It is not uncommon for digital nomads to spend nine months of the year traveling around the world, going from country to country, and staying in numerous hotels and airbnbs. At some point they come home for a few months to sort a few things out at the bank and visit their mothers before going on the road again.
Many people believe that if they spend enough days abroad, they would be able to get away with paying their taxes “back home” that may come with a higher tax rate. Each country has its own domicile tests to determine one’s official tax home, in some cases, the governments follow the 182 day rule, but many countries check more than one criteria. After speaking with several digital nomads, we understand that being away from your home country for a certain amount of days may not be enough to change your tax residence because of one simple question: Where is your centre of life?
“Being away from your home country for a certain amount of days may not be enough to change your tax residence”
Where is your home if you must pick one?
Do you have a tenancy agreement or own an apartment? Have you ever changed your tax residence to another country? Where do your kids live? It is becoming increasingly common for these questions to be asked by the government even after fulfilling the 182 days. If you cannot prove your real centre of life, you may be forced to pay back taxes to your home country.
But it can be done if you have the right plan. There’s no one size fits all tip because every person and every country is different. The following are the factors to pay attention to: where you are from, where you are living now, where is your bank, what is your work and how much time you spend in your home country. It is extremely important to structure things correctly in order to avoid getting caught up in a situation where, a few years down the road, your tax man comes in and asks for money that you never thought you owned.
“The following are the factors to pay attention to: where you are from, where you are living now, where is your bank, what is your work and how much time you spend in your home country”
Make a clean break.
If you really don’t want to pay taxes in your home country, you need to make a clean break. Create your new home somewhere else, Thailand or Hong Kong for example, or somewhere that you would also want to invest in a physical residence. The bonus is if these places offer favorable tax breaks or are running special programs to attract expats. You need to prove that you aren’t another digital nomad that is just trying to avoid paying taxes. You need change your centre of life. At least, the banks and governments need to officially see that you have change your tax residence because your life itself has changed.
There are many advantages of having a real home. Working from a physical space can actually boost your productivity – jumping from hotels to hotels can be tiring after a while, despite the fun to travel. Business contacts would only take you seriously if you are a reliable person, that’s why the base is so important. So, know before you move to a new country: plan and choose properly. Bear in mind that just because you are liable to pay tax somewhere doesn’t mean that you actually do pay (a lot of) tax. Your new country offer a low tax rate, like in Hong Kong, or maybe you are exempted because your income is offshore. For example, in Thailand you are exempted from paying taxes if you make less than 150,000baht per year. Whatever it is, speak with your advisor and understand your options before you pack your bags!