What You Need to Know

While it’s fun to daydream about sunset walks on the beach and sipping cocktails on the deck in a place where it’s always warm and sunny, there are pesky details to tend to that come with moving abroad as well. One big aspect that many don’t consider ahead of time is taxes for expats. When you move to another country instead of just going there on vacation, you will still have to file in your birth country if you’re American and you may need to file in the new country as well no matter where you’re from.

First the good news: in more countries than not, you won’t owe income tax unless you’re earning money locally. Some governments make most of their revenue from a VAT-style sales tax. If you’re retired or earning money outside the country you’ve moved to, you normally don’t have any income tax implications. There are exceptions though, which we’ll outline here.

You’ll also owe property tax if you buy a condo or house, though most moving to Latin America pay a small fraction of what they did for a comparable house where they came from. There are other small but unavoidable obligations to look out for, such as paying social security taxes for full-time domestic help.

I’ve lived in Mexico full-time since 2018 and have interviewed a lot of expats living in other countries to the south of there. None of them see the tax situation as a major worry in their life, but I and many other people who are living abroad don’t try to figure it all out on their own. Working with professional American expat tax services before you move is one of the smartest steps you can take. It can save you a small fortune to get some help.

Home Country Tax Obligations: the United States is the Outlier

If you hoped that moving out of the USA would enable you to stop filing a 1040 in April, I’ve got bad news for you: Uncle Sam will follow you wherever you go. There are some perks you get by being outside the country, like the ability to scramble to file on June 15 instead of in April, but you do still have to file. This is true even if you don’t have any income and don’t owe anything. The nanny state wants to keep track.

Keep in mind that you may still owe state taxes too. This is why many expatriates try to set up residency in a no-tax state like Florida, Nevada, or South Dakota before taking off. This gets rid of the state tax filing obligation. Since they’re not really living stateside anyway, the residency location is mostly a virtual one.

The big plus is, if you live outside the USA at least 330 days of the year, you’re probably eligible to shield a big chunk of your income — maybe all of it if your taxable income is under $120K per year. Again, consult a professional who is used to dealing with expat situations, but if you meet the criteria and your passport confirms it, the rules are straightforward. Here are the filing issues that can trip up Americans if they’re not careful:

• Annual US federal tax return – required every year, regardless of where you live
• FBAR (FinCEN 114) – required if your foreign bank accounts exceed $10,000 at any point during the year
• FATCA (Form 8938) – required for foreign financial assets over $200,000 (single) or $400,000 (married filing jointly). See the official IRS explanation here.
• Foreign Earned Income Exclusion (FEIE) – for tax year 2025, excludes up to $126,500 of foreign-earned income from US taxes
• Foreign Tax Credit – offsets your US tax bill with taxes already paid in your host country

The penalties for missing these filings are serious. An FBAR violation alone can cost $10,000 or more per violation — even if it wasn’t intentional. In an extreme case, the government could revoke your passport.

Filing Obligations for Non-Americans

If you’re from Canada, the UK, or really any other country besides Eritrea, there’s a good chance you’re exempt from having to file taxes in your home country. If you can prove you live elsewhere and have established a base, you’re off the hook.

This may mean you owe income taxes of some kind in your new home, however, if you have a real income. Most countries have a double taxation agreement so you’re not dinged twice, but it can be tricky if the tax rate is higher in one country than another. Do your own research and ask around with other people sharing your original nationality.

Canadians don’t have an equivalent exclusion to the U.S. one that shields income and instead rely primarily on foreign tax credits and treaty benefits to avoid double taxation.

Latin American Countries Tax Differently

Latin American countries split into two camps: those that tax worldwide income and those that use a territorial tax system. Under worldwide taxation, once you become a tax resident, the country taxes your global income regardless of where you earned it. The latter tax residents on all income from any source once you cross 183 days of presence.

Territorial systems tax only income earned within the country’s borders. Foreign-source income remains untouched by local tax authorities. Several Latin American countries operate territorial regimes, creating attractive options for expats with remote income or offshore investments.

The distinction matters most when your income comes from outside the country. With territorial taxation, you can live in the country full-time while paying zero local tax on foreign earnings. With worldwide taxation, your entire income enters the calculation once residency triggers. So your primary tax filing and payment may be local, in a language that’s not English.

You can be a tax resident of your Latin American host country while remaining a US or Canadian citizen subject to home-country filing. That dual status creates the need for careful coordination and is why tax residency rules matter so much for planning.

Territorial Taxation Nations

When local law exempts foreign income entirely, your only obligation runs to your home country, where FEIE and credits can eliminate or reduce the bill (for Americans). If you’re not running a local business, you don’t owe tax on money earned.

Paraguay operates one of the strictest territorial tax systems in Latin America. You only pay taxes on income earned within Paraguay’s borders, which means your foreign-sourced income remains completely untaxed. Foreign investments, rental properties outside Paraguay, and business operations elsewhere aren’t subject to local taxation.

Residency is relatively straightforward to obtain. You can qualify through bank deposits or business investments, and the process typically takes several months. Once established, you face no reporting requirements for your international earnings.

Uruguay offers new tax residents an 11-year exemption on foreign-sourced income. During this period, you won’t pay taxes in Uruguay on investments, pensions, or business income earned outside the country.

After the 11-year period ends, Uruguay transitions to a standard tax system where worldwide income becomes taxable. The personal income tax rate applies progressively, with higher earners paying more. You need to plan ahead for this eventual shift in your tax obligations.

Uruguay’s quality of life is excellent and the government is stable and progressive. The country offers modern infrastructure, good healthcare, and a welcoming attitude toward foreigners.

Panama uses a territorial tax system where only Panamanian-sourced income faces taxation. Your foreign income remains exempt regardless of how long you’ve been a resident. The definition of foreign-sourced income is generally favorable. Remote work for companies outside Panama, international investments, and foreign business operations typically qualify for exclusion. You won’t pay Panama taxes on these income streams.

Corporate structures in Panama provide additional planning opportunities. You can establish a Panamanian entity to manage international activities while maintaining clear separation from locally-taxed income.

Costa Rica officially operates a territorial tax system, but enforcement and interpretation are not always consistent or transparent. The lack of clarity for remote workers can be worrying, whether self-employed or for a foreign company. For wealthy Canadians moving to Costa Rica though, they’re moving to lower their tax bill anyway, so they’re happy to switch systems.

The government introduced a digital nomad visa to attract remote workers. This program provides residency status but doesn’t automatically resolve all tax questions. Traditional foreign-sourced income like passive investments and rental properties abroad generally maintains tax-free status. The challenges primarily affect active income earned while physically present in Costa Rica, so good tax advice is essential.

Guatemala offers a territorial approach with minimal tax rates even on local income. The system remains relatively informal compared to other Latin American countries, creating both opportunities and ambiguities. Foreign-sourced income typically faces no taxation and as one article put it, “Guatemala’s enforcement capacity is limited anyway.”

Belize offers territorial taxation with English as the official language. This linguistic advantage simplifies legal and tax matters for USA and Canadian expats. Expenses are much higher here, however, than any country profiled apart from Costa Rica.

Ecuador provides retiree-friendly residency options with favorable tax treatment for foreign pensions and social security. The use of the US dollar eliminates currency risk for those maintaining ties to North America.

Ecuador has typically been a retirement haven, especially in Cuenca, and is known for having a low income requirement and a straightforward residency program. Property prices are attractive and healthcare gets high marks. Retirees also get a few discount perks too, such as on flights and bus tickets.

Mexico is not as straightforward as countries with purely territorial systems. In theory, residents could face taxation on worldwide income, though in reality it’s hard to find any expats in Mexico without a physical business who have paid any form of income tax apart from Airbnb rentals. The government’s primary income streams are corporate taxes, import tariffs, and a hefty VAT for all consumers.

Recent years have seen increased tax enforcement and reporting requirements that have primarily only impacted high-profile, wealthy individuals with complicated business entities. Just be advised that there is the potential for closer scrutiny of foreign income in the future, despite fears of “killing the golden goose” that has done so much for the economy on the ground in some areas.

Local Taxes for Expats on Foreign Income

The 183-day threshold determines when you become a tax resident in most Latin American countries. If you spend 183 or more days in a calendar year within Colombia, Brazil, or Chile, you trigger tax residency and face taxation on your worldwide income at progressive rates reaching up to 39%. In theory you could face this in Mexico too, though in reality there’s never been a mechanism to collect this information or enforce any payments on income earned abroad.

The four countries in Latin America that are less ambiguous about worldwide income taxation are Argentina, Brazil, Chile and Colombia.

For Brazil this created a big backlash when they introduced a digital nomad visa but then said that these nomads would need to pay taxes after being in the country 183 days total (even on multiple trips) in a one-year period. This negates the whole concept of working nomadically in different places, so no surprise, there weren’t many takers once work got out, especially since they can come after you — with accrued interest — years later.

Chile does have some wiggle room for new arrivals, a grace period of sorts, and there are exceptions to who must pay in Colombia. Just know that in any of these countries, getting authoritative tax advice is essential.

Regardless, these systems just determine where you’ll pay taxes, so pay attention to the rate calculation. It’s rare that you’ll have to pay tax in two nations. Double taxation treaties cover a lot of countries. Otherwise, the Foreign Tax Credit lets you apply foreign income taxes paid against your US or Canadian tax bill. You claim it on Form 1116 for the US. This credit covers taxes actually paid to the host country on the same income your home country taxes.

Canada provides similar relief on taxes for expats through foreign tax credit mechanisms under its Income Tax Act. Both countries limit the credit to avoid refunding more than the tax you owe at home.

One last distinction that’s important: residents face different requirements than citizens, with the latter treated like a native-born person for taxation. This is true even for citizenship by investment programs usually, though there may be incentives tied to large investments or local payrolls.

For those dreaming of a second passport, Paraguay and Uruguay offer the fastest citizenship routes at three years, Brazil requires four years, and most others demand five to seven years of residency. In Colombia, you need five years of temporary residency before applying for permanent status, then another five before citizenship eligibility.

For more information: Costs and Where to Retire in Latin America