It is widely believed that being able to work anywhere with a stable internet connection is a silver lining for knowledge workers affected by the pandemic. However, this new ability to work from anywhere as a digital nomad also comes with its own set of unique challenges. Taxation and related residency issues are some of the more substantive, but less visible, obstacles.
Seasoned digital nomads are accustomed to the red tape that comes with changing addresses and have long found creative and compliant ways to manage the issue of maintaining official addresses for administrative purposes. Now, hundreds of thousands of knowledge workers are considering their newfound freedom of movement and, in many cases, their post-pandemic careers, alongside the few who lived and worked on the road before the pandemic.
While tax regulations vary greatly depending on your location, there are some general guidelines that can be useful for those seeking tax information as digital nomads.
A digital nomad is a remote worker who travels to different locations and relies on technology to get work done from anywhere, anytime. Many digital nomads work remotely abroad.
While all digital nomads are necessarily remote workers, the term "remote worker" is not synonymous with digital nomads. The key factor is that digital nomads choose to travel to different locations when working remotely, and "remote worker" is also used to describe employees who work outside of the office.
Whether a remote worker can be a digital gamer depends on the employer's policies and habits. Many digital nomads are self-employed or freelance contractors. In most countries, self-employed people have more control than the typical salaried employee, not only how, where, and when they work, but also how they file their taxes.
If you're not self-employed, check with your employer before stepping into the sunset and fulfilling your digital nomad destiny.
Many companies address the complexities of digital nomad taxation and legislation by not allowing their employees, whether remote or otherwise, to reside outside of the country or region of the country where they are employed. In many cases, employees are also reluctant to leave the city where they are employed. This is often due to tax and labor legislation, but it can also be due to a company's facilities management or HR compensation and retention strategies. As more companies adopt a permanent remote workforce, it is becoming increasingly clear that many of these strategies are inadequate to meet the needs of knowledge workers in an ever-changing pandemic environment.
Typically, remote workers are taxed in their country of tax residence as determined by their primary or usual place of residence. However, digital nomads may encounter a different or additional layer of tax residency because they physically exist in other countries during the tax year. State, provincial, regional, and local taxes may also apply.
Although regulations vary from country to country, province, and sometimes from city to city, most people have a permanent physical address for tax and legal-administrative purposes (including voting). Your official country of residence is the country where your permanent physical address is located. A person may also have dual or multiple residency. Some countries and regions consider other factors when determining the official country of residence, such as when you open a bank account in **. In addition, there are other factors that visa holders need to consider, and many of them are only allowed to stay in a certain country for a certain period of time.
Although a person may be a resident of a certain country region, they may not be a tax resident of that country, as many jurisdictions require a person to reside at a physical address for 183 days or more per year to be considered a tax resident. Each country that is subject to the 183-day rule has its own additional criteria for treating someone as a tax resident. In some cases, a person may be a tax resident of their country of citizenship but does not have a physical presence or address there.
Knowing the eligibility for tax residency in any country you choose to travel to is essential for a digital nomad lifestyle. Knowledge workers are advised to be aware of the regulations of the country in which their official residence address is on file with the authorities, as well as the regulations related to the country or region where they will spend the longest time in the tax year, including visa requirements.
It's not an official term, but the concept of a digital nomad visa refers to a document or procedure that gives someone the right to work remotely while they are far from their country of permanent residence. Countries that currently offer such programs include the Cayman Islands, Mexico, Costa Rica, Norway, Germany, the Czech Republic, Portugal, Estonia, and Georgia, among others.
The conventional wisdom of how to file your taxes correctly still applies regardless of the country of residence and employment status:
Keep track of your earnings.
Keep track of your business spending. Most countries require original receipts (in addition to digital copies) to claim tax deductions, so it really pays to get organized.
Read it. Take some time to review tax laws, regulations, taxes, tax authorities, or tax blogs.
Don't procrastinate. Don't expect you to receive an extension just because you happen to be out of your country of residence at the time of your taxes.
If it's complicated, hire an accountant or tax accountant who is familiar with the tax legislation and customs of your official country of residence. If you work outside of your official country of residence, try to find someone who specializes in the fast-growing field of expatriate tax services.