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Tax Considerations as a Digital Nomad: The Good, the Bad, and the Blurry

Tax Considerations as a Digital Nomad: The Good, the Bad, and the Blurry

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In a society where technology continues to surpass all of our expectations, it’s no surprise that the idea of what’s considered to be “normal” has changed significantly. From how we interact to how we live, the world is challenging boundaries that previously seemed cemented in place.

Take the rise of digital nomads for example. While historically, not everyone has been suited to a 9-5 job in a set location, the alternatives to this way of life have been limited up to now. However, with a shift towards a more global society and significant advancements in communication, today’s workers can hold down a perfectly stable job from anywhere in the world.

But what exactly should remote workers be aware of when it comes to taxation? 

Even though digital nomads set out to avoid associating themselves with any one location, the reality is that tax liability is not something that can be ignored. Even in a “global community”, local economies tend to take an interest in who you’re paying your income tax to.

While some countries have begun trialling new ‘digital nomad visas’ to simplify tax matters for visiting workers, digital nomadism is still a relatively ambiguous topic in terms of taxation in Ireland. 

To help you get to grips with the idea of working abroad (either as an Irish resident going abroad or as a foreign worker exploring Ireland as a destination), we’re here with some things to be aware of. 

Let’s get started.

As a digital nomad, should I register as a business entity?

While some employers have embraced the potential to have a worldwide team, others are reluctant to adapt their tax obligations to suit individual employees. With significant red tape and risks associated with miscalculated returns, Irish employers often suggest that employees become contractors if they wish to carry out their duties from abroad. This is an area that warrants consideration in the context of Revenue’s Code of Practice for determining self-employment.

If an individual decides to incorporate a personal services company then the good news is that as a country, Ireland has one of the most favourable tax systems for businesses in Europe. For example, limited companies can expect their profits (after expenses) to be taxed at 12.5% — known as Corporation Tax.

However, with extensive paperwork required for setting up a limited company in Ireland and a separate company secretary also necessary, individuals often offer their services initially as a sole trader

However, as your tax obligations can depend on the locations you want to travel to, as well as the country you’re coming from, you’ll still need to speak directly with a tax specialist to fully understand your tax liability.

Tip: As a sole trader, all of your earnings (minus expenses) are taxed as income. This is why before registering, it’s good to speak with a tax expert to gain clarity on your situation.

What are my tax obligations as a digital nomad leaving Ireland to work abroad?

As our founder Stephanie Wickham recently discussed in an Irish Times article, when leaving Ireland to work abroad, it’s vital to look at your tax obligations from both sides i.e. the Irish side and the foreign side.

Stephanie discusses that according to Revenue, if you have been tax resident in Ireland for three consecutive tax years, you become ‘ordinarily resident’ from the beginning of the fourth tax year. If you leave Ireland after this time, you continue to be ordinarily resident for three consecutive tax years.

During these years, you must pay Irish tax on your worldwide income — with the exception of income that:

  • Comes from a trade or profession (no part of which is performed in Ireland)
  • Comes from an office or employment (where all the duties are performed outside Ireland)

Other foreign income such as investment income (if it is €3,810 or less) can also be exempt from Irish tax. 

If Irish tax is not owed on your income from remote work, it’s crucial to understand that this does not mean that tax is not owed. It just means that where your tax is owed will be subject to investigation based on your personal circumstances and the country in which the work is carried out.

What if I’m not ready to commit to the digital nomad lifestyle, but still want to try out working abroad?

Understandably, committing to a life of moving from country to country isn’t something to step into without doing your research first. This is why before leaving behind a life in Ireland for the likes of Spain, Australia, Thailand, or even Costa Rica — it can be a good idea to ‘test the waters’ before taking the leap.

The great thing about this is that if you’re planning a return to Ireland within the same tax year, your tax obligations will be a lot more straightforward.

For example, in Ireland, tax is calculated based on the number of days a person spends in the country. 

To be considered a resident in Ireland for tax purposes, you generally need to be present in Ireland for:

  • 183 days or more in a tax year

or

  • 280 days or more in total (taking the current tax year plus the preceding tax year together)

This means that if a remote worker spends more than 183 days in Ireland in a tax year, they will still be considered an Irish tax resident and will be required to pay tax on their worldwide income to Revenue.

Note: It’s important for digital nomads to keep track of their days in Ireland and abroad to avoid any unexpected tax bills.

Can a digital nomad benefit from tax relief in Ireland?

While your exact tax situation will depend on your unique circumstances as a digital nomad, there are certain ways to minimise your tax liability with tax reliefs and deductions. However, as with all tax matters, it’s vital to never assume tax entitlements or any other factors that might affect the final amount you need to pay.

That said, some common tax reliefs and agreements digital nomads may benefit from include:

  • Deductible expenses if operating as a sole trader e.g., rent for offices or co working spaces, equipment, travel costs
  • Relief under a Double Taxation Agreement (DTA) — a DTA is an agreement between two countries that helps ensure tax is not paid twice on the same income (Find out more here)
  • Split year treatment — a relief which exempts foreign employment income from Irish tax in the year of arrival/departure (conditions apply, as always)
  • Remittance basis of tax (RBT) — this taxation can apply to those who are resident in Ireland but are not considered to be domiciled here. To find out more, we have an entire blog dedicated to the topic

To find out what other benefits or agreements might be relevant to you, contact a tax professional directly.

What tax mistakes can I avoid as a digital nomad?

As widespread as taxes are, you’d be surprised by how differently governments can approach tax and related topics. Especially when everyone’s situation is different, it can be difficult to tell how the money you earn abroad will be viewed in different jurisdictions.

This is why we advise:

  • Never taking tax advice from those who aren’t experts in their field — while friends or local people can offer some good insights, the only way to mitigate the risks associated with tax liability is to speak directly to locally experienced tax professionals
  • Ensuring you are aware of all tax return dates that apply to you or your company (for Irish tax deadlines, details can be found here)
  • Keeping accurate records — it’s important to keep accurate records of your income and expenses, as well as any receipts or invoices. This will make it easier to file your tax return and claim any applicable deductions or credits

It’s also good to remember that as a digital nomad, you might not have the same access to entitlements as ‘ordinary’ employees. This can include everything from health insurance to retirement benefits. To ensure you get the cover you need, always do your research before you travel and have a clear plan in place for the future.

How Expat Taxes helps digital nomads get their taxes in order

As with any new job or life phase, you want to feel excited about what’s to come. However, with tax headaches putting a damper on proceedings, it can be difficult to visualise the true benefits of working remotely.

This is why at Expat Taxes, we specialise in working with digital nomads who:

  • Are ordinarily resident in Ireland but are no longer tax resident
  • Need to determine their Irish tax residency position
  • Want to clarify their exposure to Irish taxes

In helping you relieve tax worries, we enable you to focus on other aspects of your new adventure and ensure your life as a digital nomad isn’t overshadowed by unexpected tax implications. 

To get targeted advice from our expert team, book a consult today or contact us to find out more. 

DISCLAIMER The material in this article is for general information purposes only and does not constitute legal or taxation advice. Specific legal and taxation advice should be sought before acting or refraining to act. All information and taxation rules are subject to change without notice. No liability whatsoever is accepted by Expats Taxes for any action taken in reliance on the information in this article or any of the articles in our blog series.