Digital nomads might lead a free life, but that doesn’t make them exempt from paying taxes and showing tax records to at least one country. You might have your documents in order, use an income tax calculator and be ready to do the right thing by the taxation department, but what is the right thing when you’re a citizen of the world? To help you, here are four tax residency options for digital nomads:
- Sticking to Home
One option is paying no local taxes in the countries you visit and instead maintaining tax residency in your home country only. The issue with doing this is that the country you are in could consider that you are breaking the terms of your tourist visa, and they could take legal action against you for that.
- Sticking to Home & Local
Another option is paying tax at home, keeping tax residency at home, and paying local taxes where they are required. This option can get expensive because you could ultimately be paying out taxes twice with no restrictions, although it is worth doing if you haven’t got your paperwork in order as it’s better to pay double than face legal action.
- Going Local
One of the better options is to get tax residency in a country with low-tax demands and pay local taxes there. This strategy involves letting your home country release you as a tax resident so you can become one in your chosen nation. You may have to sell any property you have in your home country because property ownership can link you to tax demands.
Once you give up your home country’s tax residency and apply for it in your new country, you’ll get a fresh tax number and will have to prove that your working life and general activities show that you are a working resident of that country. For example, you rent a property long-term, get a local bank account, use local health services, and otherwise lay down roots.
The benefits of doing this are quite high. However, to reap these rewards, you should choose a country that makes it easy to get citizenship and has zero tax demands. Many of these nations allow visa-free entry to several other countries. A good example is Panama, which provides the ability to get into over 140 countries visa-free. Portugal also has some excellent benefits on offer for foreign national residents. So, do your research, and find the country that offers the best bouquet of benefits to suit your needs.
- Covering All Bases
You can maintain your tax residency, pay taxes back home, and get something called a Digital Nomad visa. These documents aren’t really visas, but are more like work/travel permits. They often allow you to travel to multiple countries and maintain some degree of working ability, depending on the visa itself.
Do take note, though, that Digital Nomad visas can be expensive, requirements can differ, and your target country may not accept them. If they do accept nomad visas, they may place working restrictions on you.
Being a digital nomad is a great idea, but the tax residency side of things can get complicated. It’s also something that’s worth getting right so that you’re doing everything legally and in a way that’s as cost-effective as possible. With the peace of mind that your tax residency is taken care of, you’re free to return to your dreamy life of working and traveling the world without restriction.