The 5 Countries Without Income Taxes

Some of the most popular countries that offer the financial benefit of having no income tax are Bermuda, Monaco, the Bahamas, Andorra and the United Arab Emirates (UAE). There are a number of countries without the burden of income taxes, and many of them are very pleasant countries in which to live. However, taking advantage of living in a no-income tax country is not as easy as packing a suitcase and buying a plane ticket. Citizens of the United States cannot escape paying U.S. income taxes just by moving to another country. All U.S. citizens, regardless of where they choose to reside, are still legally obligated to file U.S. income taxes in the same way as if they were living in the U.S. The only small exception is in some instances, it is possible to exclude a limited amount of foreign-earned income from U.S. taxation.

The only way to get out from under the tax thumb of the IRS and enjoy living free of income taxes is for an individual to renounce his U.S. citizenship and become a citizen or legal resident of a country with no income tax. Neither of those two requirements is usually easy to fulfill. First of all, many countries do not offer easy access to citizenship. In most instances, the process is lengthy and expensive. Secondly, U.S. tax authorities, hit hard by the loss of dozens of multimillionaires and billionaires who have chosen to obtain citizenship in more tax-friendly countries, have made it increasingly difficult and expensive to renounce U.S. citizenship. Renouncing U.S. citizenship used to be as easy as walking into a U.S. embassy and signing a document attesting to the fact a person was renouncing his U.S. citizenship. But as of 2013, the U.S. imposes a stiff expatriation tax. For example, for individuals with net worths of more than $2 million, to renounce U.S. citizenship, they must pay income tax on all capital gains of all their assets as if all the assets were sold at the time of renouncing their citizenship.

Still, the continuously increasing rate of U.S. citizens choosing to do exactly that indicates many consider it worth the one-time expense. A record number of people renounced their U.S. citizenship in 2014. Many low income tax or income tax-free countries have economies that are largely driven by oil or financial services.

1) United Arab Emirates

There are a number of oil countries in the Middle East that have no income tax, and the UAE is considered one of the most attractive, with a relatively stable government and economy. The UAE has a thriving economy and a more multicultural environment than the majority of countries in the Middle East. This translates into excellent dining and entertainment options. There are also very good educational facilities available. Government corruption is still a concern, but the rule of law is followed relatively well.

2) The Bahamas

Enjoying the benefit of not having to pay income taxes in the Bahamas depends on residence, not on actually obtaining citizenship, making it one of the easier countries in which to access an income tax-free life. An individual can satisfy the residency requirement by paying for an Annual Residence Permit or obtain permanent resident status by virtue of purchasing real estate in the Bahamas. As Caribbean islands go, the Bahamas is one of the relatively less-expensive ones in which to live. Overall, the country has good infrastructure and services. The one area where services are considered a bit below par is the area of medicine. Many U.S. expatriates who have chosen to make the Bahamas home still travel back to the U.S. for significant medical care. And Nassau, like many tourist areas, has a somewhat high crime rate. However, overall the Bahamas is a very pleasant place to live.

3) Bermuda

Bermuda is an even more attractive Caribbean income tax-free destination than the Bahamas; however, it is also a much more expensive country in which to live. Its relatively isolated location makes Bermuda one of the most expensive cost of living spots in the Western world. A gallon of milk costs between $10 and $15, and even a modestly nice apartment can run as high as $2,000 a month or more. Bermuda is much more developed than most Caribbean islands, with excellent roads and public transportation. And beyond that, from its famous pink sand beaches to its upscale restaurants, Bermuda is considered one of the most scenic and pleasant countries in the Caribbean. The majority of U.S. expatriates living in Bermuda are employed in the extensive financial sector that exists in the country.

4) Andorra

Located in the Pyrenees mountains between France and Spain, Andorra is facing pressure from the European Union (EU) to institute an income tax, but for the moment it remains income tax-free. Even in the event an income tax system is put in place, it will likely be just a token intended to satisfy the EU, with a very low tax rate. Andorra's mountain location makes it a very scenic spot. Other than skiing tourists, life in Andorra is relatively quiet and easygoing. Andorra is renowned for not only being tax-free, but also for being value-added tax (VAT)-free as well, a fact that brings many Europeans driving in for the day to purchase cigarettes, liquor, apparel or electronics. In keeping with its tax-friendly attitude, Andorra is noted for having one of the most well-developed offshore banking industries in the world. The path to Andorra citizenship is one of the lengthiest, with naturalization taking more than 10 years.

5) Monaco

Well-known as a perennial vacation playground for ultra-high-net-worth individuals, Monaco has long been considered one of the most beautiful and desirable places to live in the whole of Europe. Located on the French Riviera, Monaco has extensive, well-developed marinas that are usually occupied by a selection of yachts from around the world. Monaco is a city-state that is not much larger than the Vatican. It has one of the lowest crime rates of any country in the world. However, one drawback is Monaco is also one of the most expensive places in the world to live. Housing prices are roughly double, or more, that of anywhere else in Europe. Accessing Monaco's income tax-free financial environment is quick but not cheap. A legal residence permit can be obtained in less than three months but requires depositing approximately half a million dollars in a Monaco bank.

By J.B. Maverick

Source: http://www.investopedia.com/articles/personal-finance/100215/5-countries-without-income-taxes.asp