Hey Digital Nomads!
If you are constantly traveling, let’s say a different country every month, how do you handle your taxes? Let’s say your last location of permanent domicile was Colorado hypothetically. Let’s say that was years ago, how do you handle taxes? Do you pay taxes as if you are still living in Colorado while constantly moving countries? Thanks in advance!
PS, asking for a friend 🙄
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Haven’t they been pulling Colorado taxes out of your check this entire time ?
In this example, yes
We don’t
You pay taxes based on residency, where you currently are doesnt matter as long as you’re legal (ie, tourist visa or nomad visa)
Unless your job is willing to accommodate and open offices in all the countries that you’re in (highly highly unlikely) then that’s the only way
If you live in a high income tax country, it sucks, but it offers protection if SHTF
Many us states/countries will want to tax you for your earnings while working from the state/countries.
Based on a number of criteria some will consider you tax resident. They will want to tax you on your worldwide income. You would typically get ‘credit’ for taxes already paid elsewhere.
If you are US or Eritrean citizen your country of citizenship also require you to submit a tax return.
Please note that the us and many other countries require a work permit or citizenship to be able to work legally in/from their territories.
I’ve lived in 6 countries for a few months at a time the last 3 years. You pay tax by residency. This will make it easier for you. Depending if you make decent money (tax bracket) and if you have any connections/family in low tax US states, change residency to there
Thanks, this is helpful. But for “residency”, would that be the last place you lived? Or would you use a home where a friend or family member live as the address?
But for “residency”, would that be the last place you lived?
It’s where you live now.
But I don’t live anywhere specifically
No, where are you RIGHT NOW. As you type this.
The FEIE has that as the final indicator of where the income originated.
if you have any connections/family in low tax US states, change residency to there
Or just don’t have a state residence anymore
Taxes aren’t a one-size-fits-all situation and can vary wildly depending on the countries you’re operating in, the specifics of your occupation, and your personal circumstances. That being said, as a digital nomad often you’re still on the hook for taxes in your home country (in your case, the US). Uncle Sam likes to know what he’s owed, regardless of where you want to pretend you’re from. The Foreign Earned Income Exclusion (FEIE) might be applicable to digital nomads who qualify, but I’m not your tax adviser. Definitely worth consulting a tax professional for this one. Accountability for tax evasion can follow you around the globe, and international tax law is a maze that’s best navigated with professional help.
That being said, as a digital nomad often you’re still on the hook for taxes in your home country
Only the US and China tax their citizens abroad.
Eritrea also taxes based on citizenship but many countries also default to being your tax residence unless you can prove that you have established fiscal residence elsewhere (e.g. Canada).
The perpetual traveler “tax hack” doesn’t work for many nationalities.
Germany taxes citizens abroad. Not sure where you came up with only China and US tax citizens abroad.
Not on foreign earned income, according to the EU and every English source I can find. Non-residents aren’t taxed on income made outside of Germany.
With residents not meaning “Citizen” but someone who has there home in Germany.
Not if you have tax residence somewhere else.
But the US don’t care and you still have to pay to then too
If you are USC, you file (and in some cases) pay taxes anyway, regardless of your location. Check IRS website.
You also have to pay taxes in your adoptive country, if you fall in their tax rules (some are as low as 3 months stay)
You most likely have to pay taxes where you perform the work, i.e. those different countries you’re travelling in.
No, not being tax resident doesn’t mean you don’t owe taxes.
No, being on a tourist visa doesn’t mean you don’t owe taxes, only that you’re committing multiple crimes.
Do you pay taxes as if you are still living in Colorado while constantly moving countries?
Generally no. You aren’t a resident of Colorado.
As a US citizen you still are assessed for taxes, but you get exceptions that can dramatically reduce your tax burden.
I pay a CPA in my home country (USA) to handle my taxes for me.
Worktravels provides free legal and compliancy advice for remote workers! I booked a six month remote workation in Capetown with them and they took care of the legal hassle. Very smooth
I’m a US citizen and I’ve been taking advantage of the FEIE, which allows me to pay no tax on the first $120k in income (an amount that changes every year) if I spend at least 330 days per year in other countries. This is the first thing to know about if you’re a US citizen nomad at any income level.
Since my income is more than the FEIE amount, I have recently been reducing my tax by contributing to a self-employed 401k and using the Foreign Housing Deduction to reduce my taxable income. I still had to pay self-employment tax but I got my effective tax rate down to around 10%.
However now that my income is increasing and my desire to pay taxes to a country I rarely visit is decreasing, I have a more sophisticated tax strategy. I have a Dubai Free Zone corporation, which pays me a salary equal to the FEIE so I pay no income tax. Any excess money flows into a C Corp in the US which I own. That corporate profit gets taxed at 10.5% since it owns no US entities, and I can take distributions for another 15% tax.
HOWEVER, instead of taking those taxable distributions, I can use that money in the C corp to make investments around the world, such as real estate. By using this new structure I expect to reduce my effective tax rate to under 5%.