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In March I'm starting life as a digital nomad, and I'm doing research about taxes.

I'm originally from Poland. I had full-time job for 3 years and I was self-employed for 2 years there. Later I moved to the UK, and I've been working for 1 year and 4 months there at a full-time job.

Starting in March, I'm going to work for a maximum of 2 days per week, and travelling around the world. My first country is Mexico. I'm not going to spend more than 3 months in any one country. What's the best option for me for paying taxes?

  • 1
    If it wasn't clear from my answer, then no, you cannot. There's no such thing "tax nomad" and whoever tells you that just because you spend 3 months in a country you don't have to pay taxes - is lying and suggesting you to break that country's laws. – littleadv Feb 8 '16 at 9:47
  • @littleadv I suppose that rather depends on the country in question, and on its laws, doesn't it? – phoog Feb 8 '16 at 16:54
  • @phoog in theory yes, in practice - I'm not familiar with any country that would tax anyone on anything at all. – littleadv Feb 8 '16 at 17:06
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What's for me the best option for paying taxes?

On time, preferably electronically. That would be the best option.

I'm not going to spend more than 3 months in 1 country.

That means you'll have to pay taxes to at least 4 different countries at any give year...

I suggest you talk to tax advisers familiar with the relevant countries' tax laws to plan your travels better.

General rules are:

  1. You pay taxes to the country in which you do the work, for the earnings you got for that work

  2. You pay taxes on real-estate related income to the country where the real estate is located

  3. You pay capital gains taxes to the country(ies) where you're tax residents

  4. You pay dividend income tax to the country where the dividend payer is located

  5. You pay worldwide income tax to the countr(ies) where you're tax resident,

  6. You pay worldwide income tax to the US if you're a US citizen/green card holder

Tax treaties may affect these rules depending on the countries involved. Double taxation/tax credits depend on the countries involved (may or may not exist) and treaties.

Countries determine "tax residency" differently, so you may most definitely be a resident of more than one country. Some countries keep you as a tax resident unless you establish residency elsewhere, and the US treats its citizens/permanent residents as tax residents regardless of where they physically are.

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    I'd appreciate downvoters to comment. I know that pointing to the fact that "tax nomad" concept is a fiction and is infeasable makes some people on this forum uncomfortable, so don't be ashamed - show yourself. – littleadv Feb 8 '16 at 9:42
  • Also there is the matter of work permits – Scott Earle Feb 9 '16 at 6:37
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    @WilliamDunne nope. even if you don't have "tax residence"in the UK your employer still needs to report you, and might also put you into an emergency tax code. On the other hand because of how taxation works in the UK, if you're only working for 30 days you need to earn a lot of money to get into the taxable income region. – SztupY Feb 12 '16 at 16:44
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    @WilliamDunne in many countries, it is not really up to you to decide whether you're an employee or contractor. You may think you're a contractor, but from legal perspective you are employee and the employer would be treated as if you're their employee. I don't know about the UK specifically, but this is the case in the US for example. You can get 1099s all you want, but if the IRS considers you as employee the employer will have to pay all the payroll taxes. – littleadv Feb 12 '16 at 22:04
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    @WilliamDunne re your first comment - tax residency is irrelevant to my answer, so your comment is irrelevant as well. My point is that even if you're not a tax resident, you're still taxed on the income sourced to the country - and I know of no country that would not tax income sourced to it (unless there are no income taxes there at all, of course). – littleadv Feb 12 '16 at 22:06
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Also bear in mind that it is strictly illegal in some countries, to work while you are located in that country if you do not have a work permit. This is usually because they have no way of taxing you if you don't have a work permit, but the procedure for getting one can be long and drawn out, and require you to have an employer in that country.

Just because you don't think you are 'working in a country', if you are located in that country and working then you might be, by that country's definition.

As an example, I live in Thailand. People working here without a work permit can be prosecuted and deported. While working as a "digital nomad" can mean that you stay below the radar, it is generally considered to be working - and if you were in Thailand and someone discovered that that was what you were doing, you could be fined, imprisoned, and deported.

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    I would emphasized the imprisoned portion. People think that worst that could happen to them if they are caught breaking the immigration laws would be deportation. But no, most countries have jail terms available for offenders, especially those who by the way also break other laws like tax evasion or labor laws (which, if you work "under the radar" you're likely to find yourself breaking as well - think social security contribution, mandatory insurances, etc). – littleadv Feb 9 '16 at 6:47
  • I agree completely. While it may seem like a minor offence to the person committing it, some countries take these matters extremely seriously. While I love living in Thailand, I would NOT like the thought of spending any length of time in a Thai prison. You hear stories ... – Scott Earle Feb 9 '16 at 6:52
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I believe you might be able to live your life without becoming a tax resident under any country's laws, though you might want to look carefully at the tax laws of the countries you are leaving. I don't know about the UK or Poland but Canada, for example, makes it a little tough to become a non-resident for tax purposes even if you aren't physically present in the country if you haven't actually established a residence in some other country.

Besides this, however, what matters more is what you haven't said, which is how are you going to earn an income, where will it come from and how will you be paid? The country where you earn your income may want to tax it even if you aren't physically present, or if not then the country where you are paid (e.g. whose bank the payment is processed through) may be interested in you. Generally you don't avoid taxes by avoiding establishing a residence anywhere, you do so by establishing a tax presence (personal or corporate) in a country that doesn't tax the kind of income you have.

With respect to Mexico in particular, note that if you enter Mexico as a visitor you may not legally do any work there, they try hard to be strict about this and their definition of "work" is very broad. I became an officer of a Mexican charitable foundation and had to become a Mexican resident with permission to do that particular "work" even though it was occasional and unpaid. I'm also not sure a visitor can open a bank account any more; HSBC opened one for me as a visitor quite a few years ago based on my having a US HSBC account, but the Mexican bank later got a US fine for money laundering so I think they're all way more strict now. Should you wish to become a Mexican resident for your three months there (not entirely impossible, I guess, and my experience with Mexican immigration is that they are quite friendly and helpful) be aware they will want to tax you not only on Mexico-source income but also your global income unless you can show you also have a residence elsewhere and make a majority of your income there (with other complexities), which requires that you have a home somewhere else, which is apparently what you are trying not to have. And if you enter as a visitor you'll be counting on them to assume you have a home somewhere else too, since if they knew you didn't they might suspect you weren't coming as a visitor. That said, if you enter as a visitor, work remotely for someone outside the country and have a way to access your earnings for living expenses, they may not notice. Just don't go boasting that this is what you're doing, if it is what you are doing.

I can see why what you seem to want to do might be interesting and fun, but I don't think you should expect it to be tax-efficient as well; just limiting your time in any country doesn't somehow immunize you from paying taxes. It also doesn't seem very secure. No country needs to allow you to enter, if you are entering as a visitor and are asked where you live you may not do well if you tell the exact truth, but telling an immigration officer an untruth can sometimes be the start of a really unpleasant experience. Good luck!

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Yes, it's possible. It's what I do.

Generally, you have to pay taxes whenever you work in a country. And you are classified as a "permanent resident" if you spend more than 183 days in a country (default thumbrule). But no goverment or country will ever care. Neither do they know. It's not illegal to be on vacation for 3 months in a country.

You also have to take into consideration on How severe a country sees tax obligations. Physical contract on operations in a country (i.e. in france working on a france resturant with a contract) = tax comittment Permanent Residence = tax commitment Short stay as considered a vacation = Non tax commitment whatsoever

This is usually how governments provoke tax obligations. ANd trust me when I say, they will not have a close look at all ISPs to see if theres people on vacation working there. ANd neither is it worth any prosecution if you don't submit a declaration. Estimated price to prosecute you for any crime: ~10k USD Your estimated tax to be paid there: 2k ? Total government loss: 8k And neither will they try to chase you in a jurisdiction where they have no power. You will not get deported for working on your vacation.

Get a grip of reality for the love of god.

Edit: I forgot to ask you, do you work as an employee or are you freelancing? It was under my impression that you are freelancing

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    It's not illegal to be on vacation for 3 months… but if you are working for any length of time, you're not (or not only) on vacation. So it seems that what you are saying is that you can get away with freelancing remotely if you are not staying very long, which is certainly true in many cases but not very informative. No need to invoke any 183-day rule or anything like that… – Gala Feb 21 '16 at 19:57
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    Of course it is possible to not pay any taxes if you're willing to break laws. You don't even need to go anywhere, you can break laws right there at home. – littleadv Feb 21 '16 at 21:22
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    You are NOT classified as a "permanent resident" just by staying in a country for 6 months. I have lived in Thailand for 12 years and am still not a "permanent resident". You can DECLARE yourself as being "tax resident" or "resident for tax purposes", but that is a different thing entirely. Also - you mention having no tax commitment if you are on vacation. Remember that working while on a tourist visa is sometimes considered VERY ILLEGAL, and can lead to prison sentences, fines and deportation. – Scott Earle Feb 25 '16 at 2:22
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If you have bank in your home country, you have a tourist visa and not employed by the employer from country you are visiting you don't need to care about taxation.

First reason is that as a tourist you are not a tax-resident, second is that your bank shares information only with tax authorities of the country where it reside.

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    So in short: If you are willing to break laws you can do so? – neo Feb 24 '16 at 9:49
  • I don't get how you get from "your bank shares information ... with [certain] tax authorities" to "you don't need to care about taxation". Tax authorities knowing the movements in my bank account would make me more concerned about filing my taxes correctly, not less. – Dan Getz Feb 24 '16 at 15:53
  • The short version is - if you are coming to another country as a tourist and you get a salary on you bank account (you usually do if you are on vacation more than 2 weeks) you don't need to file this salary in another country. – Jack Spektor Feb 25 '16 at 3:26
  • Coming somewhere as a tourist and getting paid for work done before that vacation in another country is totally different from coming somewhere claiming to be a tourist, working there and getting paid for that work. – neo Feb 26 '16 at 0:37
  • Is it legally different? Each country has its tax residency and visa requirements. As a tourist you are not taxed, if you stay in the country more than allowed time you should either get a visa, which has tax implications and requires you to pay taxes or go out of the country. – Jack Spektor Feb 28 '16 at 20:39
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If you're in a country for less than 6 months, you usually don't have to pay taxes, even if you're working there as a digital nomad.

source: If you don’t have a residence, where do you pay taxes as a European citizen?

Non-resident Taxation

Mexico (page 2, column 2 "Tax trigger points" bullets): indeterminate (source is targeted at non-nomads)

Europe

in most EU countries, if you earn income while in the country, you're supposed to pay taxes.

Austria: only on income earned in Austria

Belgium: Belgian source income

Bulgaria: income earned in Bulgaria

Czech Republic: income generated from sources in the Czech Republic

France: if you earn income in France you are required to make a French income tax declaration.

Germany: (Exempt.) Individuals who are neither resident of Germany nor have their normal place of abode there are only liable to pay tax in Germany if they earn income there which has a close domestic (German) context. This includes in particular income from real estate in Germany or from a permanent establishment in Germany.

Spain: taxed on the income earned in Spain; As of 2015, flat tax rate for non-residents is 24%. EU/EEA state citizen: 19%.

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    Every country I know taxes income generated in that country (i.e. created while staying and working there) even if the stay under six months. The six month threshold is for taxing worldwide income. That answer there is simply not correct, at least in Europe and possibly in most other countries as well. – neo Feb 10 '16 at 9:15
  • That is plainly false. And some guy on some other forum dedicated to tax evasion and breaking immigration laws saying something is not really a reference. – littleadv Feb 10 '16 at 9:19
  • That being said it's probably possible by creating a tax-dodging scheme that works in some countries (e.g. being employed by another company abroad and not drawing any income while being in a country). That would still mean infringing visa and employment laws and is probably not worth it in terms of time and cost for the usual one-person enterprise. – neo Feb 10 '16 at 9:21
  • you're totally right. I've updated the answer with some countries, sources, and how the source document says a non-resident would be taxed. – Jake Berger Feb 19 '16 at 21:04
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    Re Mexico: from that same source - Extended business travelers are likely to be taxed on employment income relating to their Mexican workdays. I think you just decided to pick a sentence that suits your agenda, and didn't really read the document. I.e.: you decided to lie instead of admitting being wrong. – littleadv Feb 21 '16 at 21:26
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As a reply to TTP wrote above, some good points;

For example Croatia, taxes only Residents. You are a non-resident unless you carry a permit.

"Personal taxation: Basis – Residents are taxed on worldwide income; nonresidents are taxed only on Croatia-source income. "

Croatia-source income is ment money earned from AND in Croatia. Example a physical job from a croatian company. Money earned abroad is not liable to taxation. I know Bulgaria and Hong Kong, Thailand, Singapore, and the list goes on, uses the same principles.

Source: http://www2.deloitte.com/content/dam/Deloitte/hr/Documents/germandesk/hr_german.desk_croatia_highlights_2015_en.pdf

What I guess TTP tried to say is; alot of countries go by this principle.

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    Money earned in Croatia is money earned while physically present in Croatia. These are pretty standard income sourcing rules and almost all the countries define them the same way. Claiming "Croatia taxes only residents" and then quoting the explicit statute that says otherwise is not even funny, it is just ridiculous. – littleadv Feb 23 '16 at 8:02
  • Thailand most certainly does NOT use the same principle. In fact it is illegal to work AT ALL while in Thailand, if you do not have a work permit. Even doing voluntary work requires a work permit. Work permits require a non-immigrant visa, and anyone caught working without a work permit faces a fine, deportation and/or imprisonment – Scott Earle Mar 22 '16 at 1:06

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