Benjamin Franklin once said, “In this world nothing can be said to be certain, except death and taxes.” That may be the case for Americans (who are taxed on their worldwide income based on their citizenship.) But citizens of other nations have the opportunity to reside in countries with more favorable tax climates — particularly ones with territorial taxation.
Under a territorial tax scheme, residents only pay tax on the income they earn within the country. Becoming a resident of a nation with territorial taxation is especially attractive for digital nomads and remote workers who earn money working for foreign companies or clients.
For example, we are residents of Paraguay and own part of an orange farm there. The rest of our income is earned from the tech and consulting services we provide to companies in North America and Europe. We are required to pay Paraguayan income tax on the profits from our orange production, but we do not have to pay tax on any of our foreign-earned income.
Hypothetically, if all of your income is sourced internationally, you could pay as little as 0% personal income tax in your country of residence.
Below are some of the countries that (currently) do not tax individuals on their foreign-sourced income.* You may recall from our article Residency Schemes: Rules On The Move that residency programs change frequently. Well, tax systems change just as often! Be sure to consult with local immigration attorneys and tax professionals for the most up-to-date information.
*In this article, we will be focusing on personal income tax, but stay tuned for a future piece discussing corporate income taxes.
Pure Territorial Tax Systems
Panama
Panama is one of the best-known examples of a pure territorial tax jurisdiction. Whether you’re a local or foreign resident, only your Panama-sourced income is taxed.
Tax System:
Personal Tax Rate: 0–25%.
Foreign Personal Income: Not taxable, even if brought into the country.
Panama is a great option due to its territorial tax system and its attractive residency programs, specifically its Friendly Nations Visa. The country also appeals to foreigners because of its tropical climate, solid banking system, and stable currency (U.S. dollar).
For more details, please visit the General Directorate of Revenue website.
Costa Rica
Costa Rica taxes individuals only on income derived from Costa Rican sources.
Tax System:
Personal Tax Rate: 0-25%.
Foreign Personal Income: Tax exempt, even if brought into the country.
Costa Rica is popular for its natural beauty, expat-friendly communities, and stable democracy. As mentioned in our piece Costa Rica: Visa Your Way to Pura Vida, the country has a remote workers’ visa so you can see if you enjoy living in Costa Rica before pursuing long-term residency.
Please consult the Ministry of Finance for additional information.
Hong Kong
Hong Kong operates a pure territorial tax system — only income derived from Hong Kong sources is taxed.
Tax System:
Personal Tax Rate: Up to 17%.
Foreign Personal Income: Exempt, even if brought into the country.
With low taxes, a sophisticated banking system, and strong rule of law, Hong Kong is still a prime location to live. However, political shifts in recent years have caused some uncertainty.
Refer to the Inland Revenue Department homepage for more information.
Macau
Another special administrative region of China, Macau maintains a system similar to Hong Kong’s. The tax authorities are concerned with locally sourced income.
Tax System:
Personal Tax Rate: Up to 12%.
Foreign Personal Income: Not taxed, even if brought into the country.
Macau is clean, safe, and has even lower taxes than Hong Kong. However, it’s more niche and less accessible.
Visit Macau’s Financial Services Bureau homepage for additional details.
Paraguay
Paraguay is a territorial tax country for individuals.
Tax System:
Personal Tax Rate: Rates range from 8% to 10% on local income.
Foreign Personal Income: Not taxable, even if brought into the country.
Paraguay’s residency program is appealing because it is straightforward and has no minimum stay requirement. Additionally, you will find the cost of living is significantly lower than in other countries, particularly in North America and Europe.
Go to The National Directorate of Tax Revenue website to learn more about Paraguay’s tax system.
Nicaragua
Like some other Central American nations, Nicaragua taxes only local income.
Tax System:
Personal Tax Rate: Up to 30%.
Foreign Personal Income: Exempt from taxation, even if brought into the country.
Nicaragua remains a low-cost destination with natural beauty and a basic, but functional, territorial tax regime. Unfortunately, political instability is still a concern.
Consult Nicaragua’s General Directorate of Revenue homepage to learn more.
Quasi-Territorial Tax Systems
The countries we have discussed so far do not tax any of your foreign income. However, there are some countries that only tax money earned abroad if it is remitted to the country. This means you only have to pay taxes on funds you bring into the country (for example, by depositing them into a local bank account). If you keep most of your earnings in bank accounts elsewhere, you can pay minimal income tax living in one of the following countries:
Thailand
Since January 1, 2024, the Thai government has taxed foreign income that is remitted into Thailand during the same calendar year it was earned.
Tax System:
Personal Income Tax: 0–35%.
Foreign Personal Income: Only taxed if remitted in the same calendar year it was earned.
Thailand has a robust economy and diverse landscapes. The Thailand Privilege Residence Program grants wealthy foreigners long-term visas (5, 10, or 20 years) in exchange for a fee/investment in the country. While not a pure territorial taxation scheme, it appears that foreign income is still tax-exempt if you keep it offshore or remit it to Thailand in a later calendar year.
For more information, visit The Revenue Department of Thailand site.
Singapore
Singapore takes a semi-territorial approach to personal income tax. Foreign income is taxed only when remitted, and even then there are lots of exemptions.
In practice, overseas earnings (even income deposited into a Singapore bank account) is rarely taxed. The main instances when foreign income is taxable are:
- If you receive it through partnerships based in Singapore.
- You are employed in Singapore, and your overseas employment is merely incidental (i.e., you have to travel overseas for work).
- You own a business in Singapore and you conduct trade/business overseas which is incidental to your Singapore trade.
- You work in Singapore for a foreign employer.
- You work overseas on behalf of the Singapore Government.
Tax System:
Personal Tax Rate: Progressive up to 24%.
Foreign Personal Income: Taxable if remitted to Singapore, but exemptions apply.
Singapore boasts an incredible economy and infrastructure, making it a great location for tech entrepreneurs. While technically not a pure territorial system, you can avoid paying tax on your foreign income by keeping it in an offshore bank account or taking advantage of Singapore’s tax exemptions.
The Inland Revenue Authority of Singapore website has more details.
Malaysia
Malaysia used to have a pure territorial system, and it is still an attractive tax environment under the right circumstances. In 2022, Malaysia introduced taxation of remitted foreign income. However, the government then created a blanket exemption for individuals receiving foreign-sourced income (FSI) that is valid until December 2026.
Tax System:
Personal Income Tax: 0–30%.
Foreign Personal Income: Remitted income will be taxed starting in December 2026.
Malaysia has a relatively low cost of living compared to neighboring countries. The Malaysia My Second Home (MM2H) program for long-term residency is very popular with expats. After the government exemption expires, Malaysia will no longer be a “pure” territorial tax system. However, it still makes sense if you are willing to live in the country but keep the majority of your funds offshore.
Please refer to the Inland Revenue Board of Malaysia for additional information.
Malta
If you want to move to the EU without paying super high taxes, you should look at Malta. It has a very unique tax setup that distinguishes between individuals that are domiciled in Malta vs ordinarily reside there.
You are considered a “domiciled resident” if Malta is your place of origin or permanent home. The title is based on intent and long-term ties, so it usually applies to Maltese citizens and people who settle in Malta intending to stay indefinitely. Domiciled residents are taxed on their worldwide income, so there are no tax savings to be had!
However, if you are an expat, retiree, or digital nomad that only “ordinarily resides” in Malta (i.e., spends more than 183 days per year in Malta), you can take advantage of its modified territorial taxation scheme:
Tax System for Non-Domiciled Residents:
Personal Income Tax: 0–35% on locally sourced income.
Foreign Personal Income: Taxable only if it is remitted to Malta.
Malta is a Schengen Zone country, so you can enjoy the liberal travel opportunities. It also has gorgeous historic buildings and a Mediterranean climate. Foreign income that you do not bring into Malta is not taxed, so if you keep it in bank accounts elsewhere, Malta is a great place to ordinarily reside.
More information is available on the Office of the Commissioner for Revenue website.
For online workers and digital nomads, territorial taxation presents a powerful legal method to minimize your global tax burden. In some cases, establishing a base in a territorial country can mean keeping 100% of your foreign income. If a country has an attractive residency program, lifestyle benefits, and low personal income taxes, it may be time to move!