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Expat Briefing Editorial Team
08 August, 2014
Last month, Expat Briefing reported that The Bahamas was placed top of a list of the best low-tax jurisdictions for expatriate individuals by Bradley Hackford, a company that specializes in relocation for individuals seeking a low-tax environment. This feature summarises the findings of Bradley Hackford's report.
Bradley Hackford's annual ranking of low-tax territories uses the following five criteria.
Based on its latest analysis, Bradley Hackford's top-ten list of low-tax expat jurisdictions is as follows:
Advantages: The country's location in the immediate vicinity of the United States, as well as its tax rate of 0 percent on individual income, make the Bahamas the first jurisdiction of choice for establishing physical and fiscal residence. Moreover, the country offers an excellent quality of life and political stability that makes it completely satisfactory. Obtaining residence requires making a local real estate investment, with a minimum value of USD500,000 US (minimum value of USD1.5m for the accelerated process).
Tax Summary: In the Bahamas there is no income tax, capital gains tax, purchase or sales tax or capital transfer tax. Employees pay national insurance contributions, and there is stamp duty on property and mortgage transactions, and a tax on real property; customs duties are quite high on most imported goods. A 7.5% value-added tax is due to be introduced on January 1, 2015.
2 – Andorra
Advantages: A small principality located between France and Spain, Andorra is an ideal destination to establish residence in Europe. Andorra attracts both French and Spanish border residents due to its very favourable taxation. It also draws non-European foreigners, particularly Russians, who appreciate the country's geographic location as well as its high level of security. Obtaining residence requires making a minimum investment of EUR350,000 in the country and making a deposit of EUR50,000.
Tax Summary: The Andorran General Council has adopted draft legislation providing for the introduction of a tax on individual income (IRPF) in Andorra from January 1, 2015.However, the tax rates will still be low in comparison to what most are used to in North America, Europe and most other "high-tax" parts of the world. The IRPF tax will be levied at a flat rate of 10 percent on global income exceeding EUR40,000 (USD55,000). A concessionary five percent rate will apply on earnings between EUR24,001 and EUR40,000.
3 – Monaco
Advantages: The Principality of Monaco, with its upscale recreational opportunities and its recognized security, attracts many residents from various countries, especially Italy, Russia, and more recently from Switzerland. Obtaining residence requires being able to demonstrate significant financial wealth. Living in Monaco allows people to benefit from the total absence of income taxes.
Tax Summary: Only French nationals pay income tax in Monaco. The amount payable is assessed according to the principles of French tax law and is paid directly to the French Government, although some exceptions do apply, for instance, if they are attached to the Prince's household, or have been long-term residents of Monaco.
4 - Bulgaria
Advantages: There has been a significant trend of relocations to countries in Eastern Europe. For non-Europeans, these countries offer the opportunity to settle in Europe without paying high taxes. Similarly Europeans are attracted to the region because it allows them to remain in Europe while enjoying very attractive tax rates. Bulgaria has one of the lowest tax rates in Europe.
Non-Europeans living in Bulgaria can freely travel throughout the European Union. However, for non-Europeans, the residency process occurs through an investment of EUR511,295 in Bulgarian state bonds. The investment must be maintained for five years. Europeans do not have to make this investment.
Tax Summary: For employed individuals, income tax is levied at a flat rate of 10%.This is also applicable to income from royalties, interest and capital gains. There is a 5% tax on dividends. However, there are no personal tax allowances in Bulgaria. Any person resident in Bulgaria for more than 183 days in a calendar year will be classed as a resident for tax purposes. Liability for tax is on income derived within Bulgaria and worldwide. Non-residents are only taxed on that portion of income derived from Bulgarian sources. Certain local (municipal) taxes apply for the provision of local services.
5 – Panama
Advantages: The various residency programs in Panama are attractive to retirees and people with international operations. The principle of territoriality applies to taxation in Panama. Therefore, only locally sourced income is taxed. All foreign earnings are completely exempt from taxation. A simple new process allows for residency to be obtained rather quickly, with a low investment requirement for a number of nationalities, which currently makes Panama very attractive.
Tax Summary: Generally, no tax is due on foreign-source income, and the first USD11,000 in locally-sourced income is taxed at 0%. Income from USD11,001 to USD50,000 is taxed at 15%, and income above USD50,000 is taxed at 25%. There are no statutory residence rules as such, but an individual is considered resident if he is present in Panama for more than 180 days in any one tax year. Residence has to be officially recognised by the Government.
6 – Mauritius
Advantages: The island of Mauritius, where French and English are the languages in use, is very popular with the French, who appreciate the use of French on the island and the country's low tax rates. International investors also appreciate Mauritius because of the simple residency process and the tax benefits related to residency. The main procedure for obtaining Mauritian residency occurs with the purchase of real estate on the island, approved by the local programme called IRS, with a minimum value of USD500,000.
Tax Summary: A rate of 15% applies to all chargeable income, which includes income from employment, pensions and annuities, dividends, interest, rents and business income. An individual is considered resident in Mauritius if he or she is present in the country for 183 or more days during an income tax year (ending on 31 December), or for 270 days in aggregate during a given tax year and the previous two tax years. A resident individual is liable for personal income tax on his or her world-wide income; however, earned income arising outside Mauritius is taxed only if it is received in Mauritius. Non-resident individuals pay tax only on their income arising or deemed to arise in Mauritius. There are some income tax privileges for certain employees of offshore entities.
7 – United Arab Emirates: Dubai
Advantages: The possibility of establishing a company in one Dubai's many free zones and then obtaining residency in the country allows Dubai to attract more and more expatriates. Indeed, around 80% of the population are expats. Companies established in free zones can be 100% foreign-owned. The tax rate for corporations is 0%. The same rate applies to the incomes resident individuals, who are not subject to any tax.
Tax Summary: As indicated above, in Dubai there are no personal taxes other than import duties (mostly at rates up to 10%), a 5% residential tax assessed on rental value, and a 20% tax on hotel stays, made up of a 10% municipality tax and a 10% service tax.
8 – Guernsey
Advantages: Guernsey, located close to the United Kingdom and France, has low taxation, with a maximum of 20% on individuals and a ceiling of GBP110,000 to GBP220,000 depending on the type of income. Local companies also enjoy a 0% tax rate, which attracts people who have international operations.
Tax Summary: In Guernsey there is no general capital gains tax, inheritance tax or estate duty, VAT or capital transfer tax. Property owners and occupiers may be liable for small parish taxes. The Government is also considering whether to introduce a broad-based consumption tax. An individual is resident in Guernsey if he is on the island for a total of 182 days in the year of charge (the calendar year), or if he is on the island for a total of 182 days in the year to July 31 in the year of charge; or if he has maintained a dwelling-place in Guernsey for 91 days or more in the year of charge; or if he has spent 365 days or more in Guernsey in the four years immediately preceding the current year of charge.Income tax is charged at 20% on individuals' non-business income. There are a number of allowances.
9 – The Cayman Islands
Advantages: The Caymans are a well-known destination with a 0% tax rate for corporations and individuals. The Caymans have set up a special economic zone allowing active people to obtain residency fairly easily, by forming a company in this area.
Tax Summary: In the Cayman Islands there are no taxes other than import duties (at varying rates), stamp duty at rates up to 7.5% on transfers of real estate, and stamp duty at rates up to 1.5% on mortgages of KYD300,000 or higher; however issues of securities, mutual fund shares or units are normally exempt from stamp duty. A proposed 10% payroll tax on expat workers was dropped after fierce opposition from the business community.
10 – Switzerland
Advantages: Switzerland remains an attractive country for its quality of life and its central geographic position, as well as for its excellent infrastructure. Swiss taxation may be attractive, especially when opting for the lump sum tax. Although the latter may one day disappear, currently it is still in place and allows for the benefit of a predictable tax, since it is a flat rate, without having to disclose the amount of annual revenue.
Note that for people with international operations, neighbouring Liechtenstein is also interesting with a tax rate of 12.5% on companies and a maximum of 24% on individuals.
Tax Summary: Due to the federal structure of Switzerland there is no centralized tax system, with some taxes being levied exclusively by federal authorities whereas others are levied by the cantons, the communes and the federal authorities concurrently. Federal income tax is levied at progressive rates up to 11.5%. However, there are significant differences in both the taxes levied and the rates payable among the cantons, though there is current legislation that aims to reduce these differences. Switzerland's flat tax regime is based on the cost of living, rather than an individual's wealth or income. The flat tax is available to individuals who are prepared to be resident in Switzerland but who are not Swiss nationals and who have never engaged in any substantial economic activity in Switzerland.
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