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Country of residence for Digital Nomads

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51 of 62
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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.

petra_r
Community Guru
Petra R Member Since: Aug 3, 2011
52 of 62

@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 😉

colettelewis
Community Guru
Nichola L Member Since: Mar 13, 2015
53 of 62

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.

 

😛

prestonhunter
Community Guru
Preston H Member Since: Nov 24, 2014
54 of 62

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.

prestonhunter
Community Guru
Preston H Member Since: Nov 24, 2014
55 of 62

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.

marciamalory
Community Guru
Marcia M Member Since: Apr 3, 2013
56 of 62

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.

prestonhunter
Community Guru
Preston H Member Since: Nov 24, 2014
57 of 62

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.

researchediting
Community Guru
Douglas Michael M Member Since: May 22, 2015
58 of 62

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
Maria Criselda E Member Since: Sep 25, 2015
59 of 62

Popcorn, anyone? Smiley LOL

prestonhunter
Community Guru
Preston H Member Since: Nov 24, 2014
60 of 62

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.

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