Countries that don’t tax passive income like social security, pensions et
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Would you be able to give me a comprehensive list of countries that don’t tax passive income? I’m finding conflicting info when I’m searching. I currently am looking at moving to Portugal but my tax brack will be 45% so alot of money I was planning to use for “fun” will just be going to tax.
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I don't have a list of different countries that don't tax passive income but you may want to be on the lookout not necessarily for countries that don't tax passive income but rather for countries that don't tax foreign-source income. International Living's Expat tax bible (Expat Taxes Made Easy https://www.ilbookstore.com/expat-taxes-2024) does have a handy section on taxes in 12 different countries, including Panama, which does not tax in-country savings nor foreign-source income (whether passive or active). To stay up-to-date on the best jurisdictions it's helpful to follow IL's Global Diversification expert, you've probably seen his articles in mailings from IL, you can read recent articles here: https://internationalliving.com/author/ted-baumann/.
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The taxation issue is a nightmare. I've been doing a ton of research myself trying to determine where to move including to countries in 3 different continents. I recommend searching for and reading the dual taxation agreement between the US and Portugal (assuming you are a US citizen). I have read a tax treaty published by the Internal Revenue Service for another European Country (only 25 pages long and broken into sections by type of income), I can not say for sure but it seems they have a prototype or standard agreement, but each country can negotiate differently so do not depend on what follows. For a different European County (not Portugal) in the dual taxation agreement investment income and dividend income is taxable in the country of residence (so Portugal if you were to become a Portuguese tax resident). In that treaty (again not Portugal) I read Social Security was NOT taxed in the country of residence, but is taxed by the US, so if that were to apply to Portugal (and I do not know) you would not not being paying Portuguese income taxes on your social security but typically would on passive income from interest and dividends. Business income strictly related to the US was only to be taxed in the US by the particular tax treaty I read (again not the tax treaty with Portugal). Taxes paid in another country by US Citizens can typically be used as a tax credit (dollar for dollar) against US income taxes owed.
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Good question--the challenge is that there are different types of passive income, and they are treated differently in different countries. For example, some countries don't tax Social Security income, but they do tax private pension income. Others only tax dividends. So it's important to know what type of passive income you are looking at.
Jess is right that the first step is to look at countries that don't tax foreign source income at all. These are known as pure territorial tax countries.Costa Rica and Panama are two of the most popular.Others include Georgia, Guatemala, Hong Kong, Macau, malaysia, Nicaragua, paraguay, Singapore, Thailand, and The Philippines.
But before you cross Portugal off your list, Make sure you do the numbers first. Remember you won't be paying a full 45% tax on your income in Portugal, since you'll get credit for income tax you've already paid to the IRS (assuming you're American). If the marginal rate for your income level is higher in Portugal, then yes, you may owe some additional tax there. But that could be more than offset by a significantly lower cost of living. Most people who moved to Portugal say that even with the extra tax, They are spending less overall because of the savings on food, health care, entertainment, dining out, local transport, and a host of other items that are up to 70 to 80 per cent less than in America.
Ted Baumann
Chief of Global Diversification -
Yes, it is true that under most double taxation agreements, public pension money, like Social Security, is typically taxed at the source country, but not in the country of residence. But you would pay tax on private sources of passive income like capital gains, dividends, interest, and rent income.
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We live in Malta that has a 'no double tax agreement' with the US. We pay no taxes on our Social Security. If you paid taxes on your money in the US, you won't be taxed in the countries with the agreement. You can do a Google search to get a list of countries that have this agreement with the US. ~Mary & Kevin