I’m a tax advisor. This basically means that a lot of times I help digital nomads optimize their tax setup. This eventually leads to a lower tax burden.
Some people are of the opinion that this means that you are not paying your fair share and are not contributing to society as you should.
I want to dedicate a specific post to this. This is more my personal opinion and you can of course disagree with the approach I take.
What taxes are there?
A first thing we need to do is establish which different taxes exist.
Income tax
If we talk about taxes, most people refer to income tax. These are divided in two bigger categories.
The first category is personal income taxes. These are the income taxes you pay as a private individual.
If you have an income from employment or freelancing and you receive this in your personal name, you pay taxes on it in your personal name.
Some people take another approach and invoice through their company. This company will then be liable to corporate income taxes on its profit.
Income taxes get the most attention in the press. Consequently, most people also focus on them the most.
In most countries, personal income taxes are progressive. This means that the more you earn, the higher the percentage of taxes you are paying.
Corporate income taxes, on the other hand, are most of the time set at a fixed percentages.
Value Added Tax
A tax we encounter on a daily basis is value added tax or VAT, in some countries also called sales tax.
Almost every transaction you do during your day-to-day life will include VAT.
Nevertheless, not a lot of people think about this as it isn’t really ‘visible’ for them. Prices are almost always advertised including VAT.
If you go to the supermarket to buy food, part of the price you pay is VAT. The shop needs to forward this VAT to the government.
If you go out for your friends for a drink, part of the price of your beer will again be VAT. That’s not for the bar to keep.
The percentage of how much VAT is due vary between countries. In most countries the applicable percentages also differs depending on the goods (or services) you are buying. Mostly, VAT is lower (or even not applicable) to food, but higher for luxury products.
Wealth tax
Some countries or regions also levy a wealth tax. This tax isn’t based on your income but rather on the overall wealth you amassed.
There are all sorts of wealth taxes around the world and they differ very much from each other.
Some are, for example, limited in the assets they apply to. They could, for example, only take into account your investments in real estate. Or, the other way around, only look at your financial investment portfolio.
Some countries apply high thresholds before the wealth tax is due in any case. Others have very low tax free allowances.
Inheritance & gift tax
Inheritance and gift taxes apply when you transfer wealth from one generation to another.
Gift tax applies when you gift away valuables during your life. Inheritance tax applies when people inherit wealth from you due to your decease.
Some countries don’t levy inheritance or gift tax at all. Other countries have very high taxes on the transfer of wealth as they see it as a way to redistribute wealth from the rich to the poor.
Various taxes
Apart from the different taxes already mentioned, a lot of countries, regions or municipality levy various taxes of all kind.
Examples could be a yearly tax on real estate, a tax on your vehicle, etc. Also tourist taxes are an example of this.
Social contributions
Technically social contributions aren’t qualified as taxes. Nonetheless, I include them here as they are a from of contributions you pay to the government in return for some services like healthcare and/or an old-age pension.
Social contributions are mostly levied as a percentage of your employment income.
Some countries set minimum and maximum thresholds of the contributions that are due.
Conclusion
Even though if we are speaking about ‘taxes’ we most of the time refer to income taxes, it is clear there are much more taxes out there that should be accounted for.
Tax optimization
When we look at tax optimization or helping people out structuring their taxes, we’re mostly referring to income taxes (and social contributions).
For some digital nomads also wealth, gift & inheritance taxes become a point of focus. However, in general, income taxes are the main concern.
This also means that even if you would end up with a tax structure that does enable you to pay no income taxes (and social contributions), this doesn’t necessarily entail you are not paying any taxes at all.
Most countries levy VAT on transactions. So, if you move your tax residency to a certain place and you spend some time and money there, chances are quite big you’ll pay taxes in that place in the form of VAT. In that way, you’ll still be contributing taxes to the place.
Not paying taxes isn’t a crime (if you do it legally)
Basically, not paying (income) taxes (and social contributions) isn’t a crime if you organize yourself in the right way and follow all the proper rules.
Also from a morality standpoint, I don’t think that not paying (a lot) (income) taxes is the big issue. You might want to disagree with this.
My opinion is that in any case you’ll contribute to the countries you are visiting. At the same time, you’ll mostly only spend a limited amount of time there. You will only use the public resources to a limited extend.
Additionally, I don’t think that paying taxes is always the right way to contribute to society.
The reason for this is that you’re not directly contributing. You are just handing your money to the government. Then, it is up to them to decide what to do with that money. They might very well invest it in matters that don’t align with your values (e.g. the military).
If you want to contribute to society, there are probably better ways to do so than by paying taxes.
You could, for example, donate part of your tax savings to good causes you support. In that way you ensure your money is used for matters close to your heart.
Another option is to ‘gift’ time to local communities by doing volunteering work of some kind.
Conclusion
As a conclusion, I would say that the story is nuanced. You’ll need to take into account different elements.
In any case, I leave up to each of you where you stand on the matter of structuring your taxes and to which limit you find it fair to stretch it.
