Digital Nomads for years have been navigating the legal grey area, trying to figure out where they do and where they don’t need to pay their taxes. Recently their struggles have been amplified by huge numbers of Remote Workers, who have previously mainly worked from home, but now are entering the global playground and working remotely from abroad. This all contributed to the fact that issues of taxes and visas for people leading location independent lifestyles have now become a major discussion point for employers of foreign remote workers and governments across the globe. This is not something that can be ignored anymore and swept under the carpet.
13 Things You Absolutely Need To Know!
It might all be a bit overwhelming and complicated, but you are not the only one struggling to figure this out. The whole world is literally shifting to this new reality, and as with any transitional period, things are a bit mental. Below is a list of the 13 most important things to be aware of but if you need help filing your past tax returns, optimizing your international taxes, or fully designing your remote setup check out our partner Heavnn.
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Digital Nomad vs Remote WorkerDigital Nomads are people who travel the world while working remotely; they are focused more on the traveling aspect rather than a particular destination and typically spend shorter periods of time per location, moving fairly often. Remote Workers are people who are able to perform their work remotely and work from their homes, recently, more remote workers would travel full time or move to an attractive destination and spend long periods of time there. Digital Nomad is a Remote Worker, and Remote Worker can become a Digital Nomad.
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Residency vs DomicileResidence is the place where you live for a certain period of time, while domicile is the place where you make your permanent home. Domicile of origin is where you were born, if you move somewhere else and become a permanent resident there, it could become your domicile of choice.
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Residency vs Tax ResidencyTax residency is exactly the same as residency. The residency and domicile affect the extent to which you are liable for taxes and are used to define where your residency for tax purposes. Where you have considered a tax resident is where you need to pay your taxes.
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Territorial or Residence-based TaxationCountries that do tax income use one of two systems: territorial (only local income is taxed) or residence-based (residents are taxed on their worldwide, local and foreign income, while nonresidents are taxed only on their local income). Only 2 countries in the world (Eritrea, and the United States) tax their nonresident citizens on their worldwide income.
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183 days rule is a mythUnderstanding where you are a tax resident is quite important! Unfortunately, each country has its own rules for defining whether a person is a tax resident or not. Trying to simplify the complexities of tax residency, some would say that if you don’t spend more than 183 days in a year per country, you won’t become a tax resident there. This is simply not true.
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Center of vital interest & Habitual AbodeIn the majority of countries, the tax residency is not solely based o the length of time you spend living & working there. The 183 days rule is only one of many different indicators used to assess who is a tax resident and who is not. You can trigger taxes even if you stay for short periods of time if you have your center of vital interests (your economic, social, family ties) there, or if you have a habitual abode (a place where you stay most frequently).
Ways to pay your taxes as Digital NomadsThere is no one way to pay taxes as a Digital Nomads, it all depends on your personal circumstances but there are some most common routes. You can see your options here Where do Digital Nomads pay their taxes?
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Risks & ComplianceWeight in risks, analyze the risks, weigh the pros and cons of each approach and pick a solution that works for you.
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Tax NomadsSome say, Digital Nomads, who only stay for short periods of time per country, don’t need to pay taxes anywhere. This is not as simple as that. There are International tax laws and treaties that make sure that you will always have your tax residency somewhere. See Residency Tie Breaker Rules.
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Tax Evasion vs Tax Avoidance Tax Evasion is a failure to pay or a deliberate underpayment of taxes, it is illegal. Tax Avoidance is an action taken to lessen tax liability and maximize after-tax income, it’s legal. Trying to figure out what’s the most optimized way to pay your taxes legally is absolutely fine, but trying to pay no taxes is not.
If you need help filing your past tax returns, optimizing your international taxes, or fully designing your remote setup check out our partner Heavnn.
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Plan ahead, don’t ignore itIt’s tempting to just forget about the taxes & focus on traveling. Don’t. It’s important that you are aware of the tax residency rules and any tax obligations you might be creating while working abroad. Don’t leave it till it’s too late!
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Keep Good RecordsMake sure you track how much time you are spending per country. Collect your invoices, expenses, etc, in case you need to pay some back taxes. Make sure to engage a good tax advisor who
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Use Digital Nomad VisasMinimize the risk of falling into tax residence by using DNV that clearly states the tax rules.
