If you getting older or just done well in life, you might start to looking at the best countries to retire for tax purposes.
Obviously, you’ll first have a look at countries that offer an interesting lifestyle.
However, by choosing a country that offers lower taxes you could potentially really upgrade your lifestyle. Simply because you’ll have more money left over to spend.
Which Countries Are Best for Retirement From a Tax Perspective?
The best countries for retirement from a tax perspective are those with low taxes. However, this analysis differs compared to the situation of people who are still professionally active.
The reason is that retirees will simply have different types of income than active professionals. Therefore, taxes on investment and passive income become more important.
Furthermore, the tax rates that apply to pension income are the most important. There are quite a few countries out there who even have specific tax incentives for retirees who move there (e.g. Italy and Cyprus).
Here is a preview of countries that are interesting for retirees from a tax perspective:
- Bulgaria
- Cyprus
- Costa Rica
- Greece
- Italy
- Malaysia
- Malta
- Panama
- Paraguay
- Philippines
- Thailand
- Uruguay
What Makes a Country Tax-Friendly for Retirees?
To assess if a country is tax-friendly for retirees we need to look at the different types of taxes that can apply.
Personal Income Tax
Most people will start with looking at the personal income tax rates.
However, just looking at the headline rates won’t suffice here. Most income of retirees will fall in specific categories which could be subject to separate rules and rates.
Taxation of Pensions
First and foremost, there is the pension income you receive from the state or from your former employer.
In most countries, the basic income tax rates will apply to this sort of income.
Nevertheless, many countries introduced specific tax rates for pension income. Many of those are actually countries with otherwise relatively high tax rates.
Note that if you receive a pension because you worked as a government official that this income is most of the time taxed in the country that pays you the pension instead of in your country of tax residency.
Capital Gains Tax
Many retirees complement their pension with investment income. If you hold investment and sell them, capital gains tax will apply. Many countries have some sort of capital gains tax nowadays.
The rate if often a fixed rate and different from the tax rate for professional or pension income.
Nevertheless, many countries also have specific exemptions that can apply if you held your assets for a certain amount of time. Some countries even exempt foreign capital gains in full.
Dividends & Interest
Dividend and interest income is another type of investment income. While capital gains follow a one-off sale of investment, dividend and interest are more recurring in nature.
Most countries have separate rates for this type of investment income which differ again from the progressive tax rates.
Yet, with this type of income things become a bit more complicated. You shouldn’t only focus on the tax rate in your country of tax residency. This is because dividends and interest are often also taxed in the source country.
This means that the country where the company that pays out the income is based can also tax the dividend. This is what we call a withholding tax.
If your country of tax residency and the country of origin have a double tax treaty, this could help you to pay a lower withholding tax.
Rental Income
Some people also invest in real estate and will receive rent from their property.
Rental income is a bit particular if you look at it from an international tax perspective. In the first place, the country where the property is located can tax the rental income.
So, you first have to assess the tax treatment in the country where the property is located.
Next, you mostly still have to declare this income in your tax return in your country of tax residency if they tax your worldwide income.
However, how it is treated will depend on the double tax treaty with country where you have the property.
Some double tax treaties will provide for a tax credit for the tax you already paid abroad.
So, you would only pay additional taxes in your home country if the taxes are higher than what you already paid abroad.
Let’s assume you already paid €3.000 in tax on your rental income in the country where the property is located. However, in your home country you would have to pay €5.000 in tax on that same income. Then you only pay the difference of €2.000 in your country of tax residency. If the numbers are the other way around, you don’t have to pay any additional tax in your home country because you already paid all the tax in the country where you hold the property.
Other double tax treaties will force your home country to fully exempt the foreign rental income.
This sounds like the best option of course. Yet, you need to be aware that some countries still use this income to push your other income in a higher tax bracket. This is the so-called exemption with progression.
Let’s say you have professional income of €50.000 on which you pay an average tax of 20% or in other words €10.000. If you now receive an additional €15.000 in foreign rental income, this income could be exempt in your country of tax residency. Nevertheless, it might push your professional income into higher tax brackets due to which your average tax rate on that income goes up to 25%. Consequently, you’ll start paying €12.500 in tax on your professional income moving forward.
You don’t pay taxes directly on your foreign rental income but it still impacts your tax calculation.
If there is no double tax treaty, the internal tax rules of a country might provide for similar mechanisms to decrease the actual tax impact.
Wealth Tax
A tax you can’t ignore if you’ve build up some wealth throughout the years is wealth taxes.
Some countries will just tax you for the fact that you have a certain net worth. This is irrespective of the fact if your assets generate any income.
Territorial Taxation vs Worldwide Taxation
When most of your income is passive like pensions or investments you can unlock a new tax hack by understanding the difference between territorial and worldwide taxation.
In countries who tax you on your worldwide income, you have to pay tax on all of your income. Irrespective where your income comes from. So, foreign pensions and foreign investment income is included in your taxable basis.
However, countries with a territorial tax regime will often exempt (passive) income that originates abroad. So, if you move to a new country to enjoy your pension, you’ll most likely receive foreign income exempt from tax.
Social Security Contributions
When determining your tax burden, you should not forget about compulsory social security contributions.
These are often calculated as a percentage of your income. Therefore, they can really add up.
So, in order to have a good understanding of your total tax burden, you can’t ignore these.
Special Tax Regimes for New Residents and Retirees
Many countries will also offer temporary tax incentives for new residents and retirees who move to their country (e.g. Italy and Cyprus).
By looking which regimes suit your income you can really optimise your taxes a lot.
Gift & Inheritance Tax
Finally, you might also want to take into account inheritance and gift taxes if you plan to leave some money to your family.
If you gift away some of your assets during your life, gift tax can apply. If you leave them assets upon passing away it could give rise to inheritance tax.
Yet, some countries also tax gifts and inheritances based on where the beneficiary is living so you might still want to check this if they live in another country than you.
The Best Countries To Retire for Tax Purposes
Let’s now have a closer look to the best countries to retire for tax purposes.
Bulgaria
Bulgaria is increasingly getting popular with digital nomads who want to settle in a low-tax country in Europe.
Although it is mostly known for low taxes on professional income, Bulgaria is also a great pick for pensioners because pension income remains tax free.
- Personal income tax: 10%
- Taxation of pensions: tax free
- Capital gains tax: 10% but exemptions for listed securities
- Dividends & interest: 5% for dividends and 10% for interest but with exemption for bank deposits with European banks
- Rental income: 9% (10% standard rate after a cost deduction of 10%) but possibility to receive an exemption or foreign tax credit based on the double tax treaty
- Wealth tax: no wealth tax
- Social security contributions: no social contributions due on pension income
- Gift & inheritance tax: exemption for partners and children
You can visit this page if you want to learn more about Bulgaria tax residency.
Cyprus
Cyprus is another country that is popular with professionally active individuals.
Yet, one of the main attraction point of Cyprus for pensioners is that it offers a flat tax of 5% for foreign pension income and an exemption for capital gains.
- Personal income tax: progressive from up to 35%
- Taxation of pensions: choice between progressive tax rates or fixed tax rate of 5% on income above €5.000 for foreign pensions
- Capital gains tax: exempt from tax
- Dividends & interest: exempt from tax under the non-dom regime but subject to social contributions
- Rental income: progressive tax rates after 20% cost deduction but subject to the provisions of DTT’s
- Wealth tax: no wealth tax
- Social security contributions: general health contribution of 2,65% on pensions, dividends & interest and rental income
- Gift & inheritance tax: no gift and inheritance tax
Learn move about tax residency in Cyprus in this article.
Costa Rica
Costa Rica is an interesting option because it is also in our list of the best countries with a territorial tax system.
- Personal income tax: progressive tax rates up to 25%
- Taxation of pensions: foreign pensions are exempt
- Capital gains tax: exemption for foreign capital gains
- Dividends & interest: exempt
- Rental income: foreign rental income is exempt
- Wealth tax: Costa Rica doesn’t have wealth tax
- Social security contributions: not applicable if you’re no longer professionally active
- Gift & inheritance tax: no gift or inheritance tax
Greece
Greece is a very interesting option for pensioners because they offer a flat tax of 7% for foreign income.
In order to qualify you need to:
- Receive a foreign pension
- Move your tax residency to Greece
- Haven’t been tax resident in Greece for five out of the last six tax years
- Move to Greece from a country that has a tax treaty with Greece
You can benefit from this regime for up to 15 years.
- Personal income tax: progressive up to 44%
- Taxation of pensions: progressive unless you qualify for the 7% rule
- Capital gains tax: 15%; unless the 7%-rule applies
- Dividends & interest: 5% for dividends and 15% for interest; unless the 7% rule applies
- Rental income: separate progressive tax rates up to 45% unless the 7% rule applies; furthermore, foreign income can be exempt based on a double tax treaty
- Wealth tax: no wealth tax
- Social security contributions: no social contributions if you are no longer professionally active
- Gift & inheritance tax: gift tax of 10% after a tax free allowance of €800.000 and progressive inheritance tax up to 10% for close family
You can read more about tax residency in Greece in this article.
Italy
Italy also offers a similar beneficial tax regime for pensioners with a flat 7% tax for foreign income.
In order to qualify you need to meet the following requirements:
- Receive a foreign pension
- Move your tax residency to Italy
- Haven’t been a tax resident in Italy for the last five years
- Move your residency to a municipality with less than 20.000 inhabitants in a qualifying region
- Move there from a country with a tax treaty with Italy
The regime is valid for up to 10 years.
- Personal income tax: progressive tax rates up to 43% plus municipality surcharges unless the 7%-tax applies
- Taxation of pensions: normal personal income tax rates apply including the 7% flat tax if you meet the criteria
- Capital gains tax: 26%; unless it falls under the 7%
- Dividends & interest: 26%; unless the 7%-rule applies
- Rental income: progressive tax rates unless you can apply the 7%-regime; foreign rental income can be exempt under a double tax treaty
- Wealth tax: there is a wealth tax of 1,06% on foreign real estate and 0,2% on foreign financial assets; however, exempt if you qualify for the 7%-rules
- Social security contributions: you don’t pay social contributions if you don’t work
- Gift & inheritance tax: fixed rate of 4% for spouse and children after a tax free allowance of €1 million per person
If Italy sounds like an interesting option you can learn more about it in article about Italian tax residency.
Malaysia
Malaysia is a good option for retirees because it exempts foreign income kept abroad.
Even when the foreign income is brought into Malaysia it can be exempt from tax under certain conditions.
- Personal income tax: progressive tax rates up to 30% but certain foreign-source income remains exempt till 2037
- Taxation of pensions: exemption for foreign pensions
- Capital gains tax: no capital gains tax except for local property
- Dividends & interest: dividends are exempt from tax up to MYR 100.000 but 2% on income above this threshold while interest income remains fully exempt
- Rental income: foreign rental income can fall under the exemption for foreign-source income
- Wealth tax: no wealth tax
- Social security contributions: no social contributions if no professional income
- Gift & inheritance tax: no gift or inheritance tax
For pensioners in Malaysia it’s important to plan how much income you want to bring into the country and establish if you have to pay tax on this income.
Malta
Malta operates a tax system whereby foreigners normally qualify as non-domiciled.
This means you only pay tax on Maltese source income and income remitted back into Malta while other income remains tax free.
In addition, as of 2027 Malta will offer an Individual Tax Programme which will replace the Malta Retirement Programme (MRP). In order to qualify, retirees need to:
- Not be Maltese
- Invest €700.000 in a property or rent a property for at least €14.000 per year.
- Receive a qualifying pension (e.g. state or private pension)
- Remit the full pension into Malta
- Ensure the pension constitutes at least 75% of your taxable income
Under this regime, you’ll pay a flat tax of 15% on all types of income (except for capital gains which remain exempt) but with a minimum of €15.000 per year. Therefore, the rates mentioned below wouldn’t apply in this case
Furthermore, Malta also offers this regime for United Nations Pensioners. The conditions to qualify are similar but a minimum tax of €20.000 applies.
You can benefit from the regime for five years and afterwards extend for five more years.
- Personal income tax: progressive tax rates up to 35%
- Taxation of pensions: subject to progressive personal income tax rates if remitted back into Malta
- Capital gains tax: no capital gains on foreign assets for non-domiciled individuals even when the income is brought back into Malta
- Dividends & interest: progressive personal income tax rates when income remitted to Malta
- Rental income: same income tax rules apply but DTT’s can provide an exemption in any case
- Wealth tax: no wealth tax
- Social security contributions: no social contributions on pension income
- Gift & inheritance tax: no gift or inheritance tax
You can learn more about tax residency in Malta in this article.
Panama
Panama is interesting for retirees from a tax perspective because it applies a territorial tax regime. This makes Panama a perfect destination if you live off foreign passive income.
- Personal income tax: progressive rates up to 25% on income from Panamanian sources
- Taxation of pensions: foreign pensions are not subject to income tax
- Capital gains tax: exemption for foreign capital gains
- Dividends & interest: exemption for foreign dividends and interest
- Rental income: exemption for foreign rental income
- Wealth tax: no wealth tax
- Social security contributions: no social contributions on pension income
- Gift & inheritance tax: no gift or inheritance tax
It’s also interesting to know that Panama has a specific Pensionada visa if you have a pension income of at least $1.000 per month.
Paraguay
Paraguay gained a lot of traction amongst professionally active digital nomads because of its territorial tax regime.
However, it’s even better for individuals living of foreign pension or other passive income.
- Personal income tax: the tax rates range from 8-10%
- Taxation of pensions: exemption for foreign pensions
- Capital gains tax: no taxation of foreign capital gains
- Dividends & interest: no taxation of foreign dividends and interest
- Rental income: no taxation of foreign rental income
- Wealth tax: no wealth tax
- Social security contributions: no social contributions on pensions
- Gift & inheritance tax: no gift and inheritance tax
You can find more information in this complete guide about tax residency in Paraguay.
Philippines
The Philippines have a distinct tax system whereby foreigners only have to pay tax on their Philippine-source income.
If you live from foreign income you can live tax free in the Philippines.
- Personal income tax: progressive tax rates up to 35% but foreign income remains exempt
- Taxation of pensions: foreign pensions remain exempt from tax
- Capital gains tax: no tax on foreign capital gains
- Dividends & interest: foreign dividends and interest are tax free
- Rental income: foreign rental income remains out of the scope of taxation
- Wealth tax: no wealth tax
- Social security contributions: no social contributions due
- Gift & inheritance tax: gift tax and inheritance tax rate of 6%
You can learn more about tax residency in the Philippines here.
Thailand
Thailand offers a great lifestyle for retirees.
Furthermore, it offers an attractive tax system where you only pay tax on money brought into the country.
- Personal income tax: progressive up to 35% on Thai income and money brought into or spent Thailand
- Taxation of pensions: general rules for personal income tax apply
- Capital gains tax: ordinary income tax rules apply
- Dividends & interest: same rules
- Rental income: same rules
- Wealth tax: no wealth tax
- Social security contributions: no social contributions apply
- Gift & inheritance tax: close family gets an exemption of gift tax of THB 20 million per year and inheritance tax of THB 100 million; above that a rate of 5% applies
If Thailand sounds interesting to you then make sure to read this article on tax residency in Thailand.
Uruguay
Traditionally, Uruguay was considered a territorial tax regime. This is no longer the case. Nevertheless, it still offers a 10 year tax holiday for certain foreign income.
Under the tax holiday you can exempt foreign income if you meet one of the following criteria:
- Invest money in the country. The exact amount depends on the assets you want to invest in but quickly run over $1 million.
- Live in Uruguay as a retiree for at least 183 days per year.
You can’t have been a Uruguayan tax resident in the last two tax years. The regime gives you an exemption for foreign passive income (e.g. dividends, rental income) for the year you move to Uruguay and the 10 next tax years.
- Personal income tax: progressive tax rates up to 36%
- Taxation of pensions: foreign pensions remain tax free
- Capital gains tax: 12% but exemption possible for foreign capital gains
- Dividends & interest: 12% but exemption possible for foreign dividends and interests
- Rental income: 12% but exemptions for foreign rental income exist
- Wealth tax: 0,1% of your net wealth with certain exemptions and specific rules for foreign assets
- Social security contributions: no social contributions on pension income
- Gift & inheritance tax: no gift or inheritance tax
In this article we talk more about tax residency in Uruguay.
Key Elements To Consider When Determining The Best Countries to Retire for Tax Purposes
If you are determining which countries should be on your short list as potential places to retire you need to take into account a few things.
What Type of Income Will You Receive?
In order to determine the best countries for retirement you need to know what tax you will pay on your income. This will depend on the type of income you will receive.
In most countries, you pay a different tax rate on pension income than on dividend income. And yet some other rules might apply for rental income.
Therefore, you need to make an overview of your different income sources and assess the potential tax consequences to this.
Some countries might be interesting if you mainly live from investment income. However, the same country is maybe less interesting if your major income source is a pension.
Will You Remain Professionally Active?
Tying in to the previous question it will be important if you plan to fully retire or if you will still keep working.
In the latter case, you might also want to have a look at the tax rules for general income.
Furthermore, if you receive professional income, you’ll mostly also have to pay social contributions on this income. So, don’t forget to take that into account when considering your options.
What Lifestyle Do You Want?
Obviously, when you consider your options, you should not only look at the tax side of things.
The quality of life and lifestyle a country has to offer will be an important factor in your decision. Most people even make a decision solely based on the lifestyle a place can offer without even thinking about the tax consequences.
In my opinion, the best approach is a combination of both.
Look for a place that you like but that also comes with acceptable taxes.
After all, your tax burden will impact how much money you’ll have left to spend and what lifestyle you can buy with this.
Will You Leave Money To The Next Generation?
In case you want to leave money to your children or grandchildren, you need to take into account gift and inheritance tax.
If this is not the case, you might skip this criteria when assessing your options.
Nevertheless, if the beneficiaries live in another country, you should also have a look at the tax rules there. They might have to pay tax solely for the fact that they’re the beneficiary.
This could potentially even lead to a gift or inheritance being taxed twice. One time in the country where you live and one time where the beneficiary lives. Unlike for income tax, double tax treaties to avoid gift and inheritance tax are not so common.
What Medical Care Can a Country Offer?
It’s no secret that different countries offer different quality of medical care, and at a different cost.
So, if you have special medical needs you’ll have to consider this when looking at your options.
In some countries, you might also have the possibility to skip the public system and just go for a private hospital. You might want to get an idea if your insurance covers this.
FAQ
Let’s now have a look at some Frequently Asked Questions about the best countries to retire for tax purposes.
What are the Best Countries to Retire in for Tax Purposes?
The best countries to retire in for tax purposes are:
- Bulgaria
- Cyprus
- Costa Rica
- Greece
- Italy
- Malaysia
- Malta
- Panama
- Paraguay
- Philippines
- Thailand
- Uruguay
Which Countries Do Not Tax Foreign Pensions?
The following countries do not tax foreign pensions:
- Bulgaria
- Costa Rica
- Malaysia
- Panama
- Paraguay
- Philippines
- Uruguay
Can I Retire Abroad and Pay No Tax on My Pension?
Yes, you can retire abroad and pay no tax on your pension. However, in order to do so, you need to move that fully exempts your pension from tax.
The following countries qualify for this:
- Bulgaria
- Costa Rica
- Malaysia
- Panama
- Paraguay
- Philippines
- Uruguay
However, the situation is more complex if you receive a government pension because you worked as a public servant. In this case, the country that pays you can tax the pension.
Accordingly, just moving to another country with no tax on pension income won’t work.
Which is the Best Country in Europe to Retire for Tax Purposes?
The best country in Europe to retire for tax purposes is Bulgaria, Cyprus, Greece, Italy or Malta.
Which country works best for you will depend on what type of income you will receive and if you can qualify for some of the tax incentives these countries offer.
Do I still Have to Pay Tax in My Home Country if I Retire Abroad?
You don’t have to pay tax in your home country if you retire abroad. However, a few conditions apply.
You need to make sure that you properly end your tax residency in your home country. If not, they might still try to tax you.
Accordingly, you’ll genuinely have to move out and limit the time you spend there.
How Does a Tax Treaty Affect my Pension when I Retire Abroad?
A tax treaty determines which country can tax your income when you retire abroad.
Because there will be multiple countries involved, the tax treaty sets out the guidelines for taxation.
In most cases, this means that the country where you settle and get tax residency will be able to tax most of your income. Any other country involved (e.g. the country where you receive your pension from) will have to exempt that income from tax.
However, this is the basic rule and many exemptions can apply depending on your personal situation and the exact nature of the income you receive.
Which Countries are Best for Retirees with Investment Income?
The best countries for retirees with investment income are countries which exempt foreign investment income without any conditions:
- Costa Rica
- Panama
- Paraguay
- Philippines
Does My Nationality Affect Where I Should Retire for Tax Purposes?
Your nationality does affect where you should retire for tax purposes but only indirectly.
Your nationality will determine where you can move without applying for a visa or which visa you can apply for.
For example, if you hold a European passport, you can easily move to another European country. While this is, for example, no longer the case for British citizens.
How Do I Become Tax Resident in Another Country When I Retire?
You become a tax resident in another country when you retire by making sure you meet the criteria for tax residency there.
What this exactly means will depend on the tax rules of the country you want to move to. Yet, in practice this will mean you have to spend some time there and/or create other connections with that country.
In addition, you need to make sure that you properly leave your former home country in order to end your tax liability there.