Digital nomad double taxation is something you should be vigilant about if you have an international lifestyle.
The reason is very simple: you will spend time in different countries and work from each of these countries.
Furthermore, you might maybe own some assets (e.g. real estate) in countries other than the one you actually live in. Or, maybe, your business is setup in another country.
All these elements could lead you to have tax obligations in different countries. And when I say ‘obligations’ this means a lot of time that you are liable to pay tax in different countries.
Luckily, there are some options available to limit your potential tax liability.
Digital Nomad Double Taxation: What You Can Do to Avoid it
There are various reasons why you could end up being double taxed as a digital nomad.
Yet, one common example I see a lot. People start spending a decent amount of time in a new country while still being registered in their country of origin.
Consequently, they will keep paying taxes to their country of origin because they didn’t notice any chance.
However, on top of that, the tax authorities of the new country you started spending time in will also look at you. They also want a piece of your hard earned money. If you live there, you need to pay up.
Luckily, many countries have concluded double tax treaties. These are bilateral agreements between countries in which they decide which country can tax you under which circumstances and on what income.
The goal of these double tax treaties is to avoid that you pay taxes twice on the same income to different countries.
Unfortunately, double tax treaties don’t always fully succeed in this.
Furthermore, the process of actually getting the tax authorities to apply the double tax treaty can prove to be lengthy and difficult. This often means you need to prepay your taxes in both countries and only get a refund later on.
Moreover, you will need to spend a lot of time and effort (and money if you need professional help) in explaining your situation to the different tax authorities.
For those reasons, you probably want to avoid all of this hassle by being proactive and setting up the right tax structure from the start.
Other Tax Considerations that Fellow Nomads Need to Understand
We already discussed that double tax treaties are key when we talk about taxes in an international context. However, there are some other elements to take into consideration.
Tax Residency
In order to make a good assessment about your tax liability and avoid dual tax obligations, you first need to understand the concept of tax residency.
Many people confuse citizenship, residency and tax residency. Hence, I dedicated an article to the topic. So, if you want to understand the concept of tax residency properly, I suggest head to the article.
Yet, I will already share with you that it isn’t always so easy as just making sure you spend less than 183 days in a country. This is a common mistake!
Tax Credit
In some cases, you won’t be able to escape filing income taxes in different countries. This could be the case if you receive an income from one country while living in another.
Luckily, there are some options available to mitigate the tax consequences. Maybe you can get a tax credit for the foreign tax you paid (1). Claiming this tax credit can wipe out double taxation as a digital nomad.
Personal versus Corporate Tax
This is another element I see that many remote workers don’t necessarily get a good grasp on.
If you receive income in your personal name (e.g. as an employee or sole-trader), you pay personal income tax.
However, if you run your own business, you can also set up a separate legal entity. This entity will pay corporate income tax.
In both cases we talk about income tax. Nevertheless, the application and rates are totally different and this could make a major difference!
Using this to your advantage is another way to avoid digital nomad double taxation.
I want to revert you to this article if you want to learn everything about the difference between personal and corporate income tax.
How to Reduce Your Taxes as a Digital Nomad
As you can see, managing taxes as a digital nomad isn’t always easy.
The reason is that most tax rules are not designed for people with a very mobile lifestyle.
Therefore, applying tax rules made for people with a more traditional lifestyle to digital nomads can be a challenge. You need to take into account the tax rules of the country you come from, the countries you are spending time in, countries where you hold assets, etc.
However, living a nomad lifestyle also creates space to use these rules to your advantage. If you want to optimize your tax situation as well, then reach out to me! I’ve helped more than 100 digital nomads in saving tons of money. And, of course, avoid digital nomad double taxation.
