As I write this in early December, the sun is shining and the temperature is a balmy 26. If I head out on this winter night in Oman, I might wear shoes and socks. But then again, I might just tough it out with sandals.
Such is the life of a tax refugee. Since my wife Nola and I first left Canada 13 years ago, we've lived in two tax havens Bermuda and Oman as well as in the low-tax United States. During our stints abroad, we've become awfully fond of warm weather. We've also become accustomed to living without a taxman looming over our shoulders. While we frequently miss Canada, we never, never miss the annual ordeal of filling out our tax returns.
As an unofficial self-taught expert on tax havens, let me offer you a couple of observations. First, tax havens can be a great financial deal. If you're a middle- or high-income earner, it's amazing to see how your savings and net worth can rocket ahead when you're no longer shelling out a third to half of your income to various levels of government.
Second, there's no such place as utopia. While we've enjoyed our years in tax havens, we've also learned the hard way that no place is perfect. If you're not able to adapt to local ways of life, the psychological costs of living in a tax haven can easily outweigh the financial benefits.
Deciding to leave
Are tax havens for you? Let me tell you about our experience. Then decide for yourself.
Our tour of the world's low-tax countries began one afternoon in 1987 when we were living in Winnipeg. I tuned in to a local phone-in radio show. The guest was a provincial politician who was revving up for the next election. As I listened, a nonstop stream of callers dialed in to complain about high taxes. Unable to take it any longer, the politician finally snarled, "If you don't like it, then go live somewhere else."
His outburst hit me like a hammer. A few years earlier, I had opened a small wood-milling business. City, provincial and federal levies, especially payroll taxes, had made it impossible for me to employ casual labor. Problem was, I couldn't make a profit without hiring that labor. At least partly because of the various taxes, I had reluctantly decided to close up shop.
As I listened to the radio program, it didn't take me long to decide the angry politician was absolutely right. I knew I hated taxes. So why should I scramble around, searching for petty deductions, when I could run away from it all? Forget this Freedom 55 nonsense. I decided to start talking with my wife about plotting our escape from Revenue Canada.
Nola was enthusiastic. During the past six years, she had put in gruelling hours completing a bachelor of commerce degree and qualifying as a chartered accountant. We were both 30, childless, and living in a rented two-bedroom apartment. Other than fond memories (we are both native Winnipeggers), there was nothing to tie us down.
The question was where we should go. We ruled out Australia and New Zealand. (Too far away. What if we didn't like it?) We also dismissed the United States. (Too much like Canada, we naοvely assumed.) Our best option appeared to be the Caribbean either the Cayman Islands or Bermuda. When I discovered a litre of gin cost less than eight bucks in Bermuda, our decision was made.
The problem, of course, was how to get there. Immigration, as you will have noticed from the nightly news, is serious stuff. You cannot immigrate anywhere unless you can line up an employer to sponsor you.
Escaping to Bermuda
Fortunately, I had a highly employable wife. It didn't take us long to figure out that, if we were going to live tax-free, Nola would have to drive the deal. She set up appointments with a few accounting firms. Within weeks, a job offer in Bermuda was hers. All we had to do was shed our excess possessions, pack, then fly away.
Everything looked marvelous. We sold everything we could (at painfully low prices), gave away the rest, and succeeded in reducing the contents of our two-bedroom apartment to four suitcases of clothes and a stack of odds and ends about the size of a refrigerator that we put into boxes and shipped. Pleased with our efforts, we boarded a plane in Winnipeg and flew to Toronto. The next morning, we climbed on a Bermuda-bound flight. Two hours later, we landed in what we hoped would be paradise.
That's when we got our first experience of how a tax haven raises money. The customs officers at the Bermuda International Airport flipped through our goods and complimented us on bringing only items of real value. Then he started calculating the duty we had to pay on each article.
"Used calculator . . . $2. Clothes [a stack of T-shirts and underwear] . . . say $40." Finishing his tally, he performed some quick calculations and handed us a bill for $79. We gritted our teeth and paid.
Still stinging from the official mugging, we waded into the fragrant, humid air of Bermuda. The palm trees and oleander blooms soothed our frayed nerves. Then a middle manager from Nola's new firm picked us up to drive us to our temporary accommodations.
She was surprised that we had been forced to pay duty on our possessions, but she advised us to shrug off the experience. From her point of view, the sum involved was trivial. After five years in Bermuda, thanks to the miracle of tax-free investing, she and her husband had already accumulated several hundred thousand dollars in savings. When they left a couple of years later, they were to take with them a cool half million in U.S. dollars.
This is not an unusual case. Middle managers in Bermuda can accumulate amounts of money that are impossible in countries with a progressive tax system. As we were just beginning to realize, the bright sun and pretty scenery of Bermuda were the icing on a cake of solid money. It was therefore with a smile on our lips and glee in our greedy little hearts that Nola and I cracked open a bottle of gin to toast our future. Then we went grocery shopping.
We returned, in a state of shock, with precious few groceries. "Precious" being the operative word. Island paradises in general, and Bermuda in particular, are all sand, without a whole lot of rain. Next to nothing is grown locally. Since you can't FedEx a cabbage cheaply, groceries cost three or four times what they would in Canada.
Groceries are only the beginning of a very expensive story. Bermuda might have been designed by Disney. It is charming, polite, crime-free (more or less) and English-speaking (more or less). It is also a lot of living packed into a very small space. Fifty-five square kilometres to be precise. This creates several problems, the first of which is real estate prices.
Since Nola was the one with a full-time job, it was up to me to find an apartment. I began by picking up the local newspaper. Gulp. The column of Apartment to Rent ads was no longer than a pencil and it was printed in large type. After a week of hunting through the scant supply of advertised accommodation, I took to camping out in the lobby of the local real estate agent, trying to look even more crazed than I felt.
Eventually, the agents realized I wasn't leaving without a home and began to assist me.
"Yahsss, here be one for you to see," they would say, trying to send me as far away from the office as possible. Unfortunately for them, a homeless ex-pat with big-city traffic experience can travel the length of Bermuda in less than half an hour, even on a clapped-out 50 cc rental scooter. (Although I do remember a garbage truck driver staring down at me in astonishment as I crouched over the handlebars, Formula One style, to gain the extra couple of kilometres per hour I needed to pass him.)
At the end of our second week, I got lucky and stumbled upon a cottage renting for $1,900 a month a bargain-basement deal by Bermudian standards. The appliances didn't work, and the windows were so rotten that they needed to be opened with caution, but the price was too good to turn down. (The cottage was renovated when we moved out, and today rents for over $4,400.)
Adjusting to a new life
We were in heaven. We had a water view, only a 10-minute walk from Hamilton, the capital of the island. What more could we ask for? But the realities of our new country were not apparent to the untutored eye of the newly arrived. It is only after your friends accept that you are there for the long haul at least one year that they start to discuss tropical life openly.
For example, there were John and Catherine, a Californian couple we met. They had moved into a hilltop home (sale price: $1 million U.S. ) in Warwick, a middle-class parish in Bermuda. The second night there, they woke up to a banging sound. One look out the window showed them a horrifying sight: an army of cockroaches beating against their windows.
Bear in mind that the roaches of these latitudes are not the stunted variety found in Canada. Tropical roaches are longer than your thumb and they fly. I could understand Catherine's horror when she was confronted by hundreds of these monsters, some of which were probably straining to lift the screen off the window.
John and Catherine's next house was in the appropriately named Fairylands, a suburb noted for its grand old houses and lush gardens. They settled in happily except for their dog, which, for no apparent reason, went on a hunger strike.
Catherine solved the puzzle of her dog's anorexia when fetching herself a snack late one night. According to local lore, her scream woke neighbors sleeping 400 metres away. Her scream, however, was insufficient to disturb the huge rat feasting from the dog-food dish. It was not until John arrived, brandishing the fireplace poker, that the rat sauntered out the pet door, which the couple had recently installed for their dog's convenience. I have no doubt the rat appreciated this touch. Few locals are gracious enough to offer the local fauna meat, drink and a custom-made entrance.
John and Catherine returned to California four months after landing in Bermuda.
While we were luckier than our Californian friends, we had our own share of surprises during our first few months in Bermuda. We discovered, for instance, that shoes and clothes emerge from a few days in your closet covered with a layer of mold. In fact, we came to realize that everything grows mold in Bermuda, even the outside of your fridge. But we refused to weaken. We balanced the irritations of life in a humid, hot climate against morning scuba dives off Elbow Beach playing tag with the tarpon.
Even in our happiest moments, the pull of home was always there. During our first winter in Bermuda, I attended a Canadian slide show at the dive club. The pictures of the Canadian forest had me almost in tears. And I was entirely typical. All immigrants spend much of their first year in a state of low-grade disgruntlement. The grocery store is badly organized. The locals speak funny. The mail service is unreliable. The year we arrived, a freighter sank in an Atlantic storm and that was the end of a lot of Christmas presents.
It's hard to convey the impact of homesickness until you experience it. Some people can't overcome it and have to return home. The fastest turnaround record we witnessed in Bermuda was 72 hours. An accountant from the United Kingdom landed on a Friday. He looked around. And was on a plane home by Monday.
Most immigrants who throw in the towel do so between four and 12 weeks. Some stay but are never really happy. Marriages can fray. While working spouses have jobs to keep them busy, their non-working partners are left with few diversions. An unfortunate and common figure is the alcoholic spouse.
In my case, it took three short weeks to find a job as an assistant mill manager for a construction company, but four long, frustrating months before I could get a permit that would allow me to actually start working. During that time, I endured my share of social slights. Other than in Northern Europe, Canada and the United States, the idea of a woman being the primary breadwinner is seen as the work of the devil.
Once I was working, and we began to catch on to life in the tropics, things improved by leaps and bounds. We learned that a UV heater can help fight closet mold. We found that fine wine was incredibly cheap by Canadian standards. We swam every morning in a cove so picturesque it didn't seem real.
And we were bored.
It is amazing how quickly you can explore 55 square kilometres. And there's little else to do. Bermuda has a grand total of two movie screens. Islanders often fly off for the weekend, to do nothing but watch TV in a hotel room. The luxury they're purchasing is freedom from observation. A local can't put on a tie without his mother phoning to tell him the shirt doesn't match. Bermuda is so small, the road signs give distances in tenths of kilometres.
We decided perfect weather and cheap booze weren't enough to balance our growing sense of claustrophobia. So, in 1990, two years after leaving, we returned to Canada.
The shock was huge. First, it was bloody cold. Second, we couldn't even afford plonk, let alone the fine burgundies we had been guzzling in Bermuda.
Upstate New York
Well, we decided, what we did once, we could do again. Expatriation is like divorce: it becomes easier the second time around. In 1994, Nola took a job at Binghamton University in a small town in upstate New York.
In many ways, the shock of transition was more severe than we had experienced in Bermuda. As Canadians, we expected to fit easily into American society. But we found the natives spoke with an odd twang. The grocery store seemed to have nothing but junk food. (My personal definition of culinary hell: 30 varieties of taco chips.) We were only three hours from New York City, but upstate New York seemed a lot more like Appalachia than Manhattan. Our neighbors were friendly and outgoing, but far too many had the same last name.
There were positives. Like most Canadians, we had assumed that moving to the United States meant living in a violent, crime-ridden nation. In fact, most of our neighbors were casual about locking their houses and we felt just as safe, if not safer, than we ever did in Canada.
We were delighted to see that wine was once more a foodstuff rather than a sin to be taxed into perdition. Miracle of miracles, the local liquor merchants actually delivered to our doorstep and provided discounts if we bought by the case.
Still, we weren't comfortable living the American dream. There was something fatiguing about the constant U.S. boosterism. Although housing and cars were cheaper in the United States, when you added in the social security taxes something most analysts forget to do the tax savings weren't all that wonderful. And while the weather was slightly warmer than in Canada, many days were overcast and grey.
Well, we thought, what about moving again?
Next escape: Oman
This time, we knew we wanted something completely different. And we found it when Nola spotted an advertisement for a teaching job in Oman. We researched the country (a neighbor to Saudi Arabia) and were fascinated by what we learned.
We discovered, for instance, that the former sultan of the country had made it his explicit goal to keep his nation in the 14th century. Then, in 1970, his son deposed him in a bloodless palace coup. (The former sultan spent the rest of his days ensconced in a London hotel, where he was rumored to subsist on a diet of deep-fried Mars bars. This strikes me as a particularly Omani way of ending a coup.)
Since the change of power, Oman has charged full tilt into the 20th century. Roads, hospitals, schools and even a university have sprung up.
Nola landed the job in Oman and, after some arduous negotiations, I was granted a spousal visa as well. By now we were seasoned hands at blowing town. We donated furniture to a refugee relocation service. We sold small items in garage sales or gave them away to friends. We shipped the balance. Within 60 days of coming to a decision, we were on a plane to Oman.
That was 18 months ago. So far, we've been thrilled by the sheer exoticism of the country. We live in a culture determined to avoid Western influence (although, oddly enough, the locals have embraced KFC and Pizza Hut with an almost religious enthusiasm).
The five calls of the muezzin mark time during the day, and the country still works to the rhythm of a tropical climate. In theory, businesses open from 7 a.m. to noon and from 5 p.m. to 9 p.m., but in practice no one keeps to any rigorous schedule. Attempting to extract a cheque from a local business can take two days and four trips to the office. That's after they phone you to tell you your cheque is ready.
The culture shock can be severe. The weekend here is Thursday and Friday, which is far more disorienting than it sounds. The language is difficult to master. And the cost of living is high, especially since the government has discovered it is easier to tax infidel sinners than local ratepayers. We stopped drinking wine a year ago when the national budget imposed a 200% tax increase on alcohol. Fortunately, gin was so cheap to begin with that we can still afford it.
While Nola teaches at the university, I work as a freelance writer. Most days are good. It's tough to get depressed in a place where the sun always shines.
Is it all worth it?
But, you ask, have Nola and I wound up financially ahead by living in tax havens? Probably not. The problem is our short attention span. When we lived in Bermuda, our total household income was around $70,000 a year, yet we managed to save $35,000 in just two years. If we had continued to live there, we would be worth a fortune by now. But by skipping from country to country, we've blown most of the financial advantages of tax-free living in moving expenses and related costs.
To reap any real benefits from a tax haven, you should count on living abroad for at least three years and, to do really well, you should plan on staying five to 10 years.
Don't forget to factor in the social costs of living in a foreign country. Your children may face difficulties upon re-entering Canadian society after an extended period of living in another culture. Your foreign work experience will be looked upon with suspicion by Canadian employers.
Many long-term ex-pats find themselves without a natural home; they don't want to go on living where they've worked, but they don't feel comfortable back where they started. Many retire to a third country. Hence the colonies of Brits in Portugal and Canadians in the Bahamas.
Relocating to a tax haven is ultimately as much about how you want to live as how much you will save. Despite its flaws, I've concluded that I like expatriate living. Fundamentally, I guess, I enjoy novelty. I've discovered the world is a big place. There are lots of interesting countries to see. Once you understand you are being paid for your tolerance of different cultures, you can relax and enjoy your paycheque.
I hear Singapore is a fascinating place to live