Digital Nomad Taxes: Insider Tips For Optimising Your Earnings
Working as a digital nomad is often seen as the ultimate in flexibility and freedom. Using a laptop and a WiFi connection, growing numbers of people are making money by working remotely from wherever they choose. Some of these can, and do, work anywhere in the world.
Whatever line of work you’re in, paying tax is a fact of life. It’s also, more than likely, the biggest of all your business expenses. But what if you could be smarter rather than working harder, by minimising how much tax you pay?
In the simplest terms, the less tax you pay, the more money you’ll have in your pocket. In turn, having additional funds may mean you can live a more luxurious lifestyle, travel more, work fewer hours, or retire earlier.
The truth is that optimising your earnings doesn’t have to mean working longer hours. Instead, applying the right tax strategy can ensure you keep a larger proportion of your hard-earned cash.
This brief guide to optimising your income as a digital nomad highlights just some of the ways you could create the most tax-efficient business structure possible. If you want to keep more of the money you earn in an entirely legitimate way, this is for you.
Written in conjunction with Fresh Global, this article introduces some of the ways you could become more tax efficient.
My exclusive tips are based on the advice given in their popular and respected course: Tax Strategy for Digital Nomads and Global Entrepreneurs. It’s currently available for FREE (the usual price is $249!) so don’t miss out!
Read on for an inside glimpse into how tax efficiency could have the power to transform your digital nomad lifestyle.
Top 4 things tax-efficient digital nomads need to consider
If you want to minimise the amount of tax you pay, then you should consider several things.
What tax-savvy digital nomads need to know includes the ways in which different countries tax income, and how nations split taxation rights between them.
You also need to think about your individual circumstances, and how they might influence the approach you can take.
1. Think globally
As a digital nomad, you have the freedom to work from anywhere in the world. And to minimise your tax bill, it’s also wise to think internationally – if that’s an option.
While governments across the world may operate different tax rates, they all use taxation to fund public spending on healthcare, education, and infrastructure such as roads.
As a general rule, the governments of all countries tax people on their income. Though how much you’ll pay, and on what, can vary tremendously from one place to another.
2. How countries tax income
Internationally, tax is collected based on where people live, where they make their money, and in several cases, their citizenship. The latter only applies to three countries – but one of these is the United States.
So you’re likely to pay tax where you live. If you make money in another country – such as from letting out property there – then you’ll probably face a tax bill from that country too.
And if you’re a citizen of the US, the Philippines, or Eritrea, then the government is going to want their share of your income too. Whether you actually live there or not.
3. Tax treaties
Another need-to-know for any tax efficient business owner concerns tax treaties. In short, these are agreements which divide taxation rights between countries.
The principle behind tax treaties is revealed when you discover their full title, which is “Agreements for the avoidance of double taxation.”
4. Your circumstances
One more thing to consider before working out a tax-efficient strategy is your personal circumstances. There is no one-size fits all approach to minimising the income taxes you pay.
Factors such as the following will affect how to develop the best tax strategy for you.
- Relationship and parental situation
- Willingness and ability to relocate
- Citizenship and residency status
- Current business structure
- Your income stream/s
Top 3 ways to minimise your tax burden
If you’re serious about reducing the amount of tax you pay, then there are three main ways in which you can do this. These are relocating overseas, incorporating overseas, and commercialising intellectual property.
Each of these options is briefly outlined below. This is intended as an overview only, as there are in turn various things to consider when moving or incorporating in another country.
1. Move abroad
Though taxation rules vary from one country to another, an underlying principle is that you pay tax according to where you live. It therefore follows that if you move to another country where your tax burden will be lower, you’ll be better off.
If this is an option open to you, then there are many things to think about. These include how countries define tax residency – and of course there are wide variations.
In many cases, you can reside mainly outside of a particular country, but still be seen as resident for tax purposes.
Tax treaties between countries often mean that people can be considered tax residents of one country rather than two. However, the rules in some countries mean you can be taxed simply for leaving a country of residence, or liable to pay tax for a certain period after departure.
The key is to ensure you’ll be treated as if you really have moved, rather than residing somewhere on a part-time basis. You also need to choose which country to move to very wisely indeed.
2. Incorporate overseas
Some countries impose lower taxes on businesses. This means you could be better off if you incorporate a business in such a place.
The rules applicable to business taxes and individual income tax can be very different. Dividend income is often taxed at lower rates.
Further, the country of incorporation will generally determine the company’s tax residency status. However there are other factors to consider.
If you move to another country, your company does not necessarily move with you. Meaning you might continue to benefit from lower taxes, even after going to live in a different country.
Companies may be taxed on the profits paid to shareholders. A business’s tax residency status may also be determined according to each country’s rules.
These may take account of where the company is run on a daily basis, or where most of the decisions and directives regarding the business are decided upon.
Making sense of all the applicable rules is complex and can be challenging, which is why expert advice is invaluable. Certain countries may not be recommended, for example, because of their draconian approach, or their reputation.
Again, then, you would need to think very carefully about where to incorporate a company, and there are many factors which can come into play. Such as having a genuine commercial reason for incorporating a company in that location, and having favourable tax treaties between two nations.
For US citizens, incorporating a company within certain states – rather than overseas – can be a more viable solution.
3. Commercialise intellectual property
You might not have realised this, but if you create content, then you are the proud owner of intellectual property. Though not as commonly used as relocating or incorporating a company overseas, this can have big tax benefits in some cases.
Where the content was created might not matter. If that content is seen in other countries, then any royalties due may be taxed there. When lower tax rates apply, that can add up to a considerable saving.
Even if the business owner uses the intellectual property themselves – such as for promotion or sales purposes – then it may be possible to apply royalty rates. Thus the owner’s tax liability may be reduced.
Wrap-up: optimising digital nomad earnings
It’s crystal clear that moving or incorporating overseas can be very profitable for digital nomads. If you want to benefit from countries that offer more generous tax breaks to residents or companies based there, then the world really can be your oyster.
However you do need to think about whether relocating is a viable option for you, and your family if you have one. And while it can also be lucrative, incorporating a company overseas also involves navigating all sorts of rules and regulations.
Bear in mind that there is a lot of misinformation floating around online, and verified information is hard to come by. So whatever your plans for the future, be sure to do your homework.
Learn all you can about the options open to you, before making any firm decisions. Once you have some idea about how you might like to proceed, always seek advice from a qualified tax professional, too.
International tax planning is a very complex field, involving many rules around how individuals and businesses are taxed. A country’s rules can also change at any time – and it goes without saying that full compliance with current regulations is also absolutely necessary in all cases.
If you’re serious about optimising your earnings as a digital nomad or global entrepreneur, I highly recommend taking this Tax Strategy course to arm you with all the information you need.
It’s currently available for FREE (the usual price is $249!) so don’t miss this opportunity to get such valuable insights.
This is a sponsored post in collaboration with Fresh Global, but all opinions are my own.
