{"id":49119,"date":"2024-05-07T05:00:01","date_gmt":"2024-05-07T10:00:01","guid":{"rendered":"https:\/\/www.escapeartist.com\/?p=49119"},"modified":"2024-05-07T21:54:39","modified_gmt":"2024-05-08T02:54:39","slug":"territorial-tax-systems-a-tax-saving-plan-b-option","status":"publish","type":"post","link":"https:\/\/staging.escapeartist.com\/blog\/territorial-tax-systems-a-tax-saving-plan-b-option\/","title":{"rendered":"Territorial Tax Systems: A Tax-Saving Plan B Option"},"content":{"rendered":"

In the United States and Canada, we are currently being taxed to death. With the recent announcements from both Trudeau<\/a> and Biden<\/a> about increasing the capital gains taxes to finance their massive, wasteful spending, many more people are finally hitting their breaking point.<\/p>\n

They\u2019ve even floated out the idea of taxing unrealized capital gains<\/a>. WTF is wrong with these people????<\/p>\n

Guys: The writing is on the wall. Our countries are traveling down a very dangerous path and, at this point, I\u2019m not sure if these runaway trains can be stopped. With debt ceilings increasing drastically to pay for foreign wars, illegal immigrants, and overall systemic corruption, someone\u2019s got to pay for it.<\/p>\n

And, in the immortal words of Ernie from Sesame Street: \u201cYou\u2019re it, Burt!\u201d<\/p>\n

As they say though, realizing you have a problem is the first step. And the fact that you are reading this and putting some thought into expatriating overseas puts you waaay ahead of most people in that regard.<\/p>\n

So, let\u2019s talk solutions, shall we? If you are looking to reduce your tax bill as part of your offshore planning, you are going to want to learn about territorial tax systems and how you can leverage them to reduce your taxes as part of your comprehensive plan.<\/p>\n

Join me below to discuss what a territorial tax system is, how it can (potentially) help you significantly reduce your taxes, and some of the top countries in Latin America that boast this system.<\/p>\n

What is a Territorial Tax System?<\/strong><\/h2>\n

As per NASDAQ<\/a>, a territorial tax system is tax system that taxes residents on domestic income but not foreign income.<\/p>\n

This is in contrast with Canada<\/a>, which taxes residents<\/em> on worldwide income, and the United States<\/a>, which taxes citizens<\/em> on worldwide income.<\/p>\n

For the most part we have tax treaties with other countries to avoid double-taxation, but the Canadian and U.S. governments will make sure you are taxed on all your worldwide income, one way or another.<\/p>\n

How can a Territorial Tax System help reduce your taxes?<\/strong><\/h2>\n

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Just to be clear, this is not<\/u> tax advice. If you want advice on your specific situation, you should reach out to an accountant and\/or lawyer with experience in this area, such as our good friend and Escape Artist Insiders magazine contributor <\/em>Joel Nagel<\/em><\/a>. He is an expert in offshore planning and can help you build a plan to suit your needs.<\/em><\/p>\n

Territorial tax systems are attractive to people looking to reduce their tax burden because, by becoming a tax-resident in a country with territorial tax, you will not be taxed on any income you make outside that country. Assuming most of your income is coming from Canada or the United States, this could massively reduce your taxes if you implement it properly.<\/p>\n

There are two key components to reducing your taxes with a territorial tax system. First, you will need to become a tax resident<\/em> of a country with a territorial tax system. Second, you will need to become a non-tax resident<\/em> in your home country.<\/p>\n

To become a tax resident in a country with a territorial tax system, you will need to check the requirements for the specific country you have your eye on. Check out my list of countries below<\/a> for a brief description on how to achieve tax residency in each one!<\/p>\n

When it comes to becoming a tax non-resident in your home country, with residential tax systems like Canada\u2019s, the general rule of thumb is that you need to spend at least 183 days<\/a> outside<\/em> the country in a given calendar year PLUS have no residential ties<\/a> to the country to become a non-tax resident. It can be a rigorous process, but it is possible.<\/p>\n

It\u2019s harder for Americans to do this due to their citizenship-based tax system. Leveraging the foreign-earned income exclusion<\/a> is a great tool to take advantage of if you make money outside the U.S., but I\u2019d highly recommend consulting with someone like Joel<\/a> if you are looking at ways to reduce your tax bill as an American. It is definitely possible, it\u2019s just a little more complex and, thus, requires more planning.<\/p>\n

Top 5 Countries with Territorial Tax Systems in Latin America<\/strong><\/h2>\n

Central and South America provide a ton of options for affordable residencies that come with the benefit of territorial tax systems. Check out the countries below for affordable, attainable options to reduce your cost of living, improve your quality of life, and reduce your tax burden.<\/p>\n

1. Panama<\/h3>\n

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You knew we had to kick off the list with perennial expat favorite, Panama! Panama has a ton of residency options available for retirees, digital nomads, investors, and pretty much everything in between. Plus, it offers phenomenal benefits for retirees.<\/p>\n

How to become a tax resident<\/strong>: Spend over 183 days in the country in one calendar year. Other factors such as properties owned may also affect your tax residency status.<\/p>\n

Currency:<\/strong> USD ($)<\/p>\n

Residency programs<\/strong><\/a>:<\/strong><\/p>\n