As a result of the pandemic, a growing trend has been consolidated in recent years: the concept of the digital nomad. In other words, a natural person who works remotely while changing residence on a regular basis to “see the world”, de facto avoiding the formal and/or fiscal requirements of most countries.
The digitization of the economy has made it possible to develop new business models that often require little or no physical presence in the country where customers or consumers are actually located.
There are more and more professionals who value the possibility of exercising their work remotely and the idea of doing it while traveling is drawn as a possibility (depending on the profession, of course, one will not go to the podiatrist by zoom). Remote workers who have worked online during this long pandemic have also been found in this situation.
Such a situation can occur as a result of personal decisions, a lifestyle or as part of a premeditated strategy to evade taxes, the latter option that we do not recommend.
In this article, we talk about income taxes, not consumption taxes such as VAT that are accrued at the time it is consumed.
Where does a digital nomad pay taxes?
The basic criteria for where a person should pay taxes depends mainly on these criteria:
- Citizenship: nationalities such as the United States or Eritrea require the payment of taxes in the country regardless of the person’s tax residence.
- The Tax residence.
Tax residence (where I pay) should not be confused with civil (where I live). Although they commonly coincide, this is not always the case, especially in the case of digital nomads.
To establish tax residence there is a general or common rule. Although some countries have agreements to avoid double taxation (CDI) with some special rules:
- Country in which a permanent home is available
- Country where the center of vital interests is located: This is the place where you have the most ties: residence of spouse and/or descendants, source of income,… ..
- The 183 day rule, the time you spend in a given country is the most well-known and thorny factor.
Note that the rule that “everyone” knows is the last one.
It should also be taken into account that in 2021 as a result of the pandemic, the OECD qualified the 183-day rule to consider the possibility of people who were “trapped” in a country or those who temporarily moved to online working. Criterion that the General Directorate of Taxes will accept in a binding resolution pending publication.
Is it possible not to pay taxes in any country as a digital nomad?
We can first try not to activate any of the prerequisites, but this is only possible if we really live as nomads in all facets of our life, our house, the returns we get, our family, etc.
Another possibility is to have effective tax residence in a country with a “friendly” tax regime. But beware! Most countries (including Spain) have anti-circumvention rules in their laws that specifically exclude tax havens from most tax exemptions.
It should be noted that, in general, most income is taxed at source unless a CDI allows exemption. In other words, even if you live in Panama, if your income comes from Spain, the payer may have to make deductions.
Furthermore, it should not be forgotten that most CDIs tax certain income at source. For example: those from real estate
Double tax treaties, your allies
If you choose to establish your residence in a specific country, it is important that you verify that there is a double taxation treaty with Spain, otherwise, you may see yourself paying taxes in both.
In addition, the agreements establish mechanisms for the resolution of disputes when both countries intend to establish tax residence in their territory, as well as specific rules to establish it.
Do I have to give notice that I am not a tax resident?
Yes, model 036 serves precisely to ensure that we keep our data up to date with the Treasury, if we reside in another country through this form we can notify our address there, a good practice that shows the Treasury that the transfer is not for fraudulent reasons.
It is also prudent to request the Tax Administration of our new home to provide us with a certificate of tax residence in that country, to be able to provide it at any time.
Our recommendation, if your life is aimed at living or working in an international environment, seek professional advice that can advise you and help you when it comes to managing your income as a non-resident and avoiding problems in the future.
We can help you clarify or change your current tax situation, do not hesitate, contact us.
Photo by Peggy Anke on Unsplash
