Tax season is upon us. *Cue heavy sigh.*
Depending on location, the tax whack on property and capital gains, among others, can be tough here at home. The average single-family homeowner pays $3,296 a year in property taxes, according to International Living. Residents in some of the most heavily taxed states pay up to $7,000.
Moving to a country with a lower tax burden is a great option for 401k savers concerned about making their money last in retirement. International Living points to three locations worth considering: Belize, Mexico and Nicaragua. Thanks to their particularly modest costs of living and tax rates, expats retiring here stand a much greater chance of living the retirement lifestyle they imagined.
The financial perks of living in Belize almost seem too good to be true. To attract retirees, the country offers a program to become a Qualified Retirement Person (QRP), which expats can qualify for by simply residing in Belize a minimum of one month per year. Those who achieve QRP status enjoy no tax on capital gains. Pensions are exempt from taxation, as well. Although QRPs cannot work for Belizean companies, retirees who choose to continue to work in some capacity for offshore companies will not be taxed on international income. As if that’s not enough, property taxes are nothing compared to America. Rates tend to fall somewhere between 1 to 2 percent of the assessed valuation, totaling $500 or less per year for most houses and condominiums.
To expats, low property taxes (from 0.05 to 1.2 percent) are a big draw to Mexico. Compared to America, they may seem like a joke—usually amounting to around $100 to $300 per year depending on the region. Income and capital gains tax in Mexico aren’t drastically dissimilar from the U.S. However, retirees can take advantage of the Double Taxation Agreement Mexico shares with the U.S. Under the agreement, income and assets are guaranteed to be taxed by only one country—chosen by the retiree. Mexperience.com recommends consulting a tax planning professional to help determine which country’s rate is the best bargain.
International Living deems Nicaragua to be “a hot destination for would-be expats looking to flee the financial crisis that still looms worldwide and threatens the ability of millions to retire.” Among its many advantages, like Belize and Mexico, Nicaraguan property tax is extremely low. According to GlobalPropertyGuide.com, property tax is a flat rate of 1 percent of 80 percent the “cadastral value,” calculated based on land, structure and improvements. Even better, for tax purposes, land is often calculated to be worth a much lower cadastral value than the amount for which it was purchased.
Expats enjoy several other financial incentives, as well. No tax is due on income earned abroad, and for those who wish to work past retirement age for a Nicaraguan company, income tax is 15 percent. Capital gains tax is relatively low compared to the U.S., as well, at a rate of 10 percent.