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How Can I Live Tax-free?

How to pay no tax? This thought occurs to many people after calculating the mandatory deductions they pay monthly on their income. And if you calculate taxes for a year or a longer period? These vast sums, for example, could be spent on buying real estate, investing in a profitable project, or saving for retirement.

In this article, our experts will tell you about tax-free money, provide tax-free income examples, and give you valuable tips on legal tax reduction.

how to live tax free

Living tax-free without breaking the law

Life without taxes in most countries is impossible since paying them is every person’s legal obligation. Nevertheless, several legal tools allow you to reduce the fiscal burden and thereby increase tax-free income:

  • using tax deductions and credits
  • maximizing contributions to the retirement account and social insurance
  • using tax-free investments such as municipal bonds
  • using a savings account without taxation
  • moving to a country with lower tax rates or registering a company there to accumulate passive income.

Using tax-free jurisdictions

A number of countries and territories worldwide have zero tax rates on income from foreign sources. These are St. Kitts and Nevis, Marshall Islands, British Virgin Islands, Cayman Islands, Bahamas, etc. Countries with tax-free earnings from overseas sources are also called offshore. However, today the very concept of offshore jurisdiction no longer meets the criteria that were in effect 20 years ago.

The authorities of many such jurisdictions are actively cooperating with international financial organizations, harmonizing their legislation in accordance with the AML rules, requiring mandatory substance, etc. But thanks to low tax rates, it is profitable to create companies for accumulating passive income in these countries. Moreover, if you do not break the rules, they are a completely legitimate tool for optimizing taxes.

In addition to taxless states, there are also countries with low taxes, for example, Cyprus, Hong Kong, and Gibraltar. There, taxes are not zero but lower than in other countries. By obtaining tax residency in a state with low taxes on personal income, dividends, or other passive income, you can significantly reduce your budget burden.

We bring to your attention the top 15 European countries with low taxes.

Tax deductions and credits

Many countries actively use these two tools for reducing the fiscal burden. The essence of tax deductions is the right to reduce the amount of income before paying tax. A tax credit directly reduces the amount of tax or entitles you to a refund for a part of it.

Examples of how tax deductions and credits can increase non-taxable income

Most often, tax deductions are applied during real estate transactions. Not to pay capital gains tax on the total income, it can be further reduced by the costs incurred by the taxpayer in the real estate operation. These can be repairs, utility bills, etc. Deductions apply in almost all countries, but what specific expenses you can use to increase the income that is not taxed should be clarified in local tax laws.

Here are a few more country examples of untaxed income and tax deductions in different countries.


In this country, tax residents could deduct the following expenses from their taxable income for 2021 (in total no more than 2,000 euros):

  • for finishing the house and any kind of its repair
  • car repair
  • childcare services for children under 18.

Nowadays, such an opportunity to make a part of income tax-free has disappeared. However, in the future, it can be restored. In addition, Latvia allows a tax reduction for the costs of vocational training and higher education.

Find out more about the opportunities that open up for business and life in Latvia.


In another part of the world, Brazil, slightly different rules apply. There, tax residents can increase annual nontaxable income by deducting the following types of expenses:

  • maintenance of dependents (the amount is set annually by the tax service)
  • alimony
  • education
  • medical services (including dental services).

As you can see, in Brazil, the list of costs that can be deducted and thereby increase untaxable income is much more extensive than in Latvia.


Australia has the rule to reduce the fiscal burden through a tax on dependents and caregivers. The deduction amount is reviewed annually. For the last tax year, it was capped at 2,833 Australian dollars (AUD). Also, if the resident’s taxable income does not exceed AUD 40,000, the spouse may make refundable tax-free contributions of AUD 3,000 to an eligible pension fund or retirement savings account. The maximum tax credit for this program is AUD 540.

There are a lot of nontaxable income examples, as well as examples of tax deductions and credits, and they are quite diverse. Usually, they relate to such areas of life:

  • education
  • babysitting
  • improvement of living conditions
  • medicine
  • retirement and insurance contributions.

What is tax-free income, what tax deductions are valid, and how to apply them? All these should be clarified in local tax legislation. Of course, they will not reduce the fiscal burden to zero, but it is quite possible to achieve significant tax discounts with their help. And this, in turn, will increase your non-taxable income and wealth in general.

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Maximization of contributions to the retirement account and social insurance

The well-being of citizens upon reaching retirement age is one of the priority areas of social policy in most countries of the world. Therefore, the authorities encourage any actions of individuals whose purpose is to accumulate funds for use in old age. How exactly? It’s simple – a decrease in the amount of taxable income.

In Latvia, contributions made to pension funds established in EEA or OECD member countries for one’s own benefit or the benefit of a spouse, minor children, or children with disabilities can be deducted from taxable income and thereby reduce tax. Similar rules work in Bulgaria and Australia.

In Canada, a deduction is available for an employee’s contributions to a Registered Pension Plan, Combined Registered Pension Plan, or Registered Pension Savings Plan up to certain limits. In some cases, people can deduct their contributions to an employer-sponsored foreign national pension plan if they made contributions to the pension fund before moving to Canada.

For both employed and self-employed individuals, the deductible contribution to a Registered Pension Plan is typically 18% of the previous year’s total taxable income, up to a maximum of CAD 29,210 (in 2022). What are sources of income for making contributions to RPP? This can be employment, self-employment, and rentals.

In Germany, contributions to pension programs are generally tax-free up to a limit of EUR 25,639 (or EUR 51,278 for married joint taxpayers).

As with tax deductions and credits, the conditions for retirement savings programs vary from country to country. Such benefits concern not only the provision of well-being in future old age. Many countries also have savings programs for medical bills or other insurance premiums. These amounts are usually allowed to adjust annual taxable income, thereby reducing the fiscal burden.

Tax-free investments

Typically, investment income is taxable. What are examples of untaxed income in the investment area? If the interested entity is the state or municipal authorities, income will most likely be released from fiscal obligations.

How does such a tool work? Everything is straightforward. Cities or counties periodically issue municipal bonds to raise money. They plan to use the proceeds to finance large public projects such as roads, schools, etc.

But besides issuing securities, it is also necessary to motivate investors to buy their municipal or government securities. After all, most market players will prefer stocks and bonds of well-known large corporations. To do this, the authorities exempt the interest income of such bondholders from taxes. This automatically increases their competitiveness in the securities market.

Tax-free savings accounts

These tools are not available in all countries. By itself, a tax-free savings account is a particular type of account in which the growth of investment and interest income and its withdrawal are not taxed.

Here are such tax-free assets examples in different countries:

Canada Tax-Free Savings Account (TFSA)

This special savings account is used to accumulate income (investment and interest). At the same time, withdrawals from TFSA are not taxed.

TFSAs help Canadians collect money for various expensive purposes, such as buying a home, paying for education, or saving for retirement.

More interesting information about taxes, real estate, and business in Canada.

US Individual Retirement Account (Roth IRAs)

This type of US retirement savings account allows you to save money for retirement while providing tax benefits.

Some key features of the Roth IRA:

  • no age restrictions
  •  no mandatory minimum distributions during the lifetime of the account holder
  •  tax-free withdrawal of funds after 59.5 years, provided that the account has been opened for at least five years
  •  possibility of withdrawing contributions at any time without penalties and taxes.

Such an account will be one of the best tax-free money sources after retirement.

If you are planning to start a business in the USA, then it will be helpful for you to learn about the 10 most popular ways to pay taxes there.

UK Individual Savings Account (ISAs)

ISA principles of operation are the same as those of the Canadian counterpart. People save money for large purchases, and after a certain time, they can withdraw it, along with interest income, without paying tax.

Features of using ISAs:

  •  what is not taxed: investment growth, interest income, and withdrawals
  • account deposit limit is set annually
  •  ISAs can be opened by UK residents over the age of 16
  • several varieties of ISAs depending on the purpose: retirement account, stock and bond account, etc.

Tax Free Investments in Australia (TFIs)

This tool is similar to all of the above non-taxable assets. The basic concept is that investment and interest income, as well as further withdrawals of funds already in profit, are not taxed.

Taxes vs income

Taxes are the most important instrument of state regulation of the economic system. With their help, the authorities solve such problems:

  • creation of transport and social infrastructure
  • financing of the army, medicine, education
  • ensuring the minimum needs of the poor.

But on the other hand, too high taxes become a burden for business and capital, and people begin to look for jurisdictions with more loyal taxation or non-taxable side jobs.

All of the above tools can reduce the fiscal burden and increase your income. However, to achieve the most favorable result, it is recommended to contact professionals who know corporate and tax laws perfectly. Independent actions and decisions without careful planning, on the contrary, can lead to significant expenses and troubles rather than increased income. Therefore, if you are interested in this topic, please contact us at [email protected].

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