Territorial Tax Countries 2025
Countries with territorial tax systems only tax income earned within their borders. For digital nomads and remote workers, this means 0% tax on foreign-sourced income—your salary from US/EU clients is completely tax-free.
What is a Territorial Tax System?
Unlike worldwide taxation (US, UK, most EU countries), territorial tax systems only tax income earned within that country's borders.
Territorial Taxation
How it works: Only income sourced within the country is taxed
Foreign income: 0% tax (remote work, foreign investments, pensions)
Best for: Digital nomads, remote workers, retirees with foreign income
Countries: Paraguay, Panama, Costa Rica, Georgia, UAE, Hong Kong, Singapore
Worldwide Taxation
How it works: All global income is taxed regardless of source
Foreign income: Fully taxed (often 20-45%+)
Problem for: Remote workers, international investors
Countries: USA, UK, Germany, France, Australia, most EU
Example: Remote Worker Earning $100,000/year
In Germany (Worldwide Tax):
~$35,000-42,000 in income tax
In Paraguay (Territorial Tax):
$0 in income tax (foreign-sourced)
Best Territorial Tax Countries Compared
Compare residency requirements, tax rates, and cost of living for the top territorial tax jurisdictions.
Paraguay
Recommended- → Easiest residency process
- → Lowest cost of living
- → No minimum stay
- → Limited international flights
- → Spanish helpful
- → Developing infrastructure
Panama
- → Friendly Nations visa
- → USD currency
- → Established expat community
- → Higher cost of living
- → Higher local taxes
- → More bureaucracy
Costa Rica
- → Quality healthcare
- → Stable democracy
- → Beautiful nature
- → Income requirements for visas
- → Higher cost of living
- → Complex residency process
Georgia
- → Very easy residency
- → Low cost of living
- → 1-year visa-free for many
- → Geopolitical concerns
- → Cold winters
- → Limited banking
UAE (Dubai)
- → 0% income tax total
- → World-class infrastructure
- → Business hub
- → Very high cost of living
- → Extreme heat
- → Cultural adjustment
Malaysia
- → MM2H visa program
- → English spoken
- → Great food
- → MM2H requirements tightened
- → Tropical climate
- → Some restrictions
Why Paraguay is the Best Choice for Most Expats
Paraguay offers the best combination of easy residency, low taxes, and affordable living for digital nomads and remote workers.
3-6 Month Process
No income requirements, no investment minimums, no language tests. Just basic documents and $1,500-2,000 in fees.
$800-1,500/month
Live comfortably in Asunción for a fraction of Panama, Costa Rica, or Dubai prices. 72% cheaper than NYC.
3 Years to Passport
Fastest citizenship timeline in the Americas. Paraguay passport offers visa-free access to 146 countries.
Ready to Explore Paraguay?
Our comprehensive Asunción guide covers everything: taxes, residency, cost of living, healthcare, and settling in.
For US Citizens: FEIE + Territorial Tax
US citizens are taxed on worldwide income, but can still benefit from territorial tax countries.
Foreign Earned Income Exclusion (FEIE)
Exclude up to $130,000 of foreign-earned income for 2025
Physical Presence Test: 330 days outside US in any 12-month period
Bona Fide Residence: Full calendar year as resident abroad
Combined Strategy
Paraguay: $0 local tax on foreign income
FEIE: Exclude $130k from US taxes
Result: Minimal to zero total tax burden
Still must file US returns + FBAR/FATCA