For some investors, tax—or the avoidance thereof—is the driving force behind going offshore, but for the great majority of well-off individuals considering offshore investment, tax is not the primary issue. These investors reside in high-tax areas, such as countries in the European Union, the United States, Canada, and Japan, and they pay their taxes. Their motivation in purchasing real estate in other countries is to get higher returns, without any intention to evade taxes in their home countries. These investors often look at countries that are more lightly regulated or have huge growth potential.

Expatriating: A Permanent Option

Avoiding Double Taxation

Banking Outside the United States

Foreign Corporations

Estate and Gift Taxes

In the End

Although tax shouldn’t be the most important consideration when choosing a property, it’s not to be overlooked. The tax implications vary in complexity and impact according to the country you are investing in and what you intend to do with the property. In addition, you need to take into account that the United States taxes you on your worldwide income. Taxes levied on international property investments usually fall into the following categories:

• Capital acquisitions tax, inheritance tax, stamp duty, or transfer tax for purchasing, inheriting, or transferring property


• Local and national property taxes and land tax for owning and/or residing on the property


• Income tax on rents received, of which there may be additional taxes imposed on nonresident or foreign landlords


• Capital gains tax, gift taxes, or death duties and estate taxes for disposing of the property

To avoid or minimize taxation, there are countries or jurisdictions with no taxes on income or capital gains, such as the Turks and Caicos Islands. However, some of these tax havens are an option only for the very wealthy who are willing to contribute substantially to the local economy and purchase luxury real estate, and some of these locations limit the number of foreigners permitted residence or work permits. In comparison, governments in nontax-haven countries tend to impose fewer restrictions on nonresidents purchasing property, yet the likelihood is that you will face more taxes on your investment. But some high-tax countries provide advantages over the long term. For instance, in France rents over the last fifty years have averaged a net operating income (NOI) of about 7 percent, which is not terrific. But if you hold onto the property for at least fifteen years, your tax on capital gains is vastly reduced. And when you consider that property values have gone up about the same rate as rents, you will have an enormous gain.
To lessen or bypass taxes, some property investors choose to purchase international property via an offshore company or trust, often established in a low-tax jurisdiction. Trusts in particular can be effective in protecting investors and their beneficiaries from high estate and death taxation. Some countries have no provisions in their tax regulations to tax the underlying assets of a foreign company, so an offshore company can be a tax-efficient vehicle to hold property investments.