If you want to become a digital nomad or if you are already working and travelling across multiple countries, there will be much on your mind, such as your tax position.
Global Tax Consulting explores the consequences of the nomadic lifestyle including whether having no tax home is ‘legal’, how double taxation is mitigated and the steps a nomad can take to optimise their tax affairs.
Tax residence
Ultimately, where you are liable to pay tax will be driven by your resident status. Countries assess a variety of factors to determine your resident status including physical presence, access to accommodation, work pattern and ties. You will need to assess your travel pattern and personal circumstances against each country’s residency rules to determine your resident status.
I’m resident – how do I pay tax?
If you are resident in your home or birth country, it is likely that your tax position will be business as usual and you will suffer tax in accordance with that country’s tax system.
However, many countries offer special tax regimes to foreigners such as paying no tax on foreign income or even better paying no tax at all. Therefore, if you are able to lose residence in your home country and achieve residence in a new country, it may be possible for you to apply for special tax status as a digital nomad to optimise your tax affairs.
Will I pay tax twice?
Providing that you are resident in a country that has double taxation agreements (‘DTA’s) with the countries that you are travelling in, it is likely that you will be able to rely on the double taxation agreements to exempt the travelling countries rights to tax your income and thus, you can go about your travels with peace of mind that you will not be exposed to taxation outside your resident country.
I’m non-resident globally – is this legal?
Thankfully, this is a simple answer – yes, it is legal to have no tax home however, following this route may lead to multiple compliance obligations around the world …
I’m non-resident globally – do I need to pay tax?
If you are not resident in any country, the international tax position is that you will suffer tax on local sourced income in the countries that you are travelling in, in accordance with the country’s tax system.
Generally, for tax purposes, employment income is sourced to where you are physically working and therefore, if you are working in 12 different countries throughout a tax year period, you may create obligations in 12 different countries.
Each country may have a ‘de minimis’ threshold – that being that as long as your workdays are below a threshold or as long as your income generated on workdays exercised in the country are below a threshold, you will be exempt from taxation. It is wise to check the local rules with a domestic accountant or tax advisor.
Optimisation
GTC’s suggested plan of action is 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, will ideally be a low tax jurisdiction or a tax jurisdiction that offers a special tax regime and in addition, the resident country will have several DTAs to provide protection from double taxation on a global level.