Get to know the authorIf you’re an American looking to move abroad, it makes sense that you would be interested in setting up in the lowest tax countries for expats. After all, the United States extends its definition of tax residency to all citizens and permanent residents. You won’t want to add too much tax liability on top of that.
Fortunately, there are a number of countries that offer low (or even no) taxes for expats. And thanks to the tax breaks the US offers Americans abroad, living in these countries can often make your tax bill even lower than it would be in the US. Best of all, you can do so in a completely above-board way.
Read on for a list of low-tax, safe countries for expats that offer a great quality of life — plus tips on how to lower your US tax bill.
The Cayman Islands
Non-resident tax rate: 0%
Resident tax rate: 0%
Corporate tax rate: 0%
Other benefits:
- No VAT
- No inheritance, estate, or gift taxes
- No capital gains taxes
- No property taxes
There are few more truly tax-free countries in the world than the Cayman Islands. The country has no personal income, corporate, payroll, withholding, value-added, inheritance, estate, gift, or property taxes (among others).
It’s worth noting that these practices aren’t without controversy. The EU and Financial Action Task Force (FATF) previously had the Cayman Islands on their blocklist and “grey list” (respectively). This status has since been removed, however, in part due to stricter government standards about registering a business in the Cayman Islands.
Now, businesses must prove that their core activities take place in the country. The government now evaluates things like whether businesses incur expenses in the Cayman Islands, employ Caymans, hold board meetings there, etc.
While regulations have increased, the Cayman Islands is still among the most tax-friendly nations in the world. And with stunning beaches, a low crime rate, no property taxes on real estate, and a generally laid-back pace of life, you may just want to make it your new home.
The United Arab Emirates (UAE)
Non-resident tax rate: 0%
Resident tax rate: 0%
Corporate tax rate: 0% to 15%
Other benefits:
- No capital gains taxes
- No inheritance, estate, or gift taxes
- No taxes on dividends or interest
The UAE ranks right up there with the Cayman Islands in terms of tax-friendliness. Until June 2023, they didn’t even have a federal corporate tax.
In recent years, though, the government has been attempting to diversify revenue beyond the oil and gas industry and partner with other nations on anti-tax evasion measures. Still, living in the UAE is very favorable from a tax perspective. There are no personal income, capital gains, inheritance, gift, dividend, or interest taxes.
Corporate taxes remain relatively low, too. The first 375,000 AED (~$102,099) is tax-free, with anything above taxed at 9%. Only multinational enterprises (MNEs) are charged the top corporate tax rate of 15%. And if your business meets the Qualifying Free Zone Person criteria, all of your qualifying income is tax-free.
Between the beneficial tax policies and relative ease of setting up a business in the UAE, this country has become one of the world’s top expat communities, especially Dubai, where about 75% of residents are expats. Besides tax and business incentives, it’s also worth moving to Dubai for the safety, diversity, a thriving digital nomad community, and excellent transportation.
Montenegro
Non-resident tax rate: 0% to 15% on Montenegro-sourced income; 0% on foreign-sourced income
Resident tax rate: 0% to 15% on worldwide income
Corporate tax rate: 9% to 15%
Other benefits:
- Top capital gains rate of 15% (vs. 20% in the US)
- Gifts/inheritances from a spouse, child or parent are exempt from taxes; all others taxed at just 3% (vs. 18% to 40% in the US)
- Special tax exemptions for entrepreneurs
People don’t normally think of European countries as low-tax, but Montenegro is an exception. This Balkan country offers a top marginal tax rate of 15% on worldwide income for residents and Montenegro-sourced income for non-residents. And non-residents who don’t maintain a permanent establishment there pay no taxes on foreign-sourced income.
Monthly income is taxed at a rate of 0% up to €700 (~$766), 9% between €701 (~$767) and €1,000 (~$1,094), and 15% on anything above that. The deal is even sweeter for entrepreneurs, whose monthly income is taxed at 9% between €8,400.10 (~$9,191.43) and €12,000 (~$13,131), then 15% on anything above that.
Those who operate in certain industries and have set up shop in a “non-developed region” can also exclude up to €200,000 in income over eight years. And setting up a business as a foreigner in Montenegro is pretty simple. To start an LLC, you need just €1 (~$1.09) of startup capital.
When you’re not busy working, you can enjoy Montenegro’s incredible natural landscapes including beaches, mountains, lush forests, as well as its great hospitality, amazing food and more. As a bonus, Montenegro has an excellent, affordable cost of living.
Singapore
Non-resident tax rate: 24% on Singaporean-sourced income; 0% on foreign income
Resident tax rate: 0% to 24% on worldwide income; 0% on foreign income
Corporate tax rate: 17%
Other benefits:
- No capital gains or estate taxes
- Non-resident employment income taxed at 15% for positions below director status
- Personal allowance of 20,000 SGD (~$15,000) for residents
- Partial tax exemptions for businesses
Tax rates on Singaporean-sourced income max out at 24%, which is 13% less than the top US marginal tax rate. Furthermore, foreign-sourced income is exempt from taxation as long as it is not received by a resident through a Singaporean partnership. And with no capital gains or estate taxes, you can see even more savings.
Singapore has a favorable environment for businesses as well. Foreigners can start and register businesses just as easily as residents, with a flat corporate tax rate of 17%. Businesses can exempt up to 102,500 SGD (~$76,896) of income from taxation. For startups, it’s even better — they can exclude up to 125,000 SGD (~$93,778) for three years.
Add to that a safe, clean, and beautiful environment, advanced digital and physical infrastructure, and one of the best food scenes in the world, and it’s no surprise that some 30,000 Americans live in Singapore.
Bermuda
Non-resident tax rate: 0%
Resident tax rate: 0%
Corporate tax rate: 0% for now, up to 15% from 2025 onward
Other benefits:
- No VAT
- No capital gains taxes
- No inheritance tax
Bermuda is another island paradise with favorable tax laws. Residents and non-residents alike are free of personal income taxes, VAT, capital gains taxes, and inheritance taxes (among others).
Foreigners can start businesses there fairly quickly and easily. Corporations are free from income taxes as well — but only for now. In December 2023, the government passed legislation that will create a 15% corporate income tax. Fortunately, this will only apply to MNEs earning €750 million (~$818,375,250) or more annually.
Besides the great tax breaks, expats living in Bermuda love the white sand beaches, active lifestyle, mild year-round weather, and exquisite food scene.
Tax breaks for US expats
As we alluded to earlier, all Americans who meet the minimum-income reporting thresholds must file a federal tax return each year.
If you’re subject to taxes in another country as well, this may require you to pay taxes on the same income to both governments. However, there are several ways to avoid double taxation — and even reduce or eliminate your US tax liability.
There are no US tax treaties with any of the countries mentioned above, but the benefits of such treaties are often limited anyway. This is due to a tricky “saving clause” which gives the US government the right to tax American citizens as if the treaty didn’t exist.
For most US expats, the better option is to leverage one or both of the two main tax breaks available for Americans living abroad:
The Foreign Tax Credit (FTC)
The FTC gives Americans dollar-for-dollar tax credits for any foreign income taxes they have paid. They can then apply these credits to their US tax bill, essentially allowing them to subtract what they have paid in foreign taxes from their US tax liability. To qualify for the FTC, the foreign taxes you’ve paid must be income-based, legal, and made out to you specifically.
The Foreign Earned Income Exclusion (FEIE)
The FEIE, on the other hand, allows you to exclude a portion of your foreign-earned income from taxation. For the 2023 tax year (aka the taxes you pay in 2024), you can exclude up to $120,000 ($126,500 for the 2024 tax year). Keep in mind that passive income (e.g. rental income, interest, dividends, royalties, etc.) is not eligible for the FEIE since it is unearned.
To qualify for the FEIE, you must pass one of the following tests:
- Physical Presence Test: Requires you to have spent 330 days out of a 365-day period outside the US
- Bona Fide Residence Test: Requires you to prove you have been an official residence of a foreign country for at least a year through official documents like a residency permit
Passing either of these tests also makes you eligible for the Foreign Housing Exclusion/Deduction. With the FHE/FHD, you can write off qualifying foreign housing expenses like rent, utilities, parking spaces, and more.
Resources:
- Cayman Islands Overview
- Cayman Islands Tax – Good or Bad?
- United Arab Emirates – Overview
- Corporate tax: the dawn of a new tax era in the UAE
- Living and Working in Dubai Statistics 2023
- Montenegro – Overview
- Taxes in Montenegro 2024: a taxation system and individual and corporate tax rates
- Company Formation Montenegro [2023 Guide]
- Singapore – Overview
- Singapore – United States Department of State
- Bermuda – Overview
- Bermuda Parliament passes legislation to enact a 15% corporate income tax
- THE BENEFITS OF LIVING IN BERMUDA’S PARADISE AS AN EXPAT
