Insights
Imagine waking up every day in your dream destination, free to explore and enjoy life without financial worries. This can be your reality with the right financial planning. Retirement should be a time of relaxation and luxury, where you can fully leverage your wealth. However, to maintain this lifestyle, it is crucial to manage your finances, especially when it comes to tax planning. But how can you do this effectively?
The answer lies in smart tax planning. With the right strategies, you can reduce your taxes, even if you choose to retire abroad. By investing wisely and taking advantage of available credits and deductions, you can ensure a hassle-free retirement in your favourite destination.
In this article, we will explain these concepts in detail and share strategies you can use to manage your taxes as you retire abroad.
This is the way you arrange your finances in a legal manner. When you retire, you are still subject to certain taxes. However, since you are no longer making salaried income, you will need to manage your finances with different strategies that take this change into account. This is all tax planning.
The following are the key tax concepts:
Understanding these concepts is crucial to ensuring you know how your local tax law works and how your tax rate applies to you.
Now that you understand some of the concepts involved in taxes, let us delve into the strategies you can use to manage your taxes.
Even as you retire, you should ensure that you have a diverse portfolio that brings in passive income. If specific companies, industries, or even countries have financial issues, having a diverse portfolio will prevent major losses. In particular, the Spanish Golden Visa offers you the chance to purchase multiple properties ― commercial, residential, and those still in development. Then, you may gain access to a tax write-off if you wish to divest of these investments due to poor performance.
Wherever you select to retire, it should be a location that provides multiple tax benefits or has few taxes. For instance, retiring with a Citizenship by Investment from St. Kitts and Nevis is one of the best tax optimization strategies. These islands have a tax regime that does not have the following taxes:
As you consider moving for retirement, you should invest in a citizenship or residence visa that relies on property investment. When the minimum holding period has elapsed, you will be free to resell or rent this property.
In particular, you can sell your St. Kitts and Nevis condominium unit or real estate investment after 5 years and retain your citizenship. Your tax rate on this transaction may be as little as 0.2%. Meanwhile, you will have the remaining 99.8% to invest as you wish.
One of the most important tax strategies is to keep accurate records. Not only will you need to balance your records to ensure they are accurate, but you will also need to keep past records as per the needs of your country of residence and nationality.
Since different countries have their own specific laws, you can opt to move to another country with a beneficial tax regime. Then, you can use the services of agents and other migration by investment companies to help you keep track of your taxes.
If your country permits like-kind exchanges, you can sell your property without incurring taxes. This means you can sell your property in your country and buy a building of equal or greater value in another country. This transaction can be part of your Residence or Citizenship by Investment plan.
For example, if you had a $200,000 home, you could sell it and reinvest it into a $220,000 property to receive a Grenada Citizenship by Investment. Then, you will have transferred your wealth and gained a new passport without gaining new tax liabilities.
As part of proper tax management, you should stay informed about changes to international and local laws. This way, you will have the knowledge to select the right country to live in to minimise your tax liabilities.
Take St. Kitts and Nevis, for example. Its government recently reduced the income tax rate by 8%. Therefore, having this citizenship allows you to come out of retirement if you desire to.
If you receive dividends, you should use tax optimization to lower your liabilities. A key strategy is to use a Golden Visa to access a lower dividends tax rate. To receive one of the lowest European dividends tax rates, you should seek a Greek Golden Visa – the rate is as low as 7%.
Before you retire, you should plan to live in a country with an advantageous tax regime for citizens. Many countries, such as Portugal, require you to stay there for a particular period of time before you can receive your citizenship. To do this, you should acquire a Portuguese Golden Visa and move before you retire. However, you will need to meet the requirements for citizenship. After everything is set up, you can enjoy reduced taxes such as the value-added tax, which can be as low as 6% for some products.
As part of your portfolio, you may choose to buy a property abroad. However, in the long run they may incur taxes in your home country. Specifically, your country may tax your capital gains from reselling a foreign property. Therefore, you should instead opt for a residential one where you will live. Then, you may not have to report the purchase of this property, as is the case in US law.
Pairing this strategy with a citizenship or residency program will allow you to fully benefit from owning a home abroad. When you live in this new home, you will have all the rights and privileges of a local citizen ― and it will not be on your tax return.
Lastly, a useful taxation strategy is to opt for a rural property when seeking a Residence or Citizenship by Investment. These properties usually have a lower tax rate even if they have the same value since they are not in the city. To exemplify, consider the properties you can purchase to get a Türkiye Citizenship. On the other hand, all types of properties double in tax rate when their location is in a big city.
The federal tax method in the United States is progressive for individual income. Therefore, the tax rate increases as you make more income. Meanwhile, some states, such as Indiana, have a flat income tax rate.
The tax cycle in the US starts on January 1 and ends on December 31. Despite the tax year ending on New Year, you have 4 months and 15 more days to file your taxes. Nevertheless, you can file your taxes before 15 April.
Every country's tax law is complicated and does not surpass all others in all categories of taxes. One of the countries with the highest rate is the Ivory Coast, which has a 60% income tax, though the Halsua region of Finland has a rate as high as 66.75%. Conversely, Denmark has the highest capital gains tax at 42%, and Brazil has the highest corporate tax rate: 40%.
Although Tax planning is crucial even after you retire, it should not restrict your life of leisure. Through a Residency or Citizenship by Investment program, you can put in place strategies that will lower your taxes ― and even eliminate certain taxes. This is because these programs offer retirees better tax regimes. Plus, you can use them to gain tax deductions, such as through investments or donations.
Selecting the right investment is essential for a successful strategy. By consulting with experts like Vancis Capital, you can find the right investment to ensure a comfortable and tax-efficient retirement.
Get in touch to discuss how we can help you with your citizenship or residency by investment goals. One of our investment migration experts will contact you to discuss your case. With over 16 years of combined experience our team has helped hundreds of families achieve freedom.
