19

This answer makes an interesting observation that

At the end of the day it's even possible you're not explicitly required to pay taxes anywhere.

Is this really true? Under what circumstances could one who travels frequently (such as a digital nomad), and therefore never spends a significant* time in one place, not be liable for any tax in a given year?

* I imagine that "significant" would often mean the majority of a year (so 183 days), but I realize that varies by jurisdiction. For a general answer, simply assume the subject never stays in one place long enough to be subject to the local jurisdiction's tax policies.

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    I guess a precondition to this would be that one is not a US citizen... – Greg Hewgill Oct 12 '14 at 23:09
  • @GregHewgill: Yes, I'm aware.. which rules me out. But I'm still curious for an answer on principle :) – Flimzy Oct 12 '14 at 23:09
  • This is madness. If you're not paying tax anywhere, you're liable for taxes everywhere because somebody want's a piece of your action. DN's are usually leveraging currency arbitrage. The reason we get away with not paying taxes is we dump cash into local economies. Chiang Mai arrested a group of DN's for working illegally in the country. They were later freed because they were "businessmen". If you're reading the above thinking it's some magic tax bullet, never underestimate the power of denial. – Michael Cole Apr 11 '15 at 3:40
13
+50

If you are mobile and prepared to pick a place based on taxes, you might be able to use that to your advantage but it's certainly not as easy as moving around and ensuring you never stay more than X days in a given place. You need to pay attention to several things:

  • Income can be taxable where it is generated. In many countries, if you have a work contract with a local company, income will by default (if no tax treaty or specific exception apply) be taxed locally even if you are not a resident. Now, if you don't set foot in the country and export your services from somewhere else (without an employment relationship), you would typically not be liable for income tax where your clients are but you need to worry about the country where you and your company are located.
  • Length of time is not the only criterion for residence, some countries have other tests (e.g. you could be deemed a resident if the country is the “center of your interests”, i.e. you have your main home or generate most of your income there). And residence need not be defined based on an absolute threshold like 183 days, e.g. you could be deemed a resident and required to declare your yearly worldwide income in the country where you spent the most time in a given year (even if you did not stay there very long at all). So you need to ensure the country or countries you would be staying the longest and working from don't have any rules like that and stick to a simple time threshold (I don't know precisely about the rest of the world but I believe it would rule out many European countries…)
  • The more you move, the more rules you have to worry about. To the extent that the local rules exempt you from some taxes, moving around could help you but every time you set foot somewhere, the local rules fully apply. “Never [staying] in one place long enough to be subject to the local jurisdiction's tax policies” is the wrong way to think about this. You need to find places where the local jurisdiction's tax policies are favorable and therefore to find out what those policies exactly are. You cannot assume that staying less than 6 months (or any such threshold) means you don't have to worry about it. Logically, any threshold that might apply would only exists through the local tax policies, not in spite of them. Moving around therefore adds liabilities (and complexity).

So the key to make this work is to find a jurisdiction where there is no income, corporate or capital gains tax in your particular situation. That's the gist of jpatokal's Singapore solution: He was able to set-up a business and extract money from it without being taxed (which would be impossible in most places). Having clients out of the country or living somewhere else is neither required nor sufficient but channeling your business through a tax haven is.

As far as I can tell, it's not actually a consequence of life as a digital nomad or expatriation but merely the result of a particularly attractive tax structure. In fact, if you are staying outside your tax haven when actually performing the work, you would also in many cases owe some taxes where you are actually staying and/or violate the conditions of your visa/visa-free visit. So if you can't be a resident in your tax haven of choice, you also need to find another place with lax rules on tax residence, otherwise you could end up owing taxes there (although if you work from your laptop, don't have local clients or a local bank account, it could obviously be easy to get away with bending the rules).

Note that for this to be fully above board from the perspective of “regular” countries without such tax advantages (where your clients might be located), you would probably need to have several clients and be very careful with where you go while working. If you are only working for one company and spending significant time on site to perform the work, the contract between your client and your foreign-based corporation could be regarded as a scheme to evade employment and tax regulations (“disguised employment”).

Also, I assume that it's not what your question is about but there are many taxes you also have to pay as a visitor, including VAT on the things you buy for your personal use, taxes on petrol, etc.

19

Yes, it's possible, the term of the art is perpetual traveller ("PT"). Basically, since many countries allow you to visit for up to six months without being considered a "resident", you can arrange your life so that your income is earned by a company in a low-to-no-tax country (eg. Singapore, which has multi-year 0% startup schemes and hefty exemptions after that), and that you rotate among three or more countries per year so that you never incur personal tax obligations.

It's not easy, though, and it requires a fair amount of income plus a suitable set of citizenships (eg. Americans are screwed, since they're supposed to pay taxes everywhere). There are lots of sites out there offering help with setting this up, and most of them are trying to sell you something. Good luck!

Update: Sketching out the basics of how the money flows here, since this seems to be too complex for the comments. Countries for illustration purposes only; if you're actually going to do something like this, consult a qualified tax lawyer.

  • Customer in Spain contracts with your company in Singapore.
  • You perform the work in a third country, say Thailand. Labour laws and their interpretation varies, but by most readings, since you're a) not working for a Thai customer or company, b) not earning a salary, c) not receiving income in Thailand and d) not resident in Thailand for tax purposes, Thailand has no claim on any income you happen to generate for a company elsewhere.
  • Customer in Spain pays your company in Singapore. Since no work was done in Spain and you're not tax resident in Spain, you pay no taxes in Spain.
  • The Singapore corporation pays corporate taxes on its profits (potentially 0%) and issues dividends to its sole shareholder (you).
  • If you're in Singapore: Dividends from Singapore companies are tax-free.
  • If you're outside Singapore: If you have not incurred tax residence anywhere, you don't pay taxes anywhere.

Ta-dah, zero tax.

  • 2
    For starters - you need to be a Singapore citizen for this to work. Next - money that you withdraw from the company will be taxed to you. Third - the company will have to pay taxes to these countries because the company will earn money in these countries. The period of your stay there is of no consequence. Fourth - summary of the above: you'll end up paying more taxes. Not less. – littleadv Oct 13 '14 at 15:59
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    @littleadv: Wrong on all counts. Anybody can set up a Sg company through a nominee director. Taxes are incurred at point of sale: if a Sg company sells a service to Bakpakistan, income is registered and taxes paid in Sg. Sg company dividends are exempt from personal income tax. This is how I personally paid 0% tax for three years. Don't downvote just because you're jealous ;) – jpatokal Oct 13 '14 at 21:33
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    @Gala: Getting residence in Singapore is quite hard these days, and the 0% tax scheme is limited to three years and probably won't be around forever. But I'm just using it as an example since I'm very familiar with it, there are plenty of other tax havens around the world. – jpatokal Oct 13 '14 at 21:35
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    @Gala Yes, if you can figure out a way to stay in Singapore, which is much harder than setting up a company there! – jpatokal Oct 14 '14 at 2:52
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    @littleadv: If I set up a web site that sells ebooks (as an example), and I run the company in Sg, then me being in Spain when someone makes a purchase is irrelevant. I don't believe the OP is wrong. He may be wrong for some types of business activities, but you're assuming that every business is selling a tangible good in person. That's simply not true. – Flimzy Oct 14 '14 at 17:06
-1

That depends on three things:

  • One's tax liabilities as a citizen of one's home country (e.g., US Citizens owe income tax on worldwide earnings);
  • The place where one will earn income (or perhaps preserve wealth if no work income); and
  • Locations where one will reside.
-2

Generally, if you're a citizen of a country that doesn't have any income taxes and has tax treaties with other countries which are favorable to you - you may be able to make this happen.

However, I know of no such country.

When there's no treaty - then by default the country to which the income is sourced has the right to tax it. Thus periods of stay are irrelevant. When you earn money in country X, even if you stay there for 5 days - you pay taxes to country X in which money is earned. Most treaties allow countries to tax income sourced to them regardless of periods of stay as well, with very specific exceptions (e.g.: students and visiting scholars are often exempt from taxes on income they earn in that capacity, trade shows are covered explicitly many times, visiting on a job is usually exempt for lengths of stay of less than half a year, etc). Nothing in these exceptions applies to "digital nomads", i.e.: self-employed computer professionals.

To the best of my knowledge it is nearly impossible to work in countries with income tax and not pay any.


And a special note since there are users here that claim that you can legally do that. THEY ARE LYING.

You cannot setup a company in Singapore and funnel all your income through it to avoid taxes. That will never work, unless you live and work solely in Singapore. Anyone saying otherwise - lies to you.

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    You don't pay the tax where the money is earned, you set up a company that pays the tax. If you choose your country well, that tax may well be 0%. – jpatokal Oct 13 '14 at 12:19
  • @jpatokal nonsense. – littleadv Oct 13 '14 at 15:57
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    "Nonsense"? I personally paid zero tax for three years through Singapore's startup 0% corporate tax scheme. Company profits were paid out as dividends to the sole shareholder (me), and these were exempt from income tax, since I'd already paid corporate taxes on them. 0% + 0% = 0%! – jpatokal Oct 13 '14 at 21:30
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    @jpatokal that's the point you're not getting. There is something stopping anybody else from doing the same while domiciled in a different country. That country's tax laws. Tax residency has nothing whatsoever to do with that, and while many countries don't tax foreign income - income derived while working in that country is not foreign, even if assigned to an entity registered elsewhere. If you don't understand that - either get an accountant or get a new accountant if your current one can't explain this to you. – littleadv Oct 14 '14 at 6:41
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    The key phrase there is "income derived while working in that country", and this is nowhere near as clear-cut as you make it sound. For example, if I wrote an e-book in Thailand, then went to Malaysia and started selling it in the US, where did the "work" occur? – jpatokal Oct 14 '14 at 9:49
-5

It is possible. I lived in Buenos Aires for 3 years as a freelancer tax free. I was working for European clients at the time (In the UK). I was a legal foreign resident but because I didn't buy a house or car in Argentina and I also didn't have a bank account in the country, my accountant told me I could get away with not paying taxes. I remember there was a place where I would have to register to pay tax but the different government entities (local and national) had discrepancies in regards to whether they would let a foreigner enroll. I kept the money in my wife's account abroad (The Netherlands) and there we paid a small amount of tax but nothing like income tax.

Bear in mind that this has more to do with Argentina being a very lax country that is rather inefficient with things like this.

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    I know nothing about Argentina but “getting away” with not paying taxes is not quite the same as not owing any… – Gala Oct 13 '14 at 8:06
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    It's often easy to "get away with" not paying taxes anywhere... as long as you don't draw attention to yourself, and aren't employed by certain companies (that the local tax authority would notice), etc. But that's not the least bit related to my question. – Flimzy Oct 13 '14 at 15:25
  • 1
    You have obviously broken the Argentinian law. – littleadv Oct 14 '14 at 4:16

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