In this article, we will look at the 10 tax free retirement countries for US citizens. If you wish to skip our detailed analysis of the complex world of US tax filing, go to 5 Tax Free Retirement Countries for US Citizens.

The Complex World of U.S. Tax Filing

On average, Americans spend $250 and 13 hours each when filing their annual returns. Individuals earning less than $73,000 annually have access to a free tax filing service that they can utilize, too. However, only 4% tend to make use of the service. Analysis of IRS (Internal Revenue Service) data and a NerdWallet survey supervised by the Harris Poll indicates that in 2020 alone, out of 148 million individual tax returns, only 4.2 million were filed for free. On average, this gap of approximately 87 million taxpayers can fuel as much as $13 billion annually into the coffers of tax preparation companies and professionals.

In light of this, the US Government Accountability Office has noted that the IRS encourages taxpayers to file their tax returns electronically. This practice saves them money and allows tax payers to get their refunds faster. Even then, there is a low use of the IRS Free File, which in turn raises questions about its awareness amongst tax payers. While it is true that there are tax payers who need to consult tax professionals about their specific situations, it doesn't apply to all.

The low usage of Free File is exactly what the private tax corporations are seeking, critics observe. Nina Olson, the national taxpayer advocate, further highlights that under the agreement between IRS and private sector firms, the former cannot develop a "direct" filing option for the taxpayers. Moreover, this agreement also prohibits the IRS from developing an "automated return-free" option, that can let it calculate and generate taxes for individuals. The agreement stands because these private sector firms have the best technology and expertise in electronic tax preparation, and a Public Private Partnership seems the best way forward.

Apart from the successful lobbying against the Free File service, major tax prep giants such as H&R Block, Inc. (NYSE:HRB) and Turbo Tax, owned by Intuit Inc. (NASDAQ:INTU), have also been sponsoring ads of the free versions of their tax software that are ungoverned by the Free File Alliance rules. As evidenced by the figures, preparation and filing of taxes is big business in the United States of America. H&R Block, Inc. (NYSE:HRB) and similar tax prep companies have spent millions since the 1990s to oppose such free filing systems. Due to such allegations and stricter levels of scrutiny by the IRS; H&R Block, Inc. (NYSE:HRB) left the Free File Alliance in 2020. TurboTax by Intuit Inc. (NASDAQ:INTU) followed suit in 2021.

Derrick Plummer, a spokesman for Intuit Inc. (NASDAQ:INTU), has been stressing the free options that already are available, saying that,

H&R Block, Inc. (NYSE:HRB) said that the direct e-file pilot "continues to be a solution in search of a problem." It further states that "this pilot is unnecessary and faces significant barriers to providing comprehensive tax preparation services."

While the US tax filing system is complex, the IRS should extend efforts to raise awareness about its Free File service. Moreover, the agency should follow suit of countries such as Germany and UK that provide their taxpayers with varying levels of tax filing ease. Many of these countries also have tax policies that do not tax foreign retirement income. For those seeking a better quality of life and potential cost savings, these countries can be appealing options for retirement.

Tax-free Retirement Countries

Retirement abroad can sound like a dream, but people often tend to forget about details such as taxes. Many countries offer retirement options for individuals relying solely on social security, yet others provide affordable healthcare or even attractive beach destinations in the Caribbean. However, foreign expats, especially Americans, should know that they cannot escape their taxes. If you are a US citizen, you are required to pay your taxes regardless of where you choose to live.

Therefore, it can be safe to assume that as a US citizen, you are liable to pay your taxes abroad under the same rules that apply retirement taxes stateside. However, the problem arises when you end up paying taxes twice. While Americans must file a US tax return, most also have to file a foreign tax return too. As a result, they end up paying taxes twice and fail to stretch their retirement incomes, which was their primary intention of retiring to the country.

Many options exist to help Americans avoid double taxation when retiring abroad. The first option is retiring to a tax-free country. Establishing residence in a country that does not tax foreign income allows Americans to free themselves of their foreign tax obligations. However, they may not be some of the easiest countries to retire to, like Mauritius or Indonesia. It is important, therefore, that a tax free country must be easy to retire to and also cheap to allow retirement savings to go higher. Some of the cheapest countries for retirement include Dominican Republic, Cambodia, and Portugal.

Other options for Americans to avoid double taxation include retiring to countries that the US has established tax treaties with. These treaties establish the country to which a particular expatriate will be liable for taxes, providing a safeguard against double taxation for citizens. For those individuals who wish to retire to a country that the US does not have a tax treaty with, there is another option called the Foreign Earned Income Exclusion. For those who qualify for the FEIE, they can exclude a certain amount of foreign source income from their US taxation. Finally, another tax break for US expats is called the Foreign Tax Credit. A foreign tax credit lets a dollar-for-dollar credit for at least part of an individual’s taxes to a foreign government.

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Methodology

In order to compile the list of tax-free retirement countries for US citizens, we began by identifying countries that don’t tax foreign income through government sources and related publications. After identifying these countries, we assessed them based on their quality of life rankings, ease of gaining citizenship, and their costs of living. The sources used for these rankings are Numbeo and Insider Monkey.

We assigned scores to evaluate each factor and then calculated the total scores for each country. Places were ranked in ascending order from the lowest to the highest scores.

Here are the best tax free retirement countries for US Citizens:

10. Greece

Insider Monkey Score: 5

Around 30,000 US expats live in Greece. Steeped in history and culture, the country is one of the best tax free retirement countries for US citizens in Europe. From the Greek cuisine and historical landmarks in Athens to top-class beaches and seaside taverns in Corfu, there are plenty of best places to retire in Greece. With regard to taxes in retirement, the US and Greece have signed a tax treaty together. The treaty ensures that US expats don’t pay taxes on the same income to both US and Greek tax authorities. Pensions and withdrawals from non-Greek private pension schemes are taxed at an annual flat rate of 7%. In case the tax is already paid in the US, tax credits and deductions can be applied against the 7% tax in Greece.

9. Malta

Insider Monkey Score: 6

Ranked as one of the easiest countries to retire to, Malta is home to sunny weather and friendly people. Under the Malta Retirement Program (MRP), an individual who is aged 55 or older, receives a pension as their regular source of income and owns or rents a property in Malta, may obtain a retirement visa. Living in the country is approximately 36% cheaper than in the USA. Like Greece, Malta and the US also have a tax treaty with each other. Under this treaty, if the United States pays social security to a US expat residing in Malta, only the US is eligible to tax that social security income.

8. Portugal

Insider Monkey Score: 7

Portugal is a popular retirement destination and also one of the cheapest. The European country is home to more than 10,000 expats. From enjoying the golden sand beaches in the Algarve to relishing the miradouros in Lisbon, there are plenty of  best places to retire in Portugal. Individuals retiring to this country often seek Non-habitual Residence (NHR) status in Portugal, a beneficial arrangement granting them 10 years of tax-free income. This includes exemptions on capital gains tax as well.

7. St. Kitts and Nevis

Insider Monkey Score: 8

Crowned as one of the best places to retire in the Caribbean, St. Kitts and Nevis is home to beautiful beaches, volcanic peaks, and lush rainforests. Individuals can retire to the country through Citizenship by Investment program. Moreover, the cost of living on the island is extremely reasonable too, approximating $1,200. The country does not have any income tax, inheritance tax, or capital gains tax. Undoubtedly, it is one of the best tax free retirement countries for US citizens from the USA.

6. Ecuador

Insider Monkey Score: 10

Affordable living costs, nice beaches, and friendly locals make for the perfect retirement in Ecuador. However, the cherry on top is that any foreign income taxed in another jurisdiction, in this case, the United States, is not taxed in the country. The country also motivates individuals to buy properties and establish residence there. Low property taxes are applied, too.

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Disclosure: none. 10 Tax Free Retirement Countries for US Citizens is originally published on Insider Monkey.