Very Low Taxes for US Expats on Bonaire
2013-05-08

Huge tax break for US retirees on Bonaire, plus free medical care

If you are 60 or over and move to Bonaire, there are virtually no income taxes on your US source retirement income. Even for those under 60, the additional tax is usually minimal as long as you plan in advance.

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Until 2011 a US citizen who was retiring and thinking of becoming a resident of Bonaire faced a difficult tax problem. Bonaire taxes residents on a worldwide basis. Since your pension, IRA and 401(k) withdrawals, Social Security and investment income were all subject to tax in the US, moving to Bonaire created a second level of tax. Since the source of the income was US, the US did not allow a foreign tax credit for the Bonaire tax, just a deduction on Schedule A. And until 2011, Bonaire did not have a foreign tax credit or exemption system. The result was that I generally could not recommend someone in this position becoming a Bonaire resident.

But in 2011 the Bonaire government adopted a Decree on Double Taxation. This Decree basically allows a 100% exemption from Bonaire income tax for a US person who can show that their retirement income is still being taxed by the US, regardless of the actual tax rate paid. In addition the first $5,000 of interest income and $5,000 of dividend income per person is tax free.

The basic tax rate on Bonaire is 30.4% on regular income above the current tax free base of $11,387 (2013). So normally a pension, IRA withdrawal, or Social Security would be taxed at 30.4%. But if that income is subject to tax in the US, that income is exempt from the Bonaire income tax.

There are a few small caveats.

First, in the US only 85% of Social Security is potentially subject to tax. Therefore only 85% of your Social Security income is exempt on Bonaire.

Second, some IRA's (such as Roth and non-deductible IRA's) will have a slightly different tax treatment here, as they are treated more like annuities under Dutch law. In general, the first withdrawals will be tax free until you have withdrawn all of your contributions, and the balance will be treated as interest.

Third, the 30.4% rate is actually made up of four separate taxes and social insurance premiums. The decree does not apply to the premiums. The portion of the 30.4% that is income tax (and therefore can be eliminated by the decree) changes when you turn 60. To keep it simple, if you are 60 or over, the income tax rate is 29.9% on the first $29,434 (2013) and then 30.4%. If you are under 60, the income tax portion on the first $29,434 is just 3.6%. After the first $29,434 the income tax is 30.4%. (Note: these base amounts, rates and the official retirement age may change in future.)

If you are under 60, it's unlikely you have retirement income anyway, but if you do, there will be some double tax, up to approximately $8,000. Please contact us for the calculations.

So this means that a 60 or over retiree will pay just $147 in insurance premiums, and no income tax, on their retirement income. This makes Bonaire a very attractive location for US retirees.

Being a resident also entitles you to free Bonaire medical and pharmacy services. There are generally no deductibles or co-pays. Of course the services here are not the same level as in the US, but more serious health issues are covered as well, usually in Curacao or at the advanced medical facilities in Columbia. Whether to continue paying for US health care insurance if available is a personal decision.

Becoming a resident from an immigration standpoint has its own financial requirements but for most retirees they are not difficult hurdles.

Therefore, if you are considering retiring in the Caribbean, moving to Bonaire is now a very attractive location for individuals who are looking for a foreign tax-free location with great diving, windsurfing, restaurants, and free medical care.

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