Can I change tax residence as digital nomad and what should I take care of in this case?
In most countries it is fairly easy to deregister yourself as a (tax) resident. You go to the town hall in order to declare that you are leaving the country. In some countries, the municipality will automatically inform the local tax authorities. In other countries you will have to take care of this yourself.
In any case, you will still need to make sure you file your final tax return and pay your outstanding taxes. However, after that, you are – in most countries – done.
Change tax residence as digital nomad: no more tax in your (former) home country?
Once you actually leave your (former) home country, you will also escape taxation there. Most countries won’t tax you anymore as from the moment you deregister yourself and leave the country.
Nevertheless, some countries see you as a tax resident for the full year even if you leave in the middle of the tax year. Luckily, a lot of countries have double tax treaties which will ensure you are only taxed on the same income in one place.
The proof is in the pudding
In most countries, the local tax authorities have the burden of proof that you qualify as tax resident.
That doesn’t mean that it isn’t common sense to make sure you keep the necessary documentation to demonstrate your move abroad and the fact you didn’t spend (much) time in your (former) home country. We can think of boarding passes, rental agreement, utility bills, bank statements, sports club memberships, etc.
Change tax residence as digital nomad long enough
If you plan to officially move your tax residence you better make sure you do this for the longer term. The reason is that some countries still see you as their tax resident if you return after only spending a limited amount of time abroad.
Another way that some countries try to get the better of you is to ignore your move abroad. In this respect, some countries have specific anti-abuse measures in place. France, for example, will not recognize your move to Monaco from a tax perspective. Another example is Spain who blacklisted Dubai.
Can I keep assets in my (former) home country?
Even if you change tax residence as digital nomad and leave your (former) home country, you might still hold some assets there. Let’s see if this is a risk, and if so, how to mitigate it.
Change tax residence as digital nomad: what is the risk?
Some countries see you as a tax resident if the centre of your personal and economic vital interest lay in the country. In this case, you would want to limit your ties to that country. However, this doesn’t mean you can’t have any assets there. We’ll go over some specific categories to see what the possibilities and attention points are.
The mere fact of holding a bank account in your (former) home country will not necessarily make you a tax resident there. Yet, we would urge you to diversify in this respect and open accounts abroad.
This makes sense from a tax perspective but also from a financial point of view because this enables you to diversify your risk.
Additionally, we suggest that you start using a ‘foreign’ bank account for your day-to-day payments.
If you own real estate in your (former) home country, you should consider this. You can remain owner of your real estate. Yet, the best thing is to rent it out so you don’t have it available to yourself all the time. You do have the right to invest in real estate and rent it out without becoming a tax resident.
If you still want to have a second/holiday home of yourself, this is possible. This is the same as a lot of people who have a holiday house somewhere in a sunny place to spend their holidays. However, in this case we would urge you to keep track of expenses regarding utilities in order to demonstrate you only occasionally spend time there.
If you own a company in your (former) home country, this is an attention point for many reasons.
First of all, many countries will presume you as a tax resident if you are a director of a local company. For this reason, you should resign as a director of your company in order to limit any liabilities in this respect. You can of course remain the owner of the company but you better stay out of the day-to-day operations. This could, otherwise, complicate your tax situation even more.
The good thing is that this will also provide you with opportunities for optimization. You could opt to move (part of) your business abroad and benefit from a more favourable investment and tax climate. Most business owners don’t realise it but optimizing your taxes is the easiest way to improve the profitability of your business.
If you have an interest in this topic, definitely check out our post about offshore companies for digital nomads.
It isn’t an issue to keep some assets in your (former) home country. However, as always, the less ties to your (former) home country the better. If there are still links between you and your (former) home country, it doesn’t hurt to document everything properly.
Some countries do charge an exit tax if you change tax residence as digital nomad to another country. So, before actually pursuing your exit, it is good to get an understanding of any tax liability that might occur when leaving the country.
Change tax residence as digital nomad: the opportunities
If you decide to change tax residence as digital nomad you have a wealth of options in front of you. You will have the possibility to opt for a new country of tax residency that aligns with your values, personal interests and tax situation.
This enables you to improve your lifestyle to new heights.
Conclusion: change tax residence as digital nomad
If you change tax residence as digital nomad this could bring you many benefits. Paying less taxes will be just one of them.
Nonetheless, you wouldn’t want to start taking action recklessly. Before taking action, you should have a strategy in place. You must make sure you pick the optimal setup for your personal situation. If you need any help with this, you can reach out as I am here to assist you in this process.