3.4 The downsides of France

Superstar infrastructure, solid economy, and the world's best health care…plus a surprisingly affordable cost of living outside Paris, beautiful and diverse countryside, and one of the world's most alluring and romantic capital cities…That's the good news.

As I've mentioned already, the bad news in this country has a lot to do with its tax systems. The question of whether you pay U.S. or French taxes on your worldwide income comes down to which country you make your fiscal domicile-that is, where you are resident for tax purposes. If you live permanently in France, and your residence is considered to be your fiscal domicile, you must pay taxes to the French government on your worldwide income.

Remember, in addition, that living or earning income outside the U.S. does not relieve a U.S. citizen of the responsibility for filing tax returns. However, France has a tax treaty with the U.S. This ensures that you will not be taxed twice on the same income. U.S. citizens living and/or working abroad may be entitled to various deductions, exclusions, and credits.

4 First runner-up

Australia moves from third position last year to second place this year. If you don't mind a 12-hour flight back to the States when you've a hankering to "go home," then Australia is an attractive option, especially if you're young. The climate is good (Australia gets an 89 in this category of our Index), the lifestyle is easygoing, and there are plenty of ways to spend your days living in the Great Outdoors. Cost of living is low (the country scores 73 in this category). And, right now, the U.S. dollar is holding its own against the Australian dollar; a buck buys you $1.27 Aussie dollars.

Australia's economy is strong (score of 89 points in this category). Australia is a member of Apec, the Asia Pacific Economic Cooperation forum, and aims to forge free-trade deals with China and the Association of Southeast Asian Nations (Asean).

The Aussie government is stable-Prime Minister John Howard first took office in 1996 and has been re-elected twice since. In this time, the BBC reports, "He has highlighted Australia's robust economy, and the approval of a free-trade agreement with the U.S. in 2004, as being among his government's key achievements."

Australia's neighbor Down Under, New Zealand, comes in fourth place this year in our Index, moving up one position from last year.

New Zealand is jaw-droppingly beautiful. Stretching across 1,000 miles, the North Island and South

Island make up what the native Maori people call Aotearoa-the Land of the Long White Cloud. Settlers have called it "Godzone:" God's own country.

Made famous as the location for The Lord of the Rings movies, its elemental landscapes are so pristine you might have trouble believing they're for real…even if you see them with your own eyes.

Geysers gush, and mud pools bubble. Whales spout, dolphins frolic, and surf booms onto sands where yours might be the only footprints. Iced with glaciers, towering mountains range above a landscape veined with rushing rivers.

But New Zealand offers more than surf, turf, and Middle Earth wonderland. Auckland, Wellington, and Christchurch are vibrant urban centers. And numerous small coastal and rural towns offer an enviable community spirit that's increasingly hard to find in today's world. Auckland is the fifth best city in the world to live, according to a 2006 Quality of Life survey by Mercer Consulting, with Wellington coming in 12th position.

The other-worldly landscapes are backed up by substance: affordable health care (New Zealand scores 90 points in this category in our Index), an English-speaking population, free education, a low crime rate, great infrastructure, and one of the world's highest "healthy longevity" figures.

On top of all that, New Zealand hides enticing real estate opportunities. You can still find homes-and we mean proper houses you can move into-for less than US$50,000. (Right now your U.S. dollar will buy you $1.46 Kiwi dollars.)

The downside to living in Australia and New Zealand is how increasingly difficult it is to obtain full-time residency. Both countries are looking for younger, professional expats. In New Zealand, for example, you must qualify through a point system-you get more points for certain qualifications than for others, and the younger you are, the better.