How Digital Nomads Pay Their Taxes

How Digital Nomads Pay Their Taxes

Shlomo Freund  25/09/2020 14
How Digital Nomads Pay Their Taxes

Digital Nomads Don't Pay Taxes. Is it True? 

Exploring the digital nomads' space and finances, I see that the number one issue bothering digital nomads is their taxes. 

- Can digital nomads get away from paying any taxes? 

- When and where should digital nomads pay their taxes? 

- What kind of tax benefits you can have as a digital nomad?

This article by any means is not tax advice and any person should advise a tax expert on their own individual situation. 

So, let's first give a short answer. Digital nomads do need to pay taxes somewhere. They can get away for some time but that can get them into trouble later. 

Taxes Should be Paid Somewhere

Jean Galea gives has an extensive well research article about the topic; Can Digital Nomads Legally Pay No Taxes

Galea summarises it:

Tax residency is absolutely crucial since it determines where you need to pay your taxes. 

  • You are a tax resident in the country where you spend more than 183 days in a year. (This is a hard rule.)
  • If there’s no such country your tax residency is in the country “you have the strongest ties to” (this is called tax domicile).
  • If you have no strong ties to any country your tax domicile will be the country of your passport — at least this is how most countries will interpret the rules.

International tax rules are complicated anyway and dependent on many criteriums. Digital nomadism adds another layer of complexity as many of them constantly moving. However, they're still want to do smart tax planning. 

Tax Planning Services for Digital Nomads and Expats 

This led to opening tax planning service especially for digital nomads often by digital nomads. Such an example is Bianca Bonilla from TaxSmart catered toward mostly American digital nomads. 

Another firm run by Iven De Hoon from NoMoreTax.eu caters more towards European digital nomads. 

De Hoon claims the following:

...There is a correct and practical way how you can avoid any kind of tax perfectly legally as a digital nomad. Or at least reduce your tax burden legally by 80 to 90%.

Many tax planning strategies are involving forming foreign corporations in low tax counties. The more common term people use is, 'Offshore companies'.

As Miklel Thorup from Escape Artist states: 

Before you choose a location for your new foreign corporation, you must assess what places you can go to and what you get out of it besides the tax advantages.

Paying Double Tax as a Digital Nomad

The worst-case scenario for taxes is that you pay double tax. You'd like to avoid that of course. 

If the country you are a citizen of and the country you are currently residing in don't have a tax treaty, you are likely to be taxed twice on your income. This is because you are a tax resident of both. 

Tim Lai from Points To Be Made states in his Forbes article, "Where Do Digital Nomads Pay Their Taxes?"

If for whatever reason you end up becoming tax resident of two countries which have not signed a double tax treaty between each other, then you are out of luck. You will have to pay any taxes due to both sides.

Conclusion

While there are ways to reduce your taxes as a digital nomad eliminating it completely is not recommended. Even if you do manage to pay no taxes that is likely temporary and illegal. If at some point you'd like to grow your income or settle somewhere even only for 1-2 years not having proper tax records can get you in trouble. 

However, there are legal ways to reduce your taxes by doing smart tax planning. It can involve large amounts of expenses but can be worthwhile in the long run. 

Download my quick-guide: "How to be a digital nomad and feel financially stable?" 

It will show you the right roadmap to feeling financially stable as well as deal with your taxes.

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  • Josh Hayes

    My brother is a digital nomad, he is careful with his taxes.

  • Where is he spending most of his time?

  • Josh Hayes

    In reply to: Shlomo Freund 

    Nordic countries. He loves to hike.

  • That's cool. How does he support his lifestyle? I like this kind of stories

  • Josh Hayes

    In reply to: Shlomo Freund 

    He hikes in the morning and fishes local lakes with his friends. They pitch a tent and sleep in the wild. He is an old school nomad.

  • Sounds awesome! Do you plan to join him? :)

  • Josh Hayes

    In reply to: Shlomo Freund 

    Yes I would love to join him one day.

  • Mark Clement

    Tax records are needed while applying for a visa. I guess most digital nomads pay their taxes on time unless they are underage or university students traveling all around the world.

  • Cameron McMillan

    I have always asked myself this question. So digital nomads pay taxes.

  • Josh Hayes

    In reply to: Cameron McMillan

    Of course they do.

  • Tommy T

    Excellent article

  • Thank you Tommy!

  • Julie Greenwood

    IS THERE ANY TAX RELIEF FOR DIGITAL NOMADS?

  • Nothing specific that I know of. However, now there are special visas for digital nomads.

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Shlomo Freund 

Financial Coach Expert
Shlomo Freund is a location-independent entrepreneur and has been for the past 15+ years. His lifelong passions for finance, investing and travel lead to the creation of his current business, Free Financial Self, which helps people organize their finances to reach financial independence faster. 
This allows them to live, work and enjoy life with friends and family both wherever and whenever they like. The end result? Armed with a strong, customized roadmap built around financial and personal lifestyle goals, an increase in individual happiness
   

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