In most of the lists ranking expat destinations, it is only Singapore that besides all its other good qualities, simultaneously also could qualify as a top destination solely based on its tax incentives. Singapore has a moderate tax rate where individuals pay ten to twenty percent tax on their local salary and no inheritance tax or capital gains tax. Neither are employees taxed on foreign income.
In the HSBC's recent list of top expat destinations based on the highest quality of life, Singapore is ranked first, followed by New Zealand, Canada, Czech Republic, Switzerland, Norway, Austria, Sweden, Bahrain, and Germany, none of which are renowned for their tax incentives. Another recent survey that ranked countries in accordance with safety and security included two countries in their top ten renowned for their tax incentives namely Singapore and Luxembourg. The rest, like Canada, Japan, Switzerland, Norway, and Finland are not known for their tax incentives.
Traditional zero rate tax countries
There are a number of countries that have zero-tax incentives on one or more of the traditional taxable focuses which make them attractive choices for relocating. These include:
- Panama: Panama is a best practice example widely known for its low tax threshold and tax incentives. It is already a first choice for retiring expats and new job seekers. Many expats already reside in Panama benefiting from tax incentives such as zero tax on pensions, savings, foreign sourced profits, or income earned from sales outside of Panama. Further to this, Panama offers related incentives like discounts varying between 15 and 50% on entertainment, health services, and home loans.
- Belize: Belize has a program called Qualified Retired Persons (QRP) that permanently exempts one from any taxes for example income tax, taxes on estate, import taxes, and/or taxes on household goods like vehicles, boats and even airplanes. It is fairly easy to become a QRP even at age of 45.
- Bermuda: While one of the most expensive countries to live in, it does feature a zero-percent corporate tax rate as well as on personal income.
- Costa Rica: Costa Rica also specifically targets retired expats and there are no taxes on income unless you have a business in Costa Rica. Income generated from an online business is also not taxed and property taxes are only 0.25% of the value of owned property per annum. Expats over 65 in addition benefits from discounts as is the case in Panama, on a variety of services as well as free public transport.
- Nicaragua: Here you are not taxed on foreign income, neither on domestic income unless you own a business in the country. If you do purchase a business there are other tax incentives like no income tax for ten years as well as no property tax for ten years.
- Malaysia: It is not quite in the same category as the other listed countries as it doesn't offer tax breaks apart from zero-taxes on foreign generated income, but only if/when you qualify for a ten-year visa. Once this is achieved there are accompanying tax incentives e.g. shipping your household goods, including a vehicle, tax-free to Malaysia or purchasing an imported car tax free.
Traditional Tax Shelters
These are countries that over time gained a reputation as tax-haven countries because of their renowned tax loopholes, i.e. hidden tax incentives, and include the Benelux countries (Luxembourg, Netherlands and Belgium) and the Cayman Islands. It is mostly companies that opt to expand their businesses in these countries.
Italy embarks on a pace setting approach
Italy recently amended its tax laws to attract a larger number of expats. Its new tax incentives include increasing tax exemption from 50% to 70% for the first five years after relocation and opening it up to anyone working in the country in the last two years irrespective of job content or qualifications. To date tax exemptions were limited to qualified professionals, managers, executives, and prestigious entrepreneurs. This new law starts in 2020 and targets any employee, self-employed professional, or entrepreneur willing to become an Italian tax resident and willing to maintain this status for two years; who has not been an Italian citizen over the last two years; and who works mainly in Italian territory, irrespective of whether the employer is Italian.
Those that accept these criteria will in addition pay income tax on only 30% of their business income if they are willing to transfer their residence to Italy's southern regions. In such cases individual tax can be reduced to 13%. In another incentive, business tax will be reduced to 10% and individual tax to 4% if an expat is willing to settle in one of Italy's deprived regions (Abruzzo, Basilicata, Calabria, Campania, Molise, Puglia, Sardinia, or Sicily). This will apply for ten years.
Including tax incentives to attract expats
From the mentioned examples it is clear that tax incentives have a direct impact on personal savings, affordable living cost, and ultimately a quality lifestyle. There is no reason why tax incentives as a criterium should be excluded when promoting countries to entice potential expats.
