Step #5, Day 12 Assignment

While, as I’ve explained, taxes shouldn’t drive your selection process, once you have identified the countries that interest you most for your overseas adventures, you need to understand the tax ramifications of becoming resident, starting a business, making an investment, or earning income in each of them.

Your assignment today, therefore, is to outline your potential taxable income in each country on your favorites list. To do this, you need to understand where your money will come from to pay for your new life. For example…

• Social Security: If this will be your only income, then you probably have nothing to worry about. Most countries don’t tax this kind of retirement income.

• Other retirement income (IRA, 401(k), pension): This income may or may not be taxable as retirement income in a country (often not).

• Investment income (dividends, interest, capital gains): Generally these are taxable in the country where they are earned. A tax treaty or tax credit should eliminate double taxation.

• Earned income: As we discussed yesterday, income earned from a job or a business is the most complicated to assess. Depending on where the income is earned and where you are resident, you’ll have some tax planning to do.

Keeping those categories of income in mind, take a look at the tax structure for the countries you’re considering. Estimate your potential tax bite for each one. Even if you’re an American, your overall effective rate of tax should be no more than what it’d be if you were to remain living in the States. The possible exceptions might be France and Italy, depending on your total income and from what and where it is derived.

Here’s a guide to the taxation approach currently taken in each of the countries on my Top Havens list. You can browse easy-to-read tax guides for every country on the list from Deloitte here (we recommend downloading the more accessible “Highlights”, not the full “Guides”).

Kathleen Peddicord
Your New Life Overseas Coach

P.S. Still looking for more advice on filing requirements for expats? The Taxman’s Guide For Americans Abroad is an A-to-Z, hand-holding instruction manual for every potential scenario you might encounter in your overseas tax life. Learn more here.