As you head towards retirement there may be a number reasons why you may be looking for tax friendly places to retire.
Maybe you're tired of feeding the insatiable appetite of bureaucratic black holes as they continue to milk you however they can. Trying in vain to fulfill the empty political promises made in the past.
Countries like South Africa even converted from a sourced based tax to a residence based tax. The US goes even further and regards every citizen as a potential source of revenue! This legislation ensuring that they can claim tax from income which has nothing to do with them and not related to any benefits they provide.
Sometimes it feels like that if they could find a way, they would tax the air that you breathe!
Why look for tax friendly places?
The country in which you live, or have tax residence, might either have very high taxation rates or the value for money of the tax you pay is exceptionally low.
Many potential, or wishful, retirees will not have sufficient funds to retire. Much of this has been caused by the lack of understanding of the potential crisis and many poorly considered decisions made by themselves and governments over the last 30 or so years.
Many people are looking for tax friendly places to retire to protect their assets or their retirement funds for others it's one part their of Plan B.
As governments spread their groping tentacles the Offshore Financial Centres (OFC) are facing increasing pressure to agree to divulge confidential information. In addition putting in place global information-exchange protocols and to end their bank secrecy.
Quite logically this pressure to curtail individual privacy is being applied by a number of high tax nations. These governments are also on a mission to try to convey an image of tax havens being illegal or immoral.
Tax avoidance and tax evasion
As much as governments may try to convince you otherwise tax avoidance is legal and rational and is NOT tax evasion.
The Organisation for Economic Co-operation and Development (OECD) and also an organisation of high tax nations, has redefined the term “tax haven” in its Harmful Tax Competition Report and has established criteria for tax havens:
- No or low taxes on income and capital;
- Banking and commercial secrecy;
- No exchange controls (at least for the offshore sector);
- An active banking sector;
- Good communications;
- An appearance of political and economic stability;
- A favorable disposition toward foreign capital;
- Adequate professional advisors.
In order to attract capital and wealthy people the number and variety of tax havens and offshore opportunities is growing all the time. Active recent participants are Aruba, Mauritius, Samoa and Nevis.
In order to compete major countries are now also developing attractive packages and making a bid for their share of the action.
Tax havens in major countries are euphemistically referred to as "financial centres" rather than "tax havens". The tax benefits in these countries generally benefiting businesses (stronger lobbies?) … not individuals.
In the US a state like Delaware is one of the major "tax havens" of the world.
Special tax arrangements
Many jurisdictions have double taxation agreements with the individual's or corporation's home country barring double taxation of income. In many cases tax friendly places to retire offer special treatment for retirees moving to the country. As a further attraction they may also may offer special tax treatment for investment.
Companies setting up business in these places may receive substantial tax incentives such as long term tax amnesty for investing in certain types of business and employing local people. This may have added appeal for retirees.
Tax friendly places to retire vary in terms of the tax rates, special tax exemptions, concessions which include:
- No taxes;
- Local income only;
- Low taxes and double taxation treaty benefits;
- Special tax treatment of individuals;
Popular retirement destinations that qualify as tax friendly places to retire include:
The Caribbean: Anguilla, Bahamas, Bermuda, Cayman Islands, British Virgin Islands.
Central and Latin America: Belize, Costa Rica, Panama.
The East: Vanuatu, Labuan.
Europe: Cyprus, Malta, Ireland.
More than Just Taxes
One word of warning. A no, or low, tax country doesn't necessarily have a low cost of living. In some of these countries the cost of living is high.
Tax optimisation plan and advice
To benefit from the tax concessions one could live in one jurisdiction and invest in another. But the important issue is where you are tax resident. If you live in a country with a residence based tax system you will have to break this bond.
In many cases there is a 183 day residence qualification … so if you want to live in the country you can do so for 182 days a year without being a tax resident! The resulting tax savings can finance the airfares and rented accommodation for the balance of the year.
Tax unfriendly places can then become tax friendly places to retire!
In looking for a tax efficient solution for retirement, and asset protection, it is common to consider a combination of jurisdictions. However this can get very complicated and, as it may involve large sums of money. It requires the services of an extremely competent, independent and objective international tax adviser.
The services of specialists should be retained on an ongoing basis. As governments change so tax laws change. The criteria "appearance of political and economic stability" should be a warning to anyone that these favourable situations could change over night.
Therefore it is essential that if you are contemplating using these havens that you use expert advice... there are many opportunities but mistakes can be exceptionally expensive!