A Guide to the Global Tax Systems: How to Legally Live Tax-Free or Optimize Your Taxes
Living without paying taxes may seem like an unattainable dream, but it is possible to achieve legally, if done correctly. To do so, one must be knowledgeable about the different tax systems worldwide and use them properly. In this article, the author explains how to achieve this goal by providing an overview of the four global tax systems, along with specific examples and considerations.
The four global tax systems are Residence Taxation, Non Dom, Territorial Taxation, and No Direct Taxes. Most countries in the world, about 130, use Residence Taxation. Territorial Taxation, which is applied in about 40 countries, is particularly advantageous for location-independent entrepreneurs, as it only taxes domestic income. Non Dom, which is a hybrid of Residence and Territorial Taxation, is especially interesting for digital nomads and entrepreneurs who are not tied to a specific location.
It is important to consider whether the country with Residence Taxation has foreign tax laws, which can have a significant impact on the tax burden. For instance, a foreign company can be established without negative effects in countries with no foreign tax laws, such as Switzerland, leading to a considerable reduction in taxes. However, in countries with foreign tax laws like Germany, establishing a foreign company can be more difficult and have negative consequences. It is essential to seek advice beforehand and to be aware of the foreign tax laws of the respective country.
Territorial Taxation is particularly advantageous for location-independent entrepreneurs and digital nomads. Countries with Territorial Taxation tax only domestic income, which means that if income is generated abroad, no taxes need to be paid. About 40 countries use this tax system, including Georgia, Hong Kong, and Malaysia, which have no foreign tax laws. This means that it is possible to live in one country, own a company in another, and collect profits tax-free.
The Non-Dom system is a hybrid of Residence and Territorial Taxation, where the distinction is made between domicile and residence. It is especially interesting for entrepreneurs who are not tied to a specific location. The UK's Foreign Tax Act, for instance, is only applied to residents, not to non-doms, resulting in very good tax vehicles. Countries with Non Dom system include Cyprus, Malta, UK, and Ireland.
Some states levy no or very low taxes, including income, corporate, and capital gains taxes. Rich oil states, for example, only tax the banking and oil sector. However, these states are mostly Islamic, which may make it difficult for immigrants to feel at home. Furthermore, import duties and value-added taxes can be very high. Three countries where immigration is comparatively easy and may be very interesting are the United Arab Emirates, Bahamas, and Bahrain.
In conclusion, it is difficult to determine which tax system is the best worldwide since every person has individual needs and different circumstances. Nevertheless, it is possible to legally take advantage of different tax systems and optimize one's taxes, or even live tax-free. Seeking advice from experts is always beneficial. From the author's point of view, and particularly regarding living independent of location, the tax system of Territorial Taxation and Non-Dom system seems to be the best.