such as a strong banking system, stability, safety, and a relaxed lifestyle. The locals often say, “Nothing happens in Uruguay,” meaning life is laid-back and tranquil. Think no wars, little to no crime, and one of the safest countries in Latin America. Also, don’t forget to try the typical Uruguayan ‘asado’ featuring world-class, grass-fed beef. 

On the surface, Uruguay may not seem tax-friendly, but if you obtain tax residency, you can enjoy a full exemption on your foreign-earned income for 11 years (the year you obtain the tax residency and an additional ten). Additionally, Uruguay offers tax incentives, a solid rule of law, and free capital flows. 

Uruguay's cost of living is not that affordable; for example, the U.S. is 30% more expensive than Uruguay. However, the economy is one of the most developed in Latin America, with an upper-middle-income population and a 22% sales tax, which affect the country's high price tag. Still, Uruguay could be a solid Plan-B location, offering multiple investment options in real estate, timber, and farmland. 

In addition to its territorial tax system, Nicaragua is a very attractive destination for expats, as its cost of living is about 63% lower than that of the USA, including rent

#3. NICARAGUA

Nicaragua, often called the Land of Lakes and Volcanoes, is a stunning paradise in Central America, with a variety of landscapes that include beautiful coastlines along the Pacific Ocean and the Caribbean Sea, as well as impressive volcanoes and vast lakes. The country also offers various residency options that appeal to retirees, investors, and entrepreneurs. The Pensionado Program, for example, is designed for retirees who can demonstrate a steady income from abroad.

Nicaragua operates a territorial tax system, making it an attractive destination for expats seeking tax efficiency. In addition, Nicaragua boasts a very low cost of living, allowing expats to enjoy a comfortable lifestyle without breaking the bank. Indeed, Nicaragua is around 63% cheaper than the U.S., including rent. Affordable healthcare, housing, and everyday expenses make Nicaragua a viable option for those looking to stretch their retirement savings or earnings from abroad. 

Residency options are numerous in Nicaragua, whether you want to live as a retiree, rentier, digital nomad or qualified investor. One of the most favourable visas grants you permanent residency in Nicaragua just by investing $35,000 USD in government-approved reforestation programs.

With various residency options, Panama offers the Qualified Investor Visa, which grants permanent residency if you invest $300,000 in real estate (with a chance of increasing to $500,000 in October)

#2. PANAMA

Panama is my current home, and after living here for over five years, I can tell you that I don’t regret moving here at all. I used to reside in Abu Dhabi due to the UAE’s zero-income-tax policy, but I realized that Panama offers the same benefit for income generated abroad (see Tax Code, Article 694). Additionally, Panama's privileged location allows me to travel easily to other countries and operate my business conveniently within the US time zones.

Panama’s cost of living is the highest in Central America, but it is still, in general, far from what you may encounter in the US, Canada and some European countries. However, in Panama City, you can find nice rentals for under $1,200 USD. Groceries are reasonably priced but may be more expensive than in Paraguay or Nicaragua, for example. Dining out may be expensive if you opt for upscale restaurants but affordable if you eat at a local ‘Fonda’ (small family-run restaurant). Other costs like energy and transportation are economical.

Residency options in Panama are extensive, especially if you want to invest in the country. For example, the Panama Qualified Investors Visa grants you permanent residency if you invest $300,000 USD in real estate (though the threshold is expected to go up in October 2024 by $200,000 USD). Panama is a business- and tax-friendly country that offers additional perks, such as no inheritance, gift, or wealth tax, allowing expats to retain more of their hard-earned money. 

Paraguay also offers numerous residency options. Specifically, you can obtain permanent residency by starting and investing $70,000 in your own business

#1. PARAGUAY

Paraguay, located in the heart of South America, is known for its warm hospitality, rich cultural heritage, and diverse landscapes. From the vibrant capital city of Asunción to the tranquil countryside and up-and-coming Ciudad del Este, Paraguay offers a wide range of profiles. Though not that popular among expats, Paraguay makes an interesting tax residency option. 

Paraguay’s territorial taxation is a major draw for expats with foreign-sourced income. In addition to this massive perk, the cost of living in Paraguay is low. In particular, the cost of living in the U.S. (including rent) is over 200% more expensive than in Paraguay. Housing, for example, is accessible by Western Standards, whether you want to buy or rent. I personally locked in some one-bedroom properties worth around $60,000 USD each with my partners from Green Parana. Other expenses like groceries are affordable, as the country produces lots of food, including bovine meat and vegetables. The country also produces its own energy and even exports it to neighbouring Brazil and Argentina. 

The residency options are numerous, too. Whether you want to retire, live off passive income or work remotely, this country will welcome you with open arms. In particular, you can obtain permanent residency by opening and investing $70,000 USD in your own company. 

Territorial tax systems let expats earn tax-free income from foreign sources, providing significant tax savings and lower living costs in the listed jurisdictions

CONCLUSION: INCREASED OPTIONS TO PAY (ALMOST) ZERO TAXES

In conclusion, territorial tax systems allow expats like you to earn tax-free income as long as it’s generated outside the country’s borders. By choosing any of the jurisdictions listed in this article, you can enjoy massive tax savings and a potentially lower cost of living. 

Whether you want to live in a tranquil Latin American country or a thriving Asian tiger, you can access enhanced financial freedom and qualify for life to make the most of your expat journey. To stay on top of all things expat, subscribe to our newsletter and get your free special report, Plan-B Residencies & Instant Citizenships.