Why should digital nomads have a tax residence?

2020: the coronavirus pandemic, the economic crisis and social exclusion have shown that the global labour market needs urgent changes. The number of jobs offered remotely will now increase steadily, as will the number of digital nomads, freelancers, constantly moving around the world. And while paying for their work is unquestionable, tax payments are the subject of much debate.

How to understand exactly where to pay taxes

The Digital Nomad, also known as a digital nomad, or freelance traveler, takes full responsibility for his professional life. He chooses his own line of business, looks for potential employers, and makes the necessary payments: taxes, contributions to future pensions and health insurance. In most countries of the world, the territorial principle of taxation is applied, based on the obligation to pay fees in the country of actual residence.

There is an opinion that if you constantly travel without staying in the same country for more than six months (183 days - the period required for tax liabilities), you do not need to pay them. However, such carelessness can lead to both administrative and criminal liability. And even if a digital nomad pays all duties and fees on time, he or she may face a problem too: double tax deduction in the countries of both residence and income.

To avoid complications, it is necessary to choose a jurisdiction that has agreements on avoidance of double taxation with the country of citizenship, and when moving to permanent residence abroad - to change the tax residence.

Practice shows that in order to get rid of the status of the taxpayer in the country where the person was born, a change of residence alone will not be enough. Freelancer will need to notify the tax authority that in the near future it is planned to move and receive written confirmation of the withdrawal from tax accounting. In this case it is better to sell the real estate and other valuable property.

Is it obligatory to apply for a tax residence?

Definitely yes. Tax laws of most countries will soon adjust to the changed realities, they will clarify the activities of digital nomads, so it will be simply impossible to evade taxes. In addition, the status of the taxpayer gives its holder not only obligations but also benefits.

It is quite easy for a tax resident of a foreign jurisdiction to obtain citizenship, he or she can register his own business abroad, invest, and use the full range of banking products.

In order to become a tax resident of the country, you need to notify the tax authorities of your wish, register, and obtain a taxpayer identification number. It is best to open a personal bank account and make several bank transfers to it.

More detailed advice on taxation of digital nomads can be obtained from IT-OFFSHORE.