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Country of residence for Digital Nomads

pdukatz
Ace Contributor

Upwork has changed their fees for Europeans, adding VAT now. 

When I signed up, I was a resident of Germany. In the meantime, I transitioned into being a Digital Nomad. I unregistered in Germany and I am now a so called perpetual traveler, switching location every three months.

Two things:

1. How am I even supposed to switch my location here if I can't really prove it with an updated ID or something like that?

2. I don't see why I should pay VAT if I am not even an EU-resident anymore. 


I strongly urge Upwork to give advice as they always seemed to promote the Digital Nomad development and now they seem to make it so much harder. Please advise immediately.

Philipp

61 REPLIES 61
jmeyn
Community Guru

@Petra R wrote:

YES! Such as "They pay their taxes!"

 

Petra, probably a very absurd idea not only for many Digital Nomads but also for many multi-national corporations. Some hording billions outside the US and not willing to bring them into the US because then they would have to pay taxes on their earnings. Taxes they avoided or minimized in other countries already. I don't even think it strange that this are the same corporations that let people work under conditions that are close to slavery.

 

marciamalory
Community Guru
Being "legally allowed to be in a country" is not a one size fits all situation. You can be legally allowed to be in a country as a tourist, for a short amount of time, to work, temporarily, on a particular job or project, to work, temporarily, for a company that has international offices, as a permanent resident, after fulfilling various residency, tax and other requirements, or as a naturalised citizen.All of these have different rules and obligations.
marciamalory
Community Guru
FYI, if you are a US Citizen, you are taxed based on citizenship rather than residency, so it doesn't matter where you are living. (Although you can probably take deductions/ exclusions to avoid being taxed twice on the same income.)

@Marcia M wrote:
FYI, if you are a US Citizen, you are taxed based on citizenship rather than residency, so it doesn't matter where you are living. (Although you can probably take deductions/ exclusions to avoid being taxed twice on the same income.)

Yes, if there is a corresponding agreement between the two countries. 

Marcia cites a large number of factors which make things complicated for determining one's work eligibility and tax status when one travels to or lives in other countries other than the country one is a citizen of.

 

One of my main points is that Upwork contractors should NOT ask Upwork to determine their tax obligations and legal status for them. Upwork doesn't want to answer those questions and Upwork can't accurately answer those questions even if you ask them. You can ask your questions in the Community Forum. Just be aware that the answers you receive here may be absolutely accurate, or they may be completely incorrect, or they may fall somewhere in between.

 

Another one of my main arguments is that having arcane restrictive laws that don't reflect real-life technology can work against a country's own interests.

 

If a person wants to go on a lengthy vacation somewhere and do some online work while there, and that person feels welcome in one country and feels un-welcome in another country, that person is likely to go to the welcoming country. And that person's tourist dollars are going to the welcoming country as well. So it makes sense to be the welcoming country that likes tourist $$$, rather than the un-welcoming country that suggests a person can't answer some emails from clients or write a blog aticle while staying at a hotel on the beach.

 

Also, let's be practical. How are countries going to monitor a lot of this? If a country allows travellers to legally enter the country and work on laptop computers or tablets or whatnot while there, how do they know if somebody is emailng their friends back home, or emailing clients and getting paid for it? They really don't know. And most countries don't want to be so Big Brother about it that they try to figure this out.

 

So basically people are on the honor system for a lot of this. Even the most law-abiding people don't want to travel and be told they can't work online while travelling. I think laws that would criminalize working online while travelling are short-sighted and impractical. It makes more sense to have practical laws that allow for online work by non-citizens in a way that is mutually beneficial for a country's own citizens and economy, as well as for the visiting Digital Nomads or ex-patriots or tourists.

Hi there 🙂 i'm not digital nomad myself but I travel alot for approximately 3-4 months and then return to my country of residence ( Russia) Sooo... I have one question : should I change my location for that 3-4 months ? I'm wondering if my Payoneer and upwork account can be suspected if I dont change my location?  I dont travel to usa or uk but mostly to asia so I dont violate any laws. I just dont want to be suspicious 🙂 

This is an interesting topic, but I think Preston has the right of it.

 

UpWork really doesn't want to be in the middle of this, and would prefer to provide minimal to zero guidance about anyone's tax obligations except in situations where they have a legal duty to do so.

 

One thing US citizens seem to forget in this discussion though, is that not all countries are income tax heavy.  In the US the bulk of taxes comes from income tax, and the IRS frowns on people who play fast and loose with income tax filing/rules.

 

For other countries, the bulk of the government's tax revenues come from what we refer to as "Sales Tax" in the US.  So roads, schools, policemen are paid for on the tax the government levies on goods people purchase.  The government has moved the tax compliance burden to business-owners as opposed to individuals.  Every legal business has a TAX ID, the government can keep better track of revenue even in countries where not everyone has a government ID.  So travelling to these countries, whether on a tourist visa, or a business visa, and irrespective of whether you have explicit permission to work in country, the tourist is contributing both to local business and to the government's coffers.  They are paying for the roads, and the police each time they buy a loaf of bread, or buy some wifi at the internet cafe, or rent a room in a hostel. Also (and while this is a nitpick it's a necessary one nonetheless) the definition of employment differs from country to country. In some countries administrating one's business is allowable on a tourist visa.  In others, I expect that would meet the definition of work and be verboten.

 

(For example, if I am in Thailand and servicing my clients in the US, I find it difficult to understand how I could be running afoul of Thailand's employment laws, given that I am neither working for, nor hiring any, Thai citizens/residents to work for me, although I do concede that may in fact be the case.  The law is not always logical.)

 

Definitions tend to be codified, and it's up to the individual to either look them up, or pay someone to do so and advise them on their rights, and expected compliance.

 

That said, it really is up to the individual to keep abreast of their own tax/legal obligations.  I know very little about law outside the US, but I doubt that ignorance is a defense in too many countries.  I can't imagine many countries allow you to escape penalty merely because "I didn't know I was supposed to do that".

 

As someone who travels frequently, and is always working because I don't really know how to not work (when I think of a good idea and jot it down to follow up later is that really working?  Researching for a white paper on my tablet in the hotel bar-- work?  Writing a brief?  Surfing the internet hoping for an idea for a potential article?) I never change my country of residence.

 

Irrespective of where I am at a given moment, I live somewhere.  I have a residence.  That may be the answer to many of the questions here.  I don't think UpWork is asking for your location, so much as where you live, so they can comply with regulations/laws in force there.  In my personal situation, my residence means wherever I am in the world, I'm required by law to pay taxes on my income (absent breaks and deductions) and I'm not smart enough, or rich enough to hire an attorney to do some complicated (but totally legal if not quite ethical) tax avoidance scheme.  I just give the tax man what I understand to be his due, and if he disputes that, then I give him what he understands to be his due instead.

 

Much less work for me that way, with more time available to earn and save money.

 

 

 

 

I don't think Upwork cares about digital nomads, provided they don't nomad in Europe. The ToS do say that you are responsible for your own tax declarations.

 

Some rich people - B & M people are real nomads and do not live for longer than six months in any one country for precisely this reason.  This new VAT only applies to those freelancers who are resident and working in countries that are members of the EU.

 

As  matter of interest Upwork, what about those people who live in Monaco or Luxembourg? Just askin' . . .  😉

Anonymous User
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@Nichola L wrote:

 

 

As  matter of interest Upwork, what about those people who live in Monaco or Luxembourg? Just askin' . . .  😉


 Monaco is not a EU member. Its rich residents will smile at Upworker's problems. Luxembourg is EU member. Therefore the EU VAT regulations have to be applied.


@Margarete M wrote:

@Nichola L wrote:

 

 

As  matter of interest Upwork, what about those people who live in Monaco or Luxembourg? Just askin' . . .  😉


 Monaco is not a EU member. Its rich residents will smile at Upworker's problems. Luxembourg is EU member. Therefore the EU VAT regulations have to be applied.


 I reckon she meant Liechtenstein 😉

My reference to Monaco was ironic. I have three friends who work from and recruit on Elance (thinking about Upwork) from Monaco. Not everyone is rich there, and they do pay VAT.

 

 I did not mean Liechtenstein, I meant Luxembourg - an interesting place when it comes to business and VAT.

 

😛

Economists have observed that tax compliance increases as the ease of filing increases, which is very logical.

 

Another observation, which is a fact and not a philosophical argument one way or another, is that tax systems experience diminishing returns as tax rates increase. Looking at overall data, there is a certain "sweet spot" at which tax rates and tax compliance maximize the percentage of tax revenues actually generated compared to tax revenues officially mandated. Beyond that "sweet spot," that percentage decreases, and the rate of increase in tax revenue slows dramatically.

 

The precise numbers and precise "sweet spot" for maximizing revenue is different for each country and taxed type (individual income tax, corporate tax, sales tax, etc.). But the general concept applies.

 

Both legal and non-legal tax avoidance are factors in this.

 

For example, the United States has an extremely high corporate tax rate. As a result, many countries have legally moved their headquarters to other countries, including a number of European countries, with low corporate tax rates.

 

So this curve is observed in both places: The United States has a higher corporate tax rate, yet lower revenue because the rate is far above the optimal "sweet spot." Conversely, countries which have become the legal headquarters of many U.S. companies by maintaining a low corporate tax rate have higher overall revenues than they would have had if they had a higher tax rate.

 

The entire wealth managment industry is predicated on these principles.

A lot has been said in this thread about "Digital Nomads," suggesting that they are travelling to and working from other countries in order to avoid taxes.

 

I'm sure this is true in some cases, but I don't believe this the only reason why Digital Nomads are doing what they do.

 

I'm sure there are Digital Nomads who travel to different countries and work from those countries purely for life styles reasons: Because they want to travel and live in other countries.

 

There are probably some who want to travel, and that's their primary motivation, but they choose destination countries, in part, in order to maximize their revenue or minimize their taxes.

 

All of which can be done legally, illegally, or without regard to laws AND ethically.

 

The fact that it is possible for people to travel to another country and work legally, including being in compliance with all applicable tax laws, is not in dispute.

 

I suppose whether or not it is ethical for a person to travel to another country and work is a matter of opinion. My own opinion is that this is totally fine! (But I'll respect those who disagree.)

 

Without actually talking to an individual Digital Nomad, I doubt there is any way to know, based on what country she is from or which country she is currently living in, exactly why she is doing what she is doing.

I don't think "digital nomads" are always intentionally try to avoid taxes; I think they often just don't know. As an American expat, I find it amazing how many people can leave the country and not even bother to research what they are supposed to do about taxes. Then, after living abroad for years, they read on the internet somewhere that they were supposed to have been filing taxes with the IRS all that time and they go crazy with worry.

Here is (more of) my personal opinion on this matter:

 

According to a recent Slate article specifically addressing the question of how many pages long is the U.S. federal tax code, the actual length is 2,600 pages long. Some pundits say it is 70,000 pages long, but the Slate article explains why this is inaccurate. Nevertheless, 2,600 pages is a very, very long document.

 

Purely based on the unmanageable level of complexity of tax code and tax law, I do not believe it is physically possible for any Digital Nomad to file a federal tax return that indisputably complies with all points of the tax code.

 

I believe that no matter who a Digital Nomad consulted to help prepare their taxes, that there will always be other tax experts who would say that her filing either failed to comply with all applicable regulations in exactly the proper way, or failed to take advantage of all intended write-offs and as a result, she was paying too much.

 

I believe that the tax code and how federal regulators including IRS agents interpret and apply the tax code is NOT universally consistent. I believe, in fact, that there are internal inconsistencies in the sum total of written tax code and its application that make it virtually impossible to comply with everything part simultaneously violating some other part.

 

I simply don't believe that anybody can ever be sure that they are correctly following a list of rules that is 2,600 pages long.

 

Does that mean that Digital Nomads should NOT pay taxes? No, I am not saying that.

 

I AM saying that Digital Nomads should not worry TOO much about getting their tax returns "exactly right," because it is impossible know if they have ever done so.

Preston,

Oh, man, I've never seen such a wide-open invitation to a reductio ad absurdum, on the brink of which you seem to be teetering.

Why stop at digital nomads? Why doesn't your logic apply to the rest of us? "Hey, it's OK, IRS. I meant well. But as Preston points out, 100% compliance is impossible."

Best,
Michael

sarinebelle
Ace Contributor

Popcorn, anyone? Smiley LOL

re: "Why stop at digital nomads? Why doesn't your logic apply to the rest of us?"

 

Of course this logic applies to many others. Perhaps even everybody.

 

I embrace the notion of putting forth reasonable effort without ever assuming that it couldn't be done a different way, and without ever assuming that anybody can know all there is to know on the topic, including all that is applicable to one's own returns.

 

I don't know how many people believe otherwise. I assume that many people share my lack of faith in massively complex tax codes that they will never be able to fully understand.

Preston,

 

Whether there are 2600 pages of tax law and regulations, or 26,000, or 26, one's obligations remain the same. No individual needs to know the tax code to file a return or pay taxes, or to have a reasonably accurate sense of one's obligations.

 

Modern tax filing works like differential diagnosis. The minute you answer the first question from your accountant, or from your tax software, hundreds if not thousands of inapplicable pages of laws and regulations vanish from your case. Continue stating the facts till you have a return, which will comply as far as anyone can reasonably expect with any applicable laws and regulations.

 

There's quite a bit of distance between, on the one hand, inquiring into what I have to do and taking reasonable steps to comply, and on the other reading and/or understanding the entirety of tax law—let alone throwing up my hands and exclaiming "I don't know nuthin' 'bout payin' no taxes!"

 

Best,

Michael

Michael,

I think you provided an excellent description of what I would regard as a reasonable effort to file taxes.

 

I think this is what most people do: Most people make a reasonable effort, using steps similar to what you describe here, whether on paper or using software, and leave it at that.

 

I don't see anything in your post that I disagree with.

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