How to Optimize Taxes as a Digital Nomad?

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Today we are going to talk about a popular topic, that we often get questions about - How to optimize your taxes as a digital nomad? Do digital nomads even have to pay taxes?

Location-independent work has been increasing in popularity in the last decade, with the situation in 2020 and 2021 we learned that even more jobs can be done remotely, and we will certainly see the rise of location-independent workers aka digital nomads in the future years.

But what happens with taxes in that case? Well, this will depend on whether you're an American or Not. If you're an American citizen you will need to pay US taxes no matter where in the world you live! Are there any ways to work around it, and what to do about taxes if you're an American digital nomad? We are going to cover that today.

What if you're not American? You will not be taxed in your country, but what about other countries? How do you become tax liable in another country and is there a way to avoid it?

Let's first talk about Americans. Just because you're always taxed in America, doesn't mean that you will not be taxed somewhere else as well. If you establish a home in another country, let's say in Bali Indonesia, and you spend more than half of the year there you will be liable for Indonesian tax on top of American tax. In that case, the US will give you a tax credit for what you paid abroad, but you will still have to pay the difference in the US.

However, if you spend a substantial time outside of the US you could get Foreign Earned Income Exclusion where the US will not tax you on the first 100 000 USD that you've made abroad. There's also the possibility of getting a housing allowance on top of this.
If you're making more than this amount, there are still things that can be done with an international structure.

Ok that was that about dealing with America. What about the other side of taxation? Taxes that you might have to pay in a foreign country?

This part applies to both Americans and non-Americans.
What's the ideal solution? You just DON'T become a TAX resident in a foreign country that will tax you a lot. This means that you will not want to spend more than 183 days in another country. Before this period of time adds up you will move to another place.

If you're not an American one thing that you'll need to make sure happens is that you CEASE to be a resident in your home country. If this doesn't happen your home country might still be able to tax you. Just because you're spending your time abroad doesn't mean that you automatically become a non-resident of your home country. In some countries this is more clear than in others.
Canada and Australia will want you to establish a residency in another country if you want to avoid their taxation.

This means you will have to establish a residency in another country and have a home available to you in that country. On top of that, you'll need to cut ties with your home country, meaning that you'll need to sell your home and vehicle in Canada or Australia. They want to see that you have a genuine bond with another country abroad. If they don't see that bond and you still kept your ties at home, you will have to pay taxes!

Who are we and what do we do?

We are Offshore Citizen team. We help people become global: get a second passport, set up a second residency, pay less taxes, do banking abroad, etc.

We have lots of interesting articles on different topics, we have relevant information up to date.
Author: Michael Rosmer

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