Are there truly different tax systems?

In general, the right of a State to tax is based on two principles:

1. A connection of a person with the jurisdiction (such as residence, incorporation or permanent establishment). This is known as “Residence Jurisdiction.”

2. A source of income within the jurisdiction. This is known as “Source Jurisdiction.”

The tax laws of each country explain when you fall in any of these categories. But in general, if you (or your income) don’t fall in any of these two categories, a tax authority does NOT have the right to tax you.

Given that tax systems developed over centuries, every country is different. The essential point of this book is that certain countries don’t have income tax even though they have the right to tax. Or, they don’t tax certain types of income OR tax them at a low rate.

There are ways to structure your life in such away that taxes are minimized. Again, this is nothing strange. The Netherlands doesn’t tax rental income and capital gains, but they tax wealth. The UK doesn’t tax wealth, but it taxes capital gains. Logically, one is good for having wealth, the other for making gains.

Another example: countries in Central America don’t tax income sourced abroad.

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