Digital Nomad Tax: Here is how to legally have a solid setup with
- online banks
- safe banks (assets are safe)
- and 0% tax
Introduction: Digital Nomad Tax
There are many rumors going around about how much digital nomads really have to pay tax – some pay
- 50% in their home countries,
- some 30% in their new home country and
- some others even 0%.
Let us clarify this topic once and for all.
As a matter of fact, it depends on various factors such as:
- Your residency (not nationality! – read: where you live more than 6 months per year)
- Your nationality (read: your passport)
- Your company’s residency (where is your company based)
We will discuss each of these aspects one by one.
Digital Nomad taxes: The two tax types to consider
You basically have to consider two type of taxes:
- Your company taxes: These can be corporate and VAT taxes.
- Your personal taxes: These are taxes on what you pay yourself (this depends on residency and nationality – the latter only for US citizens) – these can be dividend and income taxes.
We will go through a few examples to understand how taxes breaks down into each categories
Digital Nomad Tax: 2 use cases
Let us go through different examples of digital nomads who pay very different taxes.
German Digital Nomad Tax: Online-Marketer from Germany
Meet Max from Germany (passport from Germany).
Profile
Let us quickly run through his profile:
- Nationality/Passport: Germany
- Residency: No residency (In Thailand, Malaysia and
- Company residency: Germany (GmbH which is similar to a limited liability company)
- Annual revenue: 150k Euro
For simplicity, let us suppose his revenue is also his profit (as he is a freelancer) and the above revenue is already after deducting the VAT tax of 19%.
Tax Analysis for digital nomad Max
We will discuss both company and personal tax.
Company tax:
His company is based in Germany, this means the following:
| Tax type | Percentage | Amount |
| Körperschaftssteuer | 15% | 22.500 Euros |
| Solidaritätszuschlag | 5,5% | 1.237,50 Euros |
| Gewerbesteuer (corporate tax) | approx. 14% | approx 21.000 Euros |
| Total | approx 30% | approx 44.737,50 Euros |
This means that his profit after tax is around 105k Euros.
Let us talk about personal taxes:
If he wants to use the profit for his personal use, he has to pay himself.
There are two ways to do this: Either dividends or as an income.
But dividends are being taxed around 26% in Germany regardless of where the business owner lives. Income will not be taxed in Germany though if he does not live in Germany.
So he chooses to pay himself an income and as he is a dividend nomad this income is not taxed anywhere else in the world.
Result: He has 105k Euros per year.
Optimization strategy for digital nomad Max
The only way to optimize this at this point would be to have his company outside of Germany (if his clients don’t mind this).
If he travels around the world and has no residency both a US LLC or a Hong Kong LLC can work well for him. If long-term he wants to settle somewhere a Hong Kong LLC may be more beneficial and more adaptable.
Further reading:
Read more about the differences between a Hong Kong LLC and a US LLC.
Australian Digital Nomad Tax: E-Commerce owner from Australia
Meet John from Australia (Australian passport):
Profile
Let us quickly run through his profile:
- Nationality/Passport: Australian
- Residency: Lives 9 months in Thailand (4 months in Australia for visiting family)
- Company residency: Hong Kong
- Annual revenue: 2 Million Australian Dollars
Tax Analysis
As John neither lives in Australia nor has a company in Australia, he basically does not have to pay any taxes in Australia (except VAT taxes if selling to Australian customers).
Let us look at this company taxes:
His company is based in Hong Kong and he has no Hong Kong companies and also no employees on-site or suppliers.
This means he pays 0% corporate tax in Hong Kong under the offshore tax label.
Further reading:
Read how we help our customers to grant the label of an offshore Hong Kong company and pay 0% tax.
If you also like to see whether an offshore tax label is possible for you under a Hong Kong company, feel free to book a call with our legal tax team (we don’t use any expert words when talking – promised! We talk such that everyone can understand).
Personal taxes:
As he lives in Thailand and due to Thailand’s territorial tax system (only income that is generated in Thailand or brought into Thailand will be taxed) his income from his Hong Kong company will not be further taxed.
Unlike the US, Australia does not tax John based on his passport.
Only the US taxes citizens even if they have no residency in the US:
Result: He is taxed at 0% and thus, he takes all of his profit home or can further invest it through his Hong Kong company.
Optimization strategy
There is not much more to optimize here in terms of taxes.
A tip to business owners with 6 – to 7-figure income would be to neither keep the money in their company bank account (because in terms of a legal dispute that money can be liable) nor in a personal bank (if living in a South East Asian country due to bad banking infrastructure there).
So, we usually recommend to open another Hong Kong company that is shareholder of the first Hong Kong company (that writes invoices to clients).
We call these companies: Company 1 writing the invoices is the operational company and company 2 that is the shareholder of the first one is the holding company.
The operational company injects all the profit at the end of the year to the holding company and the holding company has only two goals:
- protecting the asset/money
- investing the money into stocks
Further reading:
Read more about how to open a Hong Kong holding company as a foreigner.
If you want to see how this can be implemented for you specific situation and whether it makes sense at this moment of time, book a call with our legal team (it is paid, but you get 6 years of knowledge served in an hour).
Digital Nomad Tax: How to make your setup
Before making the idea setup you should ask yourself:
What is your current problem and what are you hoping to solve?
Let us suppose we want to just simply optimize taxes.
Then ask yourself the following questions:
Digital Nomad Tax: What type of contract do you have?
Are you currently
- an employee (or remote worker – employee that works from home),
- a remote worker or
- a self-employed person (freelancer, business owner)?
If you are the first, can you convince your employer to write invoices to them each month instead of being employed?
Digital Nomad Tax: Where do you want to live?
The second question is where you want to live:
- Do you want to live at one place permanently (or more than 6 months a year)?
- Do you want to move places at least every 6 months (digital nomad)?
For the first one, depending on where you live the right company setup needs to be analyzed and whether a Hong Kong company can be a good solution for you.
We will soon publish a list of countries of residency where the local laws work well with a Hong Kong company. Until then you can book a call with us and we see whether we have similar clients with similar residencies in our portfolio.
Digital Nomad Tax: Where do you want your company to be?
On the one hand this depends on where you want to live (to find the right tax structure for you), on the other hand it also depends on your clients to see whether they accept invoices from other countries.
For the latter, you can also have an interface company (that writes invoices to your client) and a holding company in the back where you pay yourself out.
This way you have fulfilled your clients requirements and can also tax-optimize it.
Further reading:
We have explained this with the example of a US LLC and a Hong Kong LLC combined together.
Digital Nomad Tax: Checklist
We have a set of questions ready for you that you should answer and think about prior to going into further detail:
- Where do you want to live (nomad vs. permanent location)?
- How do you want to live?
- Who are your customers (B2C vs. B2B)?
- Where are your customers located?
- What should happen with the earned money (partying vs. investing)?
To answer these questions for a timeframe between 5 to 10 years gives us the possibility to think about a valid setup (that can make sense). Below 5 years a setup may not be worth the effort, time and energy.
We can help you how to optimize taxes and get most out of your money. But we cannot help you how to live happily – that only you yourself can know.
Once you know this, book a call with us and we guide you through the legal jungle.
