The 10 Countries with Territorial Taxation in 2026: A Complete Comparison for Francophone Expats
You now know that territorial taxation is the system that exempts your foreign income from tax (see our worldwide taxation vs. territoriality guide). But Paraguay is not the only country to apply this system. About a dozen countries worldwide offer a form of territoriality — and each has its advantages, limitations, and pitfalls. The strategic question is: among all countries with territorial taxation, which is the best choice for a French-speaking expatriate in 2026?
This guide compares the 10 main territorial tax countries based on the criteria that truly matter: effective tax rate, residency requirements, cost of living, quality of life, legal security, accessibility, and sustainability of the regime. With a final verdict — and, unsurprisingly, a clear winner. For the procedure, our guide to residency in Paraguay details each step.
Methodology: Comparison Criteria
Each country is evaluated on 8 criteria rated from 1 to 5:
- Purity of territoriality: Is the regime truly territorial (0% on all foreign income) or are there exceptions, conditions, or risks of partial taxation?
- Ease of obtaining residency: How much time, money, and paperwork are required to become a tax resident?
- Cost of living: How much does daily life cost (housing, food, healthcare, transportation)?
- Quality of life: Safety, climate, infrastructure, expatriate community, leisure.
- Stability of the tax regime: Is the territorial regime stable and sustainable, or is it at risk of change?
- Business environment: Ease of setting up and managing a business, opening a bank account, investing.
- Language accessibility: Can one live comfortably without speaking the local language? Is there a French-speaking community?
- Local taxation on local income: If you have local income, what is the tax rate?
Country 1: Paraguay — Accessible Territoriality
The Tax Regime
Paraguay applies pure territoriality since law 6380/2019 (tax reform). Only income from Paraguayan sources is taxable. Foreign-sourced income — regardless of its nature (salary, dividends, interest, capital gains, crypto, royalties, rent) — is 0% exempt. No repatriation condition: foreign income is exempt whether transferred to Paraguay or not.
| Element | Detail |
|---|---|
| Foreign income | 0% (total exemption, no conditions) |
| Local income (individual — IRP) | 8-10% |
| Local income (company — IRACIS) | 10% + 8% dividends = ~17% effective |
| Foreign capital gains | 0% |
| Crypto (foreign source) | 0% (reporting Resolution 47/2026 if > 5,000 USD/year) |
| Inheritance tax | 0% (no inheritance tax in Paraguay) |
| IVA (VAT) | 10% |
Residency and Cost of Living
- Residency: Paraguayan cédula obtained in ~3 months for from €1,400. No bank deposit required, no minimum investment, no language test.
- Cost of living: 1,500-2,500 USD/month for a couple in a premium neighborhood of Asunción. Among the lowest in South America.
- Quality of life: pleasant subtropical climate, safe neighborhoods (Villa Morra, Carmelitas, Manorá), growing French-speaking community, Lycée Marcel Pagnol, international restaurants, fiber optic internet, flights to Buenos Aires and São Paulo.
- Nationality: accessible after 3 years of residency. Dual nationality allowed.
Evaluation
| Criterion | Score /5 |
|---|---|
| Purity of territoriality | 5 |
| Ease of residency | 5 |
| Cost of living | 5 |
| Quality of life | 3.5 |
| Stability of tax regime | 4 |
| Business environment | 4 |
| Language accessibility | 3 |
| Local taxation | 4.5 |
| Total | 34/40 |
Country 2: Panama — Historical Territoriality
The Tax Regime
Panama has applied territoriality since the 1960s. It is one of the oldest and most established territorial regimes in the world. Only Panamanian-sourced income is taxable. Foreign income is exempt.
| Element | Detail |
|---|---|
| Foreign income | 0% |
| Local income (individual) | Progressive scale 0-25% |
| Local income (company) | 25% |
| Capital gains | 10% (local source only) |
| Inheritance tax | 0% (between spouses/direct descendants) |
| VAT (ITBMS) | 7% |
Residency and Cost of Living
- Residency: The "Friendly Nations Visa" program allows citizens of 50+ countries (including France, Belgium, Switzerland) to obtain permanent residency. Requirements: deposit of 5,000 USD in a Panamanian bank + proof of economic ties (employment, investment, or company creation). Processing time: 3-6 months. Cost: ~3,000-6,000 USD all-inclusive (lawyer + fees).
- Cost of living: 2,000-3,500 USD/month for a couple in Panama City. More expensive than Paraguay (~30-50% more), especially housing in premium neighborhoods (Punta Pacifica, Costa del Este).
- Quality of life: Panama City is a modern and cosmopolitan city (impressive skyline, shopping malls, international restaurants). Tropical climate (hot and humid all year round, no cool season). International hub airport (Tocumen — connections to all of America and Europe). Canal Zone = quality infrastructure. Disadvantages: constant heat and humidity, crime in some neighborhoods, notorious traffic jams.
- French-speaking community: small but existing (Lycée français de Panama). Less developed than in Paraguay.
Advantages and Disadvantages vs. Paraguay
- Panama Advantages: international air hub (direct flights to Paris, Madrid, Miami, all of America). Powerful banking system (international financial center). USD as official currency (no exchange rate risk). Historically older and more tested territorial regime.
- Panama Disadvantages: heavier local taxation (25% corporate tax vs. 10% in Paraguay). Cost of living 30-50% higher. International image tarnished by "Panama Papers" (2016) — Panama is under FATF/EU surveillance. More complex residency (bank deposit + mandatory lawyer vs. from €1,400 all-inclusive in PY). More extreme climate (constant humid heat vs. varied seasons in PY).
Evaluation
| Criterion | Score /5 |
|---|---|
| Purity of territoriality | 5 |
| Ease of residency | 3.5 |
| Cost of living | 3 |
| Quality of life | 4 |
| Stability of tax regime | 4.5 |
| Business environment | 4.5 |
| Language accessibility | 2.5 |
| Local taxation | 2.5 |
| Total | 29.5/40 |
Country 3: Costa Rica — Green Territoriality
The Tax Regime
Costa Rica traditionally applies territoriality. However, the country is in a transition phase under pressure from the OECD. Legislative discussions are underway to broaden the tax base to include foreign income for certain residents. In 2026, territoriality is still in effect but its sustainability is uncertain.
| Element | Detail |
|---|---|
| Foreign income | 0% (still in effect in 2026, but risk of change) |
| Local income (individual) | Progressive scale 0-25% |
| Local income (company) | 30% |
| Inheritance tax | 0% (no inheritance tax) |
| VAT (IVA) | 13% |
Residency and Cost of Living
- Residency: "Rentista" program (proven passive income of 2,500 USD/month for 2 years) or "Pensionado" (pension of 1,000 USD/month). Alternative: minimum investment of 150,000 USD. Processing time: 6-12 months. More complex than Paraguay.
- Cost of living: 2,500-4,000 USD/month for a couple in the Central Valley (San José) or on the coast (Guanacaste). Significantly more expensive than Paraguay — Costa Rica is the most expensive country in Central America.
- Quality of life: excellent. Spectacular nature (volcanoes, rainforests, Pacific and Caribbean beaches), no army (pacifist country), quality healthcare system (Caja + private), exceptional biodiversity, large North American expatriate community. "Pura vida" is a true lifestyle.
- French-speaking community: very limited. Costa Rica is dominated by English-speaking American and Canadian expatriates.
Evaluation
| Criterion | Score /5 |
|---|---|
| Purity of territoriality | 4 (in effect but threatened) |
| Ease of residency | 2.5 |
| Cost of living | 2 |
| Quality of life | 5 |
| Stability of tax regime | 2.5 (high risk of change) |
| Business environment | 3 |
| Language accessibility | 2 |
| Local taxation | 2 |
| Total | 23/40 |
Country 4: Hong Kong — Premium Asian Territoriality
The Tax Regime
Hong Kong applies strict territoriality: only Hong Kong-sourced income is taxed. No capital gains tax, no tax on dividends (received from non-HK companies), no VAT.
| Element | Detail |
|---|---|
| Foreign income | 0% |
| Salary (HK source) | Progressive scale 2-17% (capped at 15% standard rate) |
| Company profits (HK source) | 8.25% (first 2M HKD) then 16.5% |
| Capital gains | 0% (no capital gains tax in HK) |
| Dividends received | 0% |
| VAT | 0% (no VAT in Hong Kong) |
| Inheritance tax | 0% |
Residency and Cost of Living
- Residency: difficult. Work visa requiring an employer sponsor, or investor visa (CIES — Capital Investment Entrant Scheme, relaunched in 2024, minimum investment 30 million HKD = ~3.5 million €). The "Top Talent Pass" program allows graduates of top global universities (top 100) to obtain a 2-year visa. In summary: accessible to the highly skilled or very wealthy.
- Cost of living: 5,000-10,000+ USD/month for a couple. Hong Kong is one of the most expensive cities in the world (housing is stratospheric: a 30 m² studio in a decent neighborhood costs 1,500-3,000 USD/month).
- Quality of life: excellent in some aspects (world-class transport infrastructure, gastronomy, security, hub airport), but tiny apartments, air pollution, extreme density, and political uncertainty (progressive integration with mainland China).
Evaluation
| Criterion | Score /5 |
|---|---|
| Purity of territoriality | 5 |
| Ease of residency | 1.5 |
| Cost of living | 1 |
| Quality of life | 3.5 |
| Stability of tax regime | 3.5 (China political uncertainty) |
| Business environment | 5 |
| Language accessibility | 2 (English OK, but Asian culture) |
| Local taxation | 4 |
| Total | 25.5/40 |
Country 5: Guatemala — Discreet Territoriality
The Tax Regime
Guatemala applies territoriality similar to Paraguay: only Guatemalan-sourced income is taxable. It is a discreet regime, little known to European expatriates.
| Element | Detail |
|---|---|
| Foreign income | 0% |
| Local income (individual) | 5-7% (simplified regime) or progressive scale |
| Local income (company) | 25% (net profit regime) or 5-7% (turnover regime) |
| VAT (IVA) | 12% |
Residency and Cost of Living
- Residency: accessible via resident visa (Rentista or Pensionado). Conditions: proof of regular income (1,000-2,000 USD/month). Processing time: 3-6 months. Cost: ~1,000-2,000 USD (lawyer + fees).
- Cost of living: 1,200-2,000 USD/month for a couple. Among the lowest in Central America. Antigua Guatemala (old colonial capital) offers a charming lifestyle at very low prices.
- Quality of life: spectacular landscapes (volcanoes, lakes, forests), fascinating Mayan culture, rich local gastronomy. But: problematic security in certain areas (Guatemala City is dangerous), limited road infrastructure, basic healthcare system outside major cities.
- French-speaking community: almost non-existent.
Evaluation
| Criterion | Score /5 |
|---|---|
| Purity of territoriality | 5 |
| Ease of residency | 4 |
| Cost of living | 5 |
| Quality of life | 2.5 |
| Stability of tax regime | 3.5 |
| Business environment | 2.5 |
| Language accessibility | 1.5 |
| Local taxation | 3.5 |
| Total | 27.5/40 |
Country 6: Nicaragua — The Forgotten Territoriality
Tax Regime
- Foreign income: 0% (pure territoriality)
- Local income: progressive scale 10-30% (individuals), 30% CIT (companies)
- VAT: 15%
Residency and Realities
- Residency: accessible (Rentista visa with proven income of USD 750/month). Processing time: 3-6 months.
- Cost of living: very low (USD 1,000-1,800/month for a couple). One of the cheapest countries in America.
- Quality of life: magnificent beaches (San Juan del Sur, Corn Islands), volcanoes, vibrant culture. But: chronic political instability (authoritarian regime of Daniel Ortega), violent protests in 2018, international sanctions, limited infrastructure, fragile banking system.
- French-speaking community: non-existent.
Evaluation
| Criterion | Score /5 |
|---|---|
| Purity of territoriality | 5 |
| Ease of residency | 4 |
| Cost of living | 5 |
| Quality of life | 2 |
| Stability of tax regime | 2 (political instability) |
| Business environment | 1.5 |
| Language accessibility | 1.5 |
| Local taxation | 2 |
| Total | 23/40 |
Country 7: Bolivia — Andean Territoriality
Tax Regime
- Foreign income: 0% (territoriality)
- Local income: IUE 25% (corporate income tax), RC-IVA 13% (on salaries above a threshold)
- VAT (IVA): 13%
Residency and Realities
- Residency: accessible but bureaucratic. Temporary then permanent residency visa. Processing time: 6-12 months. Slow administration.
- Cost of living: very low (USD 1,000-1,500/month for a couple). One of the cheapest countries in South America.
- Quality of life: extraordinary landscapes (Salar de Uyuni, Amazon, Andes), rich culture, local gastronomy. But: high altitude in major cities (La Paz 3,600m, Sucre 2,800m), limited infrastructure, basic banking system, recurring political instability.
- French-speaking community: very limited.
Evaluation
| Criterion | Score /5 |
|---|---|
| Purity of territoriality | 4.5 |
| Ease of residency | 2.5 |
| Cost of living | 5 |
| Quality of life | 2.5 |
| Stability of tax regime | 2.5 |
| Business environment | 2 |
| Language accessibility | 1.5 |
| Local taxation | 2.5 |
| Total | 23/40 |
Country 8: Philippines — Tropical Territoriality
Tax Regime
- Foreign income for citizen residents: taxable (the Philippines taxes citizens on worldwide income)
- Foreign income for non-citizen residents (expatriate residents): only Philippine-sourced income is taxable = territoriality for expatriates
- Local income: progressive scale 0-35%
- VAT: 12%
Residency and Realities
- Residency: SRRV (Special Resident Retiree's Visa) for those 35+ years old with a deposit of USD 20,000-50,000. Investor visa for higher amounts. Processing time: 1-3 months.
- Cost of living: USD 1,500-2,500/month for a couple (Cebu or outskirts of Manila). Very affordable outside premium tourist areas.
- Quality of life: paradise islands (7,000+ islands), spectacular beaches, English-speaking and welcoming population. But: frequent typhoons, poor road infrastructure, heavy bureaucracy, corruption, crime in some urban areas.
- French-speaking community: very limited (a few isolated expatriates).
Evaluation
| Criterion | Score /5 |
|---|---|
| Purity of territoriality (for non-citizens) | 4 (only for foreign residents) |
| Ease of residency | 3.5 |
| Cost of living | 4.5 |
| Quality of life | 3.5 |
| Stability of tax regime | 3 |
| Business environment | 2.5 |
| Language accessibility | 3.5 (fluent English) |
| Local taxation | 2 |
| Total | 26.5/40 |
Country 9: Georgia — Emerging European Territoriality
Tax Regime
Georgia is not strictly territorial but offers a quasi-territorial regime for "Virtual Zone" companies (IT) and extremely low rates for small businesses:
- Flat tax 20% on individual income (but distributed companies only pay tax on distributed dividends = effective CIT 0% as long as profits are reinvested, 15% on distributed dividends)
- Micro-enterprise: 1% on turnover (if turnover < 500,000 GEL = ~€170,000)
- Virtual Zone IT company: 0% on export income from IT services
- VAT: 18%
Residency and Realities
- Residency: very easy. Citizens of 95+ countries (including France, Belgium, Switzerland) can stay for 1 year without a visa. Permanent residency is obtained after 6 years or immediately with an investment. Tax residency after 183 days of presence.
- Cost of living: USD 1,200-2,000/month for a couple in Tbilisi. Very affordable for a country close to Europe.
- Quality of life: Tbilisi is a charming city (architecture, gastronomy, natural wine, nightlife). Caucasus Mountains. Rich culture. But: relative distance from Western Europe (4-hour flight), geopolitical tensions with Russia (South Ossetia, Abkhazia), developing infrastructure.
- French-speaking community: small but growing (digital nomads).
Evaluation
| Criterion | Score /5 |
|---|---|
| Purity of territoriality | 3 (quasi-territorial, special regimes) |
| Ease of residency | 5 |
| Cost of living | 4.5 |
| Quality of life | 3.5 |
| Stability of tax regime | 3.5 |
| Business environment | 4.5 |
| Language accessibility | 2 (Georgian + Russian, limited English) |
| Local taxation | 4 |
| Total | 30/40 |
Country 10: Malaysia — Territoriality in Transition
Tax Regime
Malaysia historically applied territoriality (unrepatriated foreign income = exempt). Since 2022, repatriated foreign income is taxable. The regime is now a remittance basis (not pure territoriality). Transitional exemptions exist, but the framework has changed.
- Unrepatriated foreign income: 0% (but practically impossible to use in Malaysia)
- Repatriated foreign income: progressive scale 0-30% (partial exemptions depending on the years)
- Local income: progressive scale 0-30%
- VAT (SST): 6-10%
Residency and Realities
- Residency: MM2H (Malaysia My Second Home) program — conditions tightened in 2021 (fixed deposit of MYR 1,000,000 = ~€200,000, proven monthly income of MYR 40,000 = ~€8,000). Much more restrictive than before. Alternative: work visa (requires a sponsoring employer).
- Cost of living: USD 2,000-3,500/month for a couple in Kuala Lumpur. Moderate for Southeast Asia.
- Quality of life: excellent (modern infrastructure, megacities and tropical islands, extraordinary gastronomy, quality healthcare system). Significant English-speaking expatriate community.
Evaluation
| Criterion | Score /5 |
|---|---|
| Purity of territoriality | 2 (remittance basis since 2022, no longer pure territoriality) |
| Ease of residency | 2 (MM2H tightened) |
| Cost of living | 3.5 |
| Quality of life | 4.5 |
| Stability of tax regime | 2.5 (recent change, uncertainty) |
| Business environment | 4 |
| Language accessibility | 3.5 (fluent English) |
| Local taxation | 2.5 |
| Total | 24.5/40 |
The Final Ranking of the 10 Tax Territoriality Countries
| Rank | Country | Score /40 | Foreign Income | Residency Cost | Couple's Monthly Living Cost | Comment |
|---|---|---|---|---|---|---|
| 1 | Paraguay | 34 | 0 % | from €1,400 | USD 1,500-2,500 | Best overall value. Pure territoriality, easy residency, low cost. |
| 2 | Georgia | 30 | 0% (Virtual Zone) / low otherwise | ~0 (visa-free 1 year) | USD 1,200-2,000 | Quasi-territorial. Excellent for IT. Geopolitical risk. |
| 3 | Panama | 29.5 | 0 % | USD 3,000-6,000 | USD 2,000-3,500 | Historic territorial. Air hub. Higher cost and CIT. |
| 4 | Guatemala | 27.5 | 0 % | USD 1,000-2,000 | USD 1,200-2,000 | Very affordable but problematic security. |
| 5 | Philippines | 26.5 | 0% (non-citizens) | USD 20,000-50,000 deposit | USD 1,500-2,500 | Territorial for foreigners. Paradise islands. Typhoons and bureaucracy. |
| 6 | Hong Kong | 25.5 | 0 % | Very high (visa) | USD 5,000-10,000+ | Global financial hub. Prohibitive cost of living. Political uncertainty. |
| 7 | Malaysia | 24.5 | 0% if not repatriated (remittance basis) | ~€200,000 (MM2H) | USD 2,000-3,500 | No longer pure territoriality. MM2H tightened. Excellent quality of life. |
| 8 | Costa Rica | 23 | 0% (threatened) | USD 3,000-5,000 | USD 2,500-4,000 | Exceptional nature. Regime threatened by OECD. Expensive. |
| 9 | Nicaragua | 23 | 0 % | ~USD 1,000 | USD 1,000-1,800 | Ultra-affordable. Authoritarian regime. International sanctions. |
| 10 | Bolivia | 23 | 0 % | ~USD 1,500 | USD 1,000-1,500 | Very affordable. Altitude, instability, limited infrastructure. |
Why Paraguay Wins
Paraguay is not the most beautiful country (Costa Rica wins), nor the most sophisticated (Hong Kong wins), nor the closest to Europe (Georgia wins). But it offers the best overall package for a French-speaking expatriate seeking territoriality:
- Purest territoriality: 0% on all foreign income, with no repatriation condition, no remittance basis, no restrictions. Comparable only to Panama and Hong Kong — but at a fraction of the cost.
- Easiest residency: from €1,400, 3 months, no bank deposit, no minimum investment, no language test. No other territorial country is this accessible.
- Lowest cost of living among stable options: USD 1,500-2,500/month for a couple. Only Guatemala, Nicaragua, and Bolivia are cheaper — but with security or political instability issues that negate the advantage.
- Lowest local taxation: 10% IRACIS (vs 25-30% in Panama, Costa Rica, or Hong Kong). Even your local income is lightly taxed.
- Stability: the territorial regime has been in place for decades, no significant OECD pressure, stable democracy since 1989, no international sanctions.
- French-speaking community: growing, Lycée Marcel Pagnol, expatriate network. No other territorial country (except marginally Panama) has this community.
- 0% inheritance tax: a bonus that few territorial countries offer.
Paraguay is not perfect — it is a developing country with its limitations (infrastructure, bureaucracy, heat). But for the specific goal of tax territoriality + quality of life + accessibility + cost, it is mathematically the best choice in 2026.
Conclusion
The 10 tax territoriality countries in 2026 each offer a version of the same principle: your foreign income is not taxed. But the conditions vary radically — from a €3.5 million deposit in Hong Kong to €1,400 in Paraguay, from Malaysia's remittance basis to Paraguay's pure territoriality, from Nicaraguan instability to Panamanian stability.
For a French-speaking expatriate seeking the best combination of pure territoriality, ease of residency, low cost of living, light local taxation, and regime stability, Paraguay comes out on top with a score of 34/40 — ahead of Georgia (30/40) and Panama (29.5/40).
Territoriality is not a privilege reserved for the ultra-rich in Hong Kong or investors in Panama. It is a system accessible to any French-speaking freelancer, entrepreneur, or retiree for from €1,400 and 3 months of patience. Paraguay has democratized tax territoriality — and that's why more and more French, Belgian, Swiss, and Quebecois people are choosing to settle there.
Do you want to join the number one country for tax territoriality? Contact our team to start your Paraguayan tax residency (from €1,400, 3 months). US LLC, bank account, accounting (€30/month) — the entire ecosystem to live at 0% on your international income, legally and peacefully.