Is it possible to legally lower taxes? Yes, if you are willing to move abroad, it may even be possible to pay no income tax legally. How would that be possible?
There are four kinds of international taxation in the world:
- No income taxation. It does not matter how much money one makes the government will never tax you on income. Monaco, St. Kitts and Nevis, the Cayman Islands and 17 places have this kind of taxation.
- Territorial Taxation: countries and territories that tax residents only on locally made income, Singapore, Paraguay, Hong Kong, and roughly 30 other places have this kind of taxation. If one has an income from another country, there will not be any taxation. However, if one has a salary in Paraguay, for example, and resides in Paraguay, there will be taxes to be paid.
- Residency-based Taxation: citizens always pay tax, unless they have tax residency and work in a foreign country. The vast majority of the countries in the world have this type of taxation.
- Taxation by Citizenship: Citizens will always pay tax, even they are living and working abroad. The USA is the only major country that has this taxation system.
Note: This map should be used for illustrative purposes only. It is not 100% correct, but the vast majority of countries are correctly signed.
Therefore, the two simplest ways to legally pay 0% income tax are:
1 - Live in a territory with no income tax (e.g. Monaco, Dubai, Bahamas) and have all your income come from this place through investments, normal jobs, etc.
2 - Have a tax residency in a territorial taxation country (e.g. Singapore, Hong Kong, Costa Rica, Panama) and have your income come from a 0% tax income country.
Example: Eduardo Saverin, the Facebook co-founder, who held double citizenship Brazilian-American, chose to renounce US citizenship and go live in Singapore. Brazil does not tax citizens working and living abroad and Singapore only tax residents for income made in Singapore. Therefore, if Eduardo has all his money invested in a no-income-tax jurisdiction, like Monaco, Dubai, or the Bahamas, he possibly be paying 0% tax, legally. Given the international taxation system of the world, in several situations individuals have higher annual income moving abroad and never working than working full time in their home countries (see "Working to Lose Money").
Is it legal to live in a low or zero tax country or move my company there?
Yes, this is legal. More than 70% of the Fortune 500 companies use tax havens to legally decrease their taxes. Some famous examples are Apple, Nike, Google, Walmart, CitiGroup, Goldman Sachs. Many of the world's' most famous people live in tax havens to avoid or decrease taxation legally, such as Roger Moore, Lewis Hamilton, Novak Djokovic, Bono, Ringo Starr, Bjorn Borg, Boris Becker, Caroline Wozniacki, Felipe Massa, Galvão Bueno, Eddie Irvine, David Coulthard, Nico Rosberg, Jenson Button, Olivier Beretta, Max Verstappen, Sergio Perez, Dame Shirley Bassey, David Nahmad and Ezra Nahmad, David Tomatis, Michael Peagram, James Caan, Tatiana Casiraghi, Lily Safra.
Source: Institute of Taxation and Economic Policy (ITEP)
"Throughout history, people have changed their behavior to avoid taxes. Centuries ago, the Duke of Tuscany imposed a tax on salt. Tuscan bakers responded by eliminating salt in their recipes and giving us the delicious Tuscan bread we enjoy today. If you visit Amsterdam, you will notice that almost all the old houses are narrow and tall. They were constructed that way to minimize property taxes, which were based on the width of a house. Consider another architectural example, the invention of the mansard roof in France. Property taxes were often levied on the number of rooms in a house and, therefore, rooms on the second or third floor were considered just as taxable as those on the ground floor. But if a mansard roof was constructed on the third floor, those rooms were considered to be part of an attic and not taxed. So follow the historical tradition. Tax minimization should be a key objective in the way you organize your financial life. And by minimizing taxes, you can have more to save and invest."
- Burton Malkiel (Professor at Princeton) and Charles D. Ellis (Ph.D. NYU) in The Elements of Investing: Easy Lessons for Every Investor
To see several possibilities on how you can become a tax resident of territorial taxation or tax-free state please visit "Buying Passports and Permanent Visas"
IMPORTANT: THERE IS NO ONE BEST TAX OR INVESTMENT STRATEGY. IT ALL DEPENDS ON YOUR GOALS, RESOURCES, AND CITIZENSHIP.
For example, are you willing to move abroad? If so, where? How long do want to stay in each place? What is your annual income? How much money are you willing to invest? Do you want short term gains or long-term investments? What is (are) the source(s) of your income? How much taxes do you pay annually? Do you want to decrease your tax duties or completely remove them? Do you feel like you want to pay some taxes even if you do not need to? What is your citizenship? Do you have multiple citizenships? Depending on each of these answers the best investment/tax strategy for you will differ. In order to see what option is best for you and to help with the implementation of the strategy feel free to reach out to us. You do not need to be rich to create a global investment portfolio. Most of the bank and brokerage accounts we open do not have minimum initial deposit or maintenance fee. Thus, you can invest as much as you want or even leave the accounts empty until you have enough capital or interest to invest abroad.