Discover how digital nomads can save money on taxes with dual residency while traveling. Learn tax strategies to avoid double taxation as a digital nomad. Also, leverage on the best tax-friendly countries with low taxes and learn how dual residency works for freelancers.
Being a digital nomad is all about freedom, adventure and endless possibilities. But with all the perks comes the challenge of taxes. For those who work and travel globally, taxes can feel like a nightmare. Luckily there’s a solution – dual residency. In this article we’ll show you how digital nomads can save on taxes with dual residency and other clever tax hacks.
Recommended article: Digital Nomad Visas: The Surprising Benefits No One Talks About
What Is Dual Residency?
The term dual residency refers to the practice in which individuals are tax resident in more than one country. Several countries have enacted treaties, commonly referred to as double tax treaties. These treaties determine how much your income gets taxed if you are a resident in more than one jurisdiction. For digital nomads, this has the potential to lower the amount of tax that they have to pay. Thus, resulting in a net gain in income earned. Additionally, read this article to learn how to save taxes as digital nomads with dual residency.
Why Taxes Are a Big Deal for Digital Nomads
During your time as a digital nomad, you will probably have clients or employees based out or residing in different countries. This unique lifestyle has tax implications. Most certainly around the issues of how much location all over the world you are going to pay taxes. Here are a few reasons why stresses taxes are of significance.
- Avoid Double Taxation: If you are not properly organized, you may get taxed by the country you are from and the country you are residing at.
- Maximize Savings: Carefully framing the tax bill enables one to pay as little as possible legally.
- Stay Compliant: Tax obligations are to be respected in order to collide with respect to penalties, fines, and legal matters.
Additionally, discover how digital nomad save money on taxes while traveling using tax strategies by reading this article.
See also: Freelancer Visas: Top Destinations for Remote Workers
How to Save Taxes as a Digital Nomad
Saving taxes doesn’t have to be hard. Here are some concrete actions that you can do:
Determine Your Status First
Each jurisdiction has parameters for classifying individuals as tax residents which can include
- How many days you are in the country.
- Owning property or having other significant connections (including personal relationships) in the particular nation.
To avoid double taxation, know the tax residency provisions applicable in your home country and in the countries that you visit. Also, read this article to learn how digital nomad save money on taxes while traveling using tax strategies.
Use Double Tax Agreements Effectively
A DTA is a legal treaty that covers two countries to avoid tax being claimed by two countries in respect of the same income. If you possess dual residency, these treaties can assist in determining where your income will be taxed. Furthermore, certain treaties provide a lower tax rate or completely exempt particular types of income.
For instance, a taxpayer may be a U.S. citizen who is stationed in Portugal, computed under the U.S.-Portugal tax treaty on the tax liability. Furthemore, discover how digital nomad save money on taxes while traveling using tax strategies by reading this article.
See also: How Remote Workers Can Legally Live in Portugal for 12 Months
Other Countries Might Be Better For You
Digital nomads can take advantage of several tax havens around the world, including:
- Portugal: The NHR scheme offers lower tax rates to individuals who have recently settled in the country.
- Estonia: thanks to its e-Residency program, freelancers can easily handle their taxes.
- United Arab Emirates: With no income tax, this option is great for those with a higher labor income.
Evaluate these recommendations and select a state that corresponds with your objectives. Also, do you want to know how dual residency works for freelancers and the best countries for dual residency and low taxes? Read this article.
How to Save Taxes as a Digital Nomad
Having two residences might be a bit awkward. This is due to its complications but on the other hand, it’s equally beneficial too. So, let’s go through the pros one by one:
Taxation relief
Almost all countries have some form of taxation relaxation or complete relief on specific kinds of income. An example of this would be Freelance or even, foreign sourced income. With dual residency, you get these perks in both the countries.
Non-Double Taxation
Being a dual resident negates the need to pay taxes on the same income source in 2 countries due to treaties that a dual resident has signed. Essentially, the tax that you’ve paid in one country is enough to allow you to enjoy some tax incentives in the second country. Additionally, read this article to learn how dual residency works for freelancers and the best countries for dual residency and low taxes.
See also: Digital Nomad Visa Requirements.
Tax Planning Convenience
The advantages that come with being a dual resident include diversification of income and expenses. For example, if there are countries which have more favorable taxation rules, you will be able to claim deductions and credits there.
Digital Nomad Tax Strategies
It is crucial to have a good tax plan. This is because, it will allow you to save more of the money you worked very hard for. Below are a few strategies:
Track Your Travel
Don’t forget to keep track of how long you stay in a certain country, you can do this by using both applications and sheets. This is wise because it allows you to stay clear of turning into a tax resident in a country which is not favorable for you. Furthemore, for information on how dual residency works for freelancers and the best countries for dual residency and low taxes, read this article.
Separate Business and Personal Finances
Consider opening new accounts for your business and for personal use separately. Doing this will do wonders in simplifying the process of proving income sources or even claiming deductions when need be.
Hire a Tax Professional
Taxes for self-employed people working in foreign countries can get quite complex. A qualified specialist who worked in international taxation law will help in getting savings without any violations.
Save Money on Taxes While Traveling
As a digital nomad, for example, one is able to reduce their tax burden. Here are a few more ideas:
Utilize Tax Deductions
Some use a business premise to offset taxable income for income tax purposes in many jurisdictions. Some of the items which are generally claimed include:
- Travel costs (airfare, hotel stays).
- Internet connection and mobile phones.
- Computers and cameras, among others.
Incorporate a Company Outside Your Home Country
Some self employed digital nomads will try to incorporate a company in a low tax jurisdictions. For example:
- Hong Kong: Very low corporate taxes and an easy way of reporting.
- Singapore: Administrative taxes are low and efficient.
Keep Your Earnings Lower Than The Tax Exemption Limit
In several jurisdictions, there are income limits, or rather thresholds, which are taxation-free. Therefore, one does not owe taxes at all, for instance, in a country with a tax threshold of $10,000 and ones earning is below the threshold.
Digital Nomad-Friendly Countries for Dual Residency
Choosing the right countries for dual residency is key. Here are some digital nomad-friendly options:
1. Georgia
- No income tax on foreign earnings.
- Easy visa policies for long stays.
2. Mexico
- Low cost of living and straightforward tax rules for expats.
- Allows foreigners to claim certain exemptions.
3. Malaysia
- Offers a long-term residency program for digital nomads.
- Foreign-sourced income is often tax-exempt.
4. Thailand
- The Smart Visa program caters to remote workers and entrepreneurs.
- Lower tax rates for certain professions.
How Dual Residency Works for Freelancers
Tax liability, management or compliance for a freelancer always varies depending on number of client locations and payment methods. Dual residency benefits in this aspect:
Streamlined Tax Filing
With dual residency, you are more likely to report taxes in one location and utilize credits for tax liabilities imposed by another nation. That is easier than doing several separate reports.
Access to Tax Treaties
Freelancers who get paid by international customers can use some tax treaties in order to lower or eliminate withholding taxation and even get back some money.
Lower Overall Tax Rates
By selecting countries with favorable tax systems, freelancers can reduce their effective tax rates while staying within the law.
Conclusion
For digital nomads, transferring their tax obligations to other countries may sound outlandish. However, it does not really have to be. If you take into account dual residency and apply certain tax strategies, you are able to still remain compliant but save a good amount of money. Whether it’s using double tax treaties, moving to low tax countries, or keeping all receipts of expenses, the most important is foresight. It has been good to say the least that you educate yourself how everything works in order to concentrate on being nomadic rather than paying taxes.
See also: https://immigrantinvest.com/blog/digital-nomad-taxes/