Paying taxes is something every government requires of their citizens. And yes, for some, even if you don’t live in your home country you don’t get an exemption. Thinking that you don’t need to pay your taxes just because you live somewhere other than your own country may very well land you in trouble. Whilst there are some digital nomads who get away with skipping on taxes, especially if they don’t earn that much per year, the rule remains the same. In this article we’ll be covering how taxes work for digital nomads (this applies to most freelance jobs too) and 3 tax strategies digital nomads can use.
Do Digital Nomads Have to Pay Tax?
You may be a location independent worker but the fact remains the same that you are still a citizen of your country. The phenomenon of digital nomads who have quit their full-time day jobs whether in the U.S, UK, Canada, Australia and Europe to live overseas in Southeast Asia isn’t something exactly new. It’s been going on for years and the trend is only rising. What they fail to realise is that many digital nomads are not in tax compliance back home. Let’s dig a little deeper.
Some digital nomads may believe that by staying in another country for long periods of time means that they are exempted from paying tax in their country of residence – this is more often than not true. Simply leaving your country as a tourist is not enough to keep you from paying tax.
Effective Strategies for Digital Nomads on the Move
While you can’t avoid pay your taxes for the most part, there are strategies to handle this matter as wisely as possible. If you want to be as free from the power of your local tax authority as possible, here are some helpful steps that you may take. Thankfully, they won’t cost you a lot to get started. Just make sure to follow them right from the start, or as close as possible, to save yourself time, effort and expenses in the long run.
Step One: Be a Tax Non-Resident in Your Own Country
This is one of the most effective strategies, yet could also be a bit challenging. For digital nomads who live in Australia and the UK, their home country will make it harder for them by limiting the amount of time allowed for your stay, especially if your tax domicile is located somewhere else. This is why it’s best to get a second residency in less expensive places such as Asia and Eastern Europe, or anywhere you see would best fit your convenience. One thing that you should make sure, however, is to properly structure your company in order to avoid paying 15.3% tax (in minimum) for your Medicare and Social Security.
Step Two: Open Up A Bank Account Overseas or Use A Foreign Currency
Besides the fact that it’s more expensive to withdraw money from an overseas account, having your personal and business account in dollars, for example, can cause problems when it comes tax-time. Every step that shows you living overseas is useful, and helps give them the impression that you truly are a global citizen of sorts.
Step Three: Choose Your “Home” Wisely
Being a digital nomad can sound very carefree, but truth is, things need to be planned and structured properly to avoid tax and related problems. Before you decide to call some country your new home, take time to learn about their tax authorities and laws, and see if it will be best for you. Some countries such as the United States are aggressive with taxing, and in places like Europe, there is what is termed residential taxation. This happens when you live there long enough, commonly 183 days or more a year, after which your worldwide income will be taxed regardless of where it was earned. As for countries such as Singapore and Malaysia, you have a privilege of practicing territorial taxation. This means that only the income that you earn in the country is taxed. If you earn that money in an offshore company without remitting it to wherever you live, you can be tax-free.
There are absolutely legal ways to avoid paying tax or minor tax in your home country, however don’t just following the form advice – increasingly there are other steps that are required to ensure that you are not taxed in your home country.
Christine has been working in the field of freelance for just over 7 years, specializing in copy-writing, social media and voice-overs.
Describing herself as a "social media bee 24/7", Christine has an undying passion for photography and music.