Trading can be a great source of income when done wisely. And depending on your country of residence, revenue from trading can be taxed. Some countries charge so much for trading that it could become impossible to trade with them. It is essential to know how to reduce taxes related to trading revenues. This article will summarize how different countries tax incomes from trading and which is the best country to trade from.
List of countries that tax financial trading revenues
A tax that countries charge for trading revenues is called capital gain tax. Capital gain tax is charged when a person realizes income, selling the asset for a profit. If you want to know more about taxes, taxes on trading revenues are explained here in more detail. For Forex online trading, the tax is charged after withdrawing your profits from the broker. This is good as it will not charge each profitable trade, which could make trading pointless from taxed countries. You may think the USA is charging the highest capital gains tax, but this is not true. In the USA, there is a minimum taxable income, which means if your revenue is less than a certain threshold, the rate is 0%, far better than some of the European countries discussed below.
How the US levies taxes on capital gains
Capital gains tax rate Minimum income
0% $0 – 44 000
15% $44 000 – 490 000
20% $490 000 and more
As we can see, the US has a fair tax rate for different income amounts. So, how do European countries compare to the US in this regard? Most European countries will charge high taxes on capital incomes, with Denmark being #1 on the list with 42%. This means that almost half of the revenue from capital gains goes to the government, a pretty dystopian picture. So, the US seems far ahead in fair tax policies than many European countries.
Countries that charge the highest capital gain taxes
- Denmark 42%
- Finland 34%
- France 34%
- Ireland 33%
- Germany 26%
- United Kingdom 20%
It seems expensive to live and trade online financial markets in these countries. But there are other European countries that charge the lowest rates for capital gains, with Belgium leading the pack with 0%.
Countries with the lowest tax rates for capital gains
- Belgium 0%
- Czech Republic 0%
- Luxembourg 0%
- Turkey 0%
- Switzerland 0%
These countries offer great flexibility to trade and make money online without your profits taken away by tax authorities.
How to avoid or reduce taxes when trading
Many investors use offshore banks and firms to trade or save their capital to pay 0% tax rates. This is a beneficial method for residents with higher savings or capital. For beginners, it is expensive to use an offshore loophole. Investors with high capital love offshore, as they can use their money to make more, not paying any taxes. This will require researching how to open an account in offshore countries, how their financial and tax systems work, and maybe even visiting one for tax-free trading.
Another less convenient way to avoid being taxed is to have a residence in another country; since most brokers will check users’ country of residence and other details, the options for USA and Europe residents are limited in this regard. The most appropriate way seems to be to live in a country that is cheap and doesn’t charge trading and dividends incomes.
Best countries to trade without tax
Luxembourg and Switzerland don’t charge taxes on capital gains, but these countries’ living costs are pretty expensive. It is not feasible if you have millions of dollars to invest in dividends and trading. Turkey, on the other hand, is a very cheap country to live in; there are many beautiful places too, so it could be a tourist-like experience to live and be a trader in Turkey. A family consisting of two persons can live in Turkey for only 500–750 Euros per month. These details make Turkey one of the best countries for traders who want to reduce or avoid trading taxes and simultaneously reduce their living expenses.
Many developed countries, including the US and European countries, will charge taxes on capital gains. Some countries are impossible to trade from, like Denmark, as they charge an exceptionally high tax rate of 42%. And almost half of your profits will go to the government, making it impossible to conduct trading activities. Some countries charge 0% for capital gains, like Luxembourg, Switzerland, and Turkey. They are more attractive to live and trade in the financial markets. There are two ways to avoid taxes on trading revenues. One is to use offshore low or sometimes 0% tax loopholes, but the minimum capital required to do so is pretty high. Another method is to live in a country that charges very low taxes. Make sure the living expenses are low and not eat up most of the revenue.