Working remotely
‍Digital nomad tax guide

If you want to become a digital nomad or if you are working remotely across multiple countries there will be much on your mind. One area that you should consider is your tax position.

As a digital nomad, you may wish to reduce exposure to taxation and at the same time, ensure you remain compliant globally. Generally, it is best practice to organise your tax affairs in good time, to avoid any unnecessary complexities, in the present, future or when you wish to return to your home country.

By seeking answers to the following three questions, this should enable you to understand and organise your global tax affairs while working remotely:

• Where will I pay tax?
• How much tax will I pay?
• What are my tax obligations?

Whether you are a remote employee, business owner, or living off investments, this guide will help you manage and optimise your tax position and ensure you remain compliant with international tax law.

This booklet has been written in general terms and we recommend that you obtain professional advice before acting or refraining from action on any of the contents of this publication. Global Tax Consulting accepts no liability for any loss occasioned to any person acting or refraining from action as a result of any material in this publication.

Your domestic resident status is the first and most crucial step in determining where you are liable to pay taxation. This is because your domestic resident status in a country determines the extent to which the country can tax your incomes and gains.

Your resident status is determined by tests created by the national government of the country and you must review your personal circumstances and travel pattern against the tests as this will conclude whether you are resident or non-resident for a particular tax year.  It is a misnomer to rely on the well renowned statement that if you are in a country for more than 6 months, you will be resident and if you are in a country for less than 6 months, you will not be non-resident.

Whilst the majority of countries do assess physical presence when establishing your resident status, there are also a number of other factors that are assessed to determine your resident status detailed to the right. Ideally, your plan should be to manage your travel pattern and personal circumstances so that you establish residency in one country and you do not establish residency in any other country.

The resident country should be a low tax jurisdiction or a tax jurisdiction that offers a special tax regime to expats or digital nomads. Finally, it is strongly recommended that you keep detailed records of physical movements and personal circumstances, as you go, to enable an accurate assessment of your resident status and to provide evidence to the tax authorities to back up the resident status, should this be requested.

If you are living and working across multiple countries, you may find that you are domestically resident in more than one country at the same time.  This creates a situation whereby, at a domestic level, you will be liable to pay tax on the same incomes across multiple countries, creating double tax charges.  

To mitigate double taxation, countries have entered into a series of tax treaties or double taxation agreements ('DTA') which seek to reduce your exposure to double taxation, on a global level. The DTAs works by re-assessing your resident status at treaty level using the 'tie breaker' test. In non-tax technical terms, one country will win and one country will lose.

The winner will be able to tax you as a resident at domestic level and the loser will be able to tax you as a non-resident at domestic level.  DTAs can even go as far as removing the non-resident country's taxing rights and thus, the more DTAs a country has, the better, as the DTA's will provide protection against taxation on a global level.

Therefore, you should consider becoming resident in a country that has a lot of DTAs to provide protection from double taxation on a global level, so that you can go about your travels with peace of mind that exposure to taxation outside your resident country will be minimised.

Once you have determined your resident status, at domestic and treaty level, the extent to which the resident country can tax your income, depends on the type of tax system the country operates.  The system will dictate whether the country will tax your worldwide income, your local sourced income or even better, the country does not levy personal tax and therefore, the country will not tax your income. Furthermore, many countries offer special tax regimes to foreigners which limits the country's taxing rights.

For example, an individual who is a national of the country may have to pay tax on worldwide income whereas an individual who is a foreigner may have to pay tax on local sourced income only. Therefore, it is possible to turn a less desirable worldwide tax system to a more desirable local sourced tax system, simply by being a digital nomad.  In essence, understanding how tax systems operate, is a fundamental component in enabling you to make informed decisions of where to obtain residency to achieve tax efficiency on a global level.

To put this into practice, on a retrospective basis, you may be living and working in a country that taxes worldwide income and either does not offer a special tax regime or does offer a special tax regime but you have not taken any steps to structure your tax affairs in a manner that enables you to rely and obtain relief through the regime. As such, you should take the relevant steps to ensure that your tax affairs are up to date in the country where you are living and working.  On a prospective basis, understanding how countries will tax your income and furthermore, how to structure your affairs to rely on special tax regimes, is a fundamental step towards enhancing your global tax strategy as a digital nomad.

Once you have determined your resident status and the extent to which countries will tax your income, the final step is reporting your income via an annual tax filing and settling the tax bill with the country's tax authority.  It is important to note that you may have a requirement to make an annual tax filing in a country which you are non-resident. For example, because you receive income in that country, irrespective of whether the income is taxable or not. Every country has a tax year period which, more often than not, follows the calendar year.

Once the tax year period has concluded, you will be required to submit an annual tax filing and settle a balancing payment within a specified timeframe.  For many countries, the filing and payment deadline are aligned and are typically due within 6 months from the end of the tax year period. In addition, some countries may require advance payments of tax to be made within the tax year.

It is also worth noting that rules differ from country to country with respect to calculating your taxable income, particularly in relation to business income. An expense in one country may not be recognised as an expense in another country and therefore, it is wise to reach out to a local accountant to prepare your accounts to ensure compliance with local legislation.  As a disclaimer for global non-residents, it goes without saying that the general consensus is that tax authorities do not have the resources to 'catch' perpetual travellers who hop from country to country.

However, it is without doubt that tax authorities will become more sophisticated and will build systems to track and tax digital nomads. Irrespective of this, hopefully this guide has demonstrated, that with careful tax planning, it is possible to optimise your tax affairs on a global level so that it makes sense to comply with reporting and payment obligations.