Digital nomadism has become a new norm in the world of work, as countries continue to adopt new legislation allowing workers to travel and settle temporarily. It is an immensely appealing route to go down for workers in search of something new – but one of the key roadblocks to taking the plunge comes in the form of managing tax.
Are Digital Nomads Tax-Free?
For some, part of the allure of digital nomadism might be the perceived ability to take more home from each role, contract or commission. The borderless approach to both living and working might lead some to the conclusion that digital nomadism is a tax-free venture, but nothing could be further from the truth.
For one, government tax systems are not altogether dumb. HMRC can ascertain your tax obligations with relative ease, and attempts to shirk any potential obligations – even unwittingly, through a misunderstanding of how digital nomadism works – can amount to tax avoidance.
It is also the case that new technologies have enabled more liaison between nation states, creating a global ‘tax network’ that catches even the most fervent of globe-trotting workers. Typically, a digital nomad is determined to have a centre of interests, or a jurisdiction to which they are obliged to pay tax. However, for the digital nomad that lives and works globally, the situation is a little more complex – but their obligation to pay tax somewhere no less existent.
Keeping Track
As a freelance sole trader from the UK, keeping track of your tax obligations can be as simple as it would be living in the UK domestically – something that we will touch on later. However, for a digital nomad working in a wider sense, running a business or in possession of a more complicated work and living arrangement, it is essential to build systems to keep track of both income and tax obligation.
Consultation with the right third party can help those new to digital nomadism navigate the complexities of international tax law. For the majority of digital nomads or aspiring nomads, tracking payments and tax obligations can be as simple as ensuring all money comes through a single channel. A global service like PayPal is a solid option here, and can also handily map out where in the world the money is coming from.
Where to Pay Tax
The prevailing question, then, is where to pay tax. There are some legally and ethically dubious options that certain nomads are willing to try, such as reaching for non-resident status and hence avoiding any tax obligations, on account of being stateless. However, the amount of logistics this requires can often outweigh the benefits, while any planned end to their nomadism would inevitably invite scrutiny from their next nation of residency.
The simple solution is to retain residency with one nation, and hence pay tax on income via that nation. It may be possible to attain residency in a low-tax country, but keeping a residency in the UK can make it much easier to declare and pay tax overall.
