If you aim to live a tax-free life or nearly tax-free life, you need to understand the concept of “territorial taxation” as opposed to the more usual “worldwide income.”
Countries that apply territorial taxation do not tax their residents on income received from abroad. It may sound unreal to people living in highly taxed European countries, but this is a fact. One of the main reason for this is to attract an inflow of foreign capital. However, the benefits of territorial taxation benefit everybody.
Hong Kong, Singapore, Malaysia, Thailand all apply territorial taxation rules; however, they all have their own way of applying them. Before you move to one of these countries, it would be best to consult on how you can live your tax-free existence. For example, you may wish to live in Singapore or Malaysia, but you could set up a Hong Kong company for your business. A Hong Kong company does not pay tax on any income received outside Hong Kong, nor is it liable for any tax on dividends distribution. For example, if you are a director of a Hong Kong company and you wish to pay yourself a salary, your salary is subject to Hong Kong tax regardless of where you live. However, a dividend is tax-free. It is also not taxed once you receive it in Singapore or Malaysia – where you live – as neither of these countries taxes incoming dividends. You can ask then why not just set up a company in Singapore or Malaysia if you live there? Even though Singapore follows territorial taxation rules and its residents and companies are mainly taxed on Singapore sourced income, you need to pay attention to the word “mainly”. Dividends paid by a Singapore company are exempt from taxation, though. Dividends are also tax-free in the case of a Malaysian company. However, Malaysia is still subject to exchange controls which means that sending out money from your Malaysian company bank account can be tricky. You can, of course, set up a bank account for your Malaysian company outside Malaysia. Or you can just set up a Hong Kong company because you do not need “to put all your eggs in one basket.”
As you can see, there are as many possibilities as there are limitations. Talk to us if you would like to have a tax free existence.