Low Taxes for US Expats on Bonaire

General rules: Bonaire has a “Double Tax Decree” (DTD) that lowers or eliminates income tax on certain types of income earned by residents if the income is taxed in another country. It is basically an incentive to get US expats to settle here and spend their money on island. In exchange you get free health care.

Pensions, 401(k) and IRA withdrawals are income tax free here if you are 65 or over as of January 1. If you are under 65 and have that type of income, the DTD will not eliminate all the local tax. The 30.4% is made up of not just income tax but also “premiums” for things that are the equivalent of FICA and Medicare. On the first $32,235 of taxable income (2020 rate) the “tax” not offset by the DTD is about $8,500/person. Above that deferred compensation is tax free. If you can wait to start those withdrawals until you are 65, the "tax" drops to about $160/year, which is your health care premium. The same rules apply for Social Security but the 15% not taxed by the US is taxed here, so that can add between $500-$1,000/year depending upon how much your SSA benefit is.

Rental income is not taxable on Bonaire at all, nor are capital gains. There is a tax free allowance of approximately $12,500/person (changes with inflation) The first $5,000 of interest and $5,000 of dividends, both per person, are tax free. Over that the DTD kicks in to lower the tax but the rate is 30.4% as a start. The tax on dividends can be reduced by up to 5%. The tax on interest is reduced by the amount of US tax allocated to it.

The taxes you pay to Bonaire on things like retirement plan distributions, interest and dividends are not allowed as a credit against the US tax because the source of the income is US, not foreign. But if you have a salary while working on Bonaire or own a business here, see the sections on “US Expat working on Bonaire” and "Owning a business on Bonaire" as different rules apply.