Minimizing Personal Tax

Last Updated on January 7, 2025 by Justin Clifton

At some point in your life, you have probably wondered how to minimize your tax burden. How to legally pay less or even zero tax. Depending on your personal situation, your options can vary significantly for living a tax free or tax minimal lifestyle. The aim of this article is to give a general overview of jurisdiction options for living with minimal personal tax.

First of all, a few important points and clarifications:

Personal income is totally separate from business income. This article is not about business tax or business structures. It’s simply about optimizing tax at the personal level.
Not all income types are taxed equally whether it’s at the business or personal level. The type of income matters. More on this topic throughout the article.
US citizens/persons are taxed on their global income. While US citizens can take their own unique steps to minimize certain taxes, it’s simply not possible to minimize tax as much as a non-US citizen.
This is not tax or legal advice. I’ve just learned about this topic over the years, and I’m sharing some knowledge. Things are constantly changing in various jurisdictions. Anything written here could become outdated in a few months or less. Do your own up to date research. Especially for any specific jurisdiction you might want to move to in the future.

At both the personal and business level, there are two main categories of income: earned income and passive income. It’s very important to understand the difference because results can vary significantly depending on how much of your income is earned vs passive. Here’s a quick summary of these two categories of income:

Earned income is income you derive from actively working a job. E.g. you’re an employee of your own company or some other company.
Passive income is income you derive from investments or previous work that you’re no longer working on: capital gains, dividends, interest, certain royalties.

This is generally pretty clear cut. Income from your job would be earned and income from investments would be passive. Royalties can be a bit of a gray area, but if you’re actively working on whatever is bringing in the royalties then it should be considered earned. E.g. a book you wrote 5 years ago and never updated vs a YouTube channel you upload to on a weekly basis. Book royalties would be passive and YouTube channel royalties would be earned.

General rule of thumb is that most countries in the world are going to tax personal earned income around 35% as a ballpark number. Some higher, some lower. And I’m referring to income tax, social security tax, etc. Since some of that tax goes towards a social security system, it’s not necessarily a full on tax strictly speaking. Assuming the pension system is still solvent by the time you’re old enough to access it to recoup some of that money paid in. And assuming you contribute to the same system for enough years to qualify for payments. Generally the higher your earned income, the higher the overall tax rate. In short, if you make $100 you end up with around $65 or less after paying tax in many countries. You’d have to do the math for your own country to know how much you’re paying exactly. I highly recommend using PWC’s country overviews to see tax rates for a specific country.

For passive income taxes, let’s say around 20% as a ballpark number. Likewise, this rate can vary significantly from country to country. Context of the income source also matters. For example, short term vs long term capital gains.

There are three main types of tax friendly jurisdictions:

Zero or very low tax (Low/no tax earned and low/no tax passive)
Territorial tax (Low-medium tax earned and low/no tax passive)
Low-medium tax (Low-medium tax earned and low-medium tax passive)

The country lists below are not necessarily exhaustive and are subject to change.

For the first category, the countries are limited to Monaco, Gulf countries, and some small island countries:

UAE (Dubai)
Saudi Arabia
Oman (recently implemented low personal income tax)
Qatar
Kuwait
Bahrain
Monaco
Cayman Islands
Bahamas
Bermuda
Vanuatu
Barbados
Anguilla
St Kitts & Nevis
Nauru
Maldives
Brunei

Monaco is extremely expensive and very small. Not exactly the most accessible place to live. The islands on this list are largely places most people wouldn’t want to live in due to lack of global connectivity and poor infrastructure. That leaves the Gulf countries which are the countries in the world with the highest ratio of foreign residents to locals. Roughly 9 foreigners for 1 local in some Gulf countries. But these countries are extremely hot for 8 months of the year. And it’s a conservative part of the world which could be a good thing or bad thing depending on your own perspective. All this being said, there’s not a tax free paradise that ticks all the boxes of good infrastructure, global connectivity, good year round weather, etc. Of all these options, the UAE is the most popular. But it’s worth mentioning that other countries in the Gulf have noticed Dubai’s success and are becoming more competitive in terms of developing their own countries and attracting foreigners.

For the second category, some more countries are available:

Hong Kong SAR (for income not remitted)
Singapore (for income not remitted)
Thailand (changed tax laws recently)
Malaysia
Andorra
Georgia
Panama
Nicaragua
Costa Rica
Guatemala
El Salvador
Uruguay (partially territorial)
Paraguay
Mauritius
Seychelles

With this list, there are now many more options in terms of culture, climate, and development levels. Hong Kong and Singapore, while not necessarily easy to immigrate to without a job offer, are some of the most developed and efficient jurisdictions in the world. And correspondingly some of the most expensive. Countries like Georgia, Uruguay, Paraguay, and Andorra have climates different from the largely desert or tropical hot and humid climates of countries covered so far. But out of the countries covered in this category 2 list, the most popular and relatively accessible would be Thailand, Malaysia, Panama, Costa Rica. Although Thailand recently made their tax laws more strict which makes it a less attractive option and arguably it shouldn’t even be on this list anymore.

The main idea with the category 2 list is that these are countries that, in some form or fashion, do not tax earnings from foreign sources. So if you make most or all of your money by investing in foreign stocks, these countries can be a great option since you would be taxed 0% on capital gains, dividends, etc. In other words, if you are effectively retired and living off of personal investment income you now have a much larger list of countries where you can live with very minimal tax.

One very common misconception that I must debunk regarding territorial tax is the exact meaning of foreign source income. It’s clear that capital gain, dividends, interest, and pensions from sources abroad is foreign. What’s not so clear and frequently misunderstood is the meaning of foreign source for earned income. Many people mistakenly believe that they can run a one person company from a territorial country while exclusively working for and getting paid by foreign clients, thus making their income foreign source. That’s not correct. If it’s a one person company and all of the work of the business is done in a territorial tax country, then all of the business income and personal salary derived from that is considered local source income. Ultimately it’s about where the work is physically done.

The big idea is that if you have a lot of earned income from actively working in a territorial country, territorial tax is not as tax friendly as it seems at first glance. But for people with pensions or mainly living off of investments, territorial tax countries can be extremely tax friendly.

For the third category list, there will be some overlap from the 2nd category list. This third category covers countries which simply have relatively low tax rates as opposed to the zero or near zero rates from category 1. The reason for the overlap between category 1 and category 2 is that many territorial tax countries are simply tax friendly in general, both for domestic income and foreign income.

Third category:

Hong Kong SAR
Singapore
Bulgaria
Romania
Hungary
Lithuania
Latvia
Czechia (Czech Republic)
Andorra
Serbia
Georgia
Armenia
Montenegro
Panama
Paraguay

While countries present in the category 3 list but absent in the category 2 list do charge tax on worldwide income for their residents, these countries generally have personal income tax rates well below the global baselines. 10%-20% rather than 30% or more. Note that simply a low income tax rate isn’t the full picture and can be misleading. Some countries have very high social security taxes. Especially in situations where you are both the employee and employer and must pay both sides. A 10% flat tax could become over 30%+ total tax burden for any income also subject to social security. Many countries cap social security contributions to a certain limit but not all of them.

Example Calculation

Consider two non-US individuals at different stages of life. One is progressing in a career with high earned income. The other is retired and living off of investments. Both earn $150k per year. The earned income is earned locally in the example jurisdiction. For the sake of simplicity we’ll ignore any income from businesses owned by these individuals and corresponding taxes. Just focus on the personal side of things. Also keep in mind this is just based on me doing basic calculations as a layman based on tax info I can find for these countries online. There are possibly ways to further mitigate any high tax bills. This is just to get a general idea of tax burden for countries in the 3 different categories above.

Person A: High earned income, low passive income

Income Breakdown: $140k earned self-employment income, $10k from foreign sourced cap gains

Person B: No earned income, high passive income

Income Breakdown: $150k from foreign sourced cap gains

UAE

Person A and person B would both owe zero tax since the UAE doesn’t have personal income tax or passive income taxes. It’s that simple. Granted, the UAE has a relatively high cost of living and for foreigners living in the UAE there are fees for many things: visa renewals every few years, steep fines for any infractions, high toll road fees, etc. Many things that are covered by taxes in other countries like schooling and healthcare are private expenses in the UAE. For business owners, there are relatively high expenses to maintain the business. But for someone that simply wants low taxes doesn’t mind paying privately for everything, the UAE can be a great option.

Panama

Person A would owe the following:

Income tax: $5,850 + $22,500 = $28,350 (Progressive tax rates, topping out at 25%)
Social security tax: $30,800 (Employee rate: 9.75%, Employer rate: 12.25%)
Educational Insurance tax: $3,850 (Employee rate: 1.25%, Employer rate: 1.50%)
Cap gains tax: No tax since the capital gain is foreign sourced and Panama has a territorial system.

Total tax burden: $63k (42%)

Many people think of Panama as a tax haven, so you probably weren’t expecting that result. Under the right circumstances, it can be tax friendly. But in this case, a 40%+ tax rate is a far cry from a good deal. Panama has no cap on social security tax, so this hits relatively high earners with self employment income very hard since they have to contribute both the employer and employee side of social security taxes. The other kickers, you’d have to contribute for 15 years to be eligible for benefits and you can’t start withdrawing until age 62 for men and age 57 for women. So if you’re not in it for the long haul that 20%+ social security tax is effectively just like additional income tax.

Person B would owe zero tax since all passive income is from foreign sources and Panama has a territorial tax system. Excellent for Person B and quite bad for Person A. Type of income matters.

Bulgaria

Person A would owe the following:

Income tax: $14k (10% flat personal income tax)
Social security tax: capped at $21,686.50 annually
Cap gains tax: $1k since Bulgaria taxes worldwide passive income (10%)

Total tax burden: $36,686.5 (24.5%)

Person B would owe $15k tax on the capital gains resulting in a tax rate of 10%.

These examples illustrate the basic idea that people with high income in general (earned/passive) should try to stick to category 1 countries. People with mainly or exclusively passive income should stick to countries in category 1 or 2. People that don’t mind paying some tax but would like to keep tax rates reasonable or below the global average should consider and do research on countries from category 3.

Exceptions

Whenever it comes to tax planning or tax advice, there’s never a one size fits all approach. Every person is in different situations with different sources of income. This article is general in nature and is just an overview. Below are some common scenarios where perhaps it doesn’t necessarily make sense to move to a tax friendly country.

US Persons

As stated earlier, all of this is more complicated for US citizens and US residents/persons. If you’re not a US person, just skip this section unless you’re simply curious. I’ll use the tax term US person since it encompasses all people related to the US who are subject to these tax rules. Here’s the quick breakdown of US persons minimizing tax to the best of their ability: As of 2025 US persons living primarily outside the US can exclude up to $130,000 of earned income (adjusted for inflation annually) from US income tax with something called the Foreign Earned Income Exclusion (FEIE). Beyond that threshold, income tax is charged just like it would be for any other US person in the US. But keep in mind that is only income tax, that income is still subject to taxes for US social security and medicare unless the US person is employed by a foreign company. And if a US person is living in another country for most of the year, they’d be subject to the income taxes of that other country. For passive income, US persons get no tax breaks whatsoever. If the US person is not a tax resident anywhere else, they’d just pay regular US passive income tax rates. If the US citizen lives in another country (being tax resident there) and there is no tax treaty between the US and that other country, it’s necessary to pay the higher rate of passive income tax for each type of passive income between the two countries. So in terms of US citizens minimizing personal tax, there are a few main points:

Keep personal salary below the FEIE threshold if possible
Be employed by a company outside the US to not pay US social security and medicare tax
Live in a low tax country or a country with a favorable tax treaty with the US.

For many US persons, the juice just isn’t worth the squeeze. Moving to another country to save relatively little compared to non-US counterparts. Dealing with the paperwork and taxes of two countries simultaneously. I’m not saying it can’t be done or that it’s always not worthwhile, but US persons definitely face more barriers to minimizing their tax rates.

Special Programs

Some countries offer temporary or indefinite programs to offset tax burdens. For qualifying individuals, a high tax country could become a low to medium tax country (at least for a few years). For the purposes of this article, I have focused on countries that are tax friendly without special programs. Covering all of these programs and explaining the nuances of each one goes well beyond the scope of this article. The point here is to not rule out any country you like just because it seems like it has high taxes. Do research to see if there are tax incentives for moving there.

People Earning Primarily Royalty Income

Royalty withholding rate is based on which countries the royalties are coming from. This rate can be minimized by living in a country which has a tax treaty with the country which is your highest source of royalties. For example, US royalty withholding rate is 30% for payments to non-US residents/citizens living in countries without a US tax treaty. But if you move to a country which has a US tax treaty stipulating 10% tax on royalties, that’s a significant reduction in withholding. Generally speaking, most tax friendly countries don’t have tax treaties with the US. So if your main source of income is royalties, then moving to a typical tax friendly place probably isn’t in your best interest.

When Minimizing Tax Isn’t The Right Call

Obviously there is more to life than just economics. Perhaps you need to spend some years in a country that is not tax optimal for a specific reason. You like the country and want to immerse yourself in the culture for a few years. Maybe there are personal/family reasons for living in a higher tax country. Maybe you just simply prefer life in that higher tax country and you’re happy to pay in full. Beyond those reasons, another strong reason for moving to and living in a higher tax country for a few years is if you have a relatively simple path to citizenship in that country. Of course, this varies significantly from country to country. But you’d just have to do an analysis of the pros and cons. Timeline to getting that citizenship, estimate of additional tax owed, etc. If you have a relatively weak passport but could get a stronger one by moving to another country for a few years and paying some tax there, then that’s probably going to be a worthwhile. Especially if you highly value geographical diversification and freedom of movement.