Image: Bahamas house
Sotheby's International Realty
Need some place to stash some cash offshore? This four bedroom, five-and-a-half-bath mansion in the Bahamas can let you move $4.65 million.
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updated 3/27/2007 4:28:52 PM ET 2007-03-27T20:28:52

Death may be certain, but taxes don't have to be.

It's an international marketplace after all, and there are plenty of nations willing to welcome expatriates fed up with Uncle Sam.

Countries like the Bahamas make tax haven status an integral part of their marketing — relocate to Nassau, and you'll fear no tax man. That's because, for Bahamians and resident aliens there are no taxes on personal income, capital gains, inheritance or gifts.

"The policy benefits the Bahamas indirectly," says Terrance Bain of FT Consultants, an accounting and tax planning firm in the Bahamas. "A person coming to the Bahamas will buy real estate or operate some kind of business. Most luxury properties are marketed to and eventually bought by non-Bahamians — it's a very robust market."

Good weather and no audits, it's almost unfair.

Tax havens grew out of the late 19th-century British system that began granting independent economic governance to protectorates like Gibraltar, Hong Kong or the Channel Islands, which then became easy places for people to protect money — hence the term off-shore accounts.

By the 20th century, high net-worth individuals were flocking to small islands like Monaco and Bermuda, whose governments figured the money they could garnish off real estate transactions and sales tax made the tax-free incentives worthwhile.

"Monaco is a luxury destination," says Maguy Maccario-Doyle, consul general to the United States. "It is a soft tax system, but we do have a value added tax around 30 percent on luxury items such as jewelry or restaurants and all the best luxury people are here within a square mile."

And it works. Six of the Forbes Billionaires reside in Monaco, making one in every 5,400 residents worth over a billion dollars. The principality's housing market commands a median price of $3,000 dollars per square foot, ahead of Manhattan and London, according to international real estate analysts Global Property Guide.

Bermuda, though it has only three billionaires, has the highest gross domestic product per capita in the world at $70,000 per citizen. Hiding out in Bermuda is so popular, in fact, that the government makes it virtually impossible to get permanent residency, and requires that foreigners buying into the market pay a minimum of $1 million for their home and then a 22 percent transfer fee to the government.

Those may be luxury prices, but it's a small price to pay for the tax breaks. Non-profit group Tax Justice Network estimates that offshore tax havens shielded over $255 billion in global tax revenue in 2006, a number roughly equal to a third of India's overall GDP.

Major Market Indices

Most countries assess taxes based on residency, not citizenship. As a result, people across Europe who settle down in Switzerland ease into the moderate tax rates. For Americans, however, there's no escaping the long arm of the IRS.

Americans living outside the country are exempt on their first $82,400 of foreign earned income, but the most recent 2006 tax cuts boosted taxes by up to 20 percent for expatriates and made it possible for the IRS to dip into foreign retirement accounts for the first time. It is the highest such increase in 30 years, and ex-pats pay it on top of their host country taxes.

For Americans abroad, the only way to fully take advantage of tax havens is to renounce American citizenship, which over 500 people, almost all of very high net worth, did last year.

Soaking in the sun, watching the Monaco Grand Prix and doing your best Grace Kelly impression makes for easy living, but comes at a cost. For most it's difficult to imagine relinquishing a U.S. passport, and that's why some states offer significant tax relief.

Nevada is the closest thing the U.S. has to a tax haven. No personal income tax, no capital gains tax, no gift tax, no inheritance tax, no franchise tax, no inventory tax.

"We do have a property tax," says Shari Chase of Chase International, a real estate brokerage in Lake Tahoe, Nev. "But compared to the rest of the country, and our neighbors in California, the property tax is extremely low — and properties are not reassessed upon purchase."

It's no wonder, then, that the $100 million Lake Tahoe Tranquility mansion found itself on the Nevada side of the border.

Avoiding taxes in other states isn't as simple as scooping up a place in Nevada and claiming residency. Other states levy taxes for income made on their soil, so retired persons have long been the main benefactors of the state's tax structure, but that may be changing.

But should you choose to relocate to one of the world's tax havens, what can you expect?

Even when relocating to paradise, moving abroad can be a tough adjustment. But it can also offer opportunities for you and your family to explore local culture or take up new hobbies.

Cities like Hong Kong and Geneva offer as many cosmopolitan amenities as you can expect to find anywhere, with many of the comforts of home, from cinemas showing American movies to top-notch international cuisine.

Moving to a small island, though, can make it harder to import your lifestyle  —  but fortunately the way of life most offer is alluring. Bermuda, for example, has nine golf courses crammed into just 20.6 square miles and temperatures that seldom fall below 60 degrees or rise above 85, meaning that it's a rare day you can't play. In the British Virgin Islands, it would be a sin not to work on your skippering skills, while a move to the Cayman Islands virtually requires an interest in snorkeling or scuba diving.

Monaco and Gibraltar are among our most miniscule tax havens, but there's no need to feel confined. If you tire of the gambling, sunbathing and nightclubbing to be had in Monaco itself  —  which may take a while  —  the French Riviera is just a short convertible drive away. From Gibraltar, visit Spanish beaches or the Moorish architecture of Andalusia.

That is if you're not glued to your computer. It takes work to make all that tax-free money, after all.

"With the onset of the internet — doing business like we do business today — someone can live in a fabulous home here in Lake Tahoe," says Chase, "and do business around the world."

© 2012 Forbes.com

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