
Ask HN: Digital nomad taxes – which country to pay in? - SoftwarePatent
If an American lives in one country (e.g. Spain) while working for an American startup and being paid in US dollars, should he pay taxes in the US or Spain, or both?<p>In Europe the national health care systems are tied to paying taxes in a country. How are nomads dealing with health insurance?<p>I&#x27;d really love to be completely above board w&#x2F;r&#x2F;t taxes and have health insurance, but all the advice I find online either sounds made-up or is &quot;consult with your accountant&quot;. If I had an accountant I wouldn&#x27;t be searching for this info!
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patio11
This depends on how nomadic you are, what the laws of your host nation are,
whether you're prioritizing tax burden or access to services, etc.

1) US citizens have unambiguous legal requirement to file and pay US taxes
wherever you live.

2) The Foreign Earned Income Exemption will excuse you from taxes on the first
90k or so of profits, though not self-employment taxes. This makes it
advantageous for many Americans to file and pay US only. This may or may not
be kosher under laws of host country -- treatment of immigrants with unique
situations varies WIDELY, sometimes even between clerks at same office.

3) You get a dollar for dollar tax credit against US taxes for foreign taxes.
If you live in a high-tax country like most of Western Europe or Japan, you
may choose to file and pay locally then take the foreign tax credit to
extinguish your US liability. This is often useful for services/immigration
status/etc. Foreign Tax Credit can't be double-applied over FEIE, so in
practice only matters if you have high income or you generate capital gains
(not subject to FEIE generally).

4) Read those tax treaties! Get competent pro advice! I overpaid US taxes by
$10k prior to finding a single piece of paper existed that excuses Americans
in Japanese Social Security from US self-employment tax. Front-line clerks in
both countries were ignorant of it. (Edit: On the chance that there's one
other self-employed USian here who or on a future Google search wondering how
to demonstrate status under the US Japan Social Security Totalization
agreement, where that status means because you're paying Japanese social
security taxes either personally or through your employer then you don't have
to pay US self-employment taxes or social security or medicare, the answer is
ask for a J/USA 6 form from your local Japanese social security office. If
they don't believe that exists, they're wrong -- have them call the
International Affairs Desk at the (national) Social Security office -- we
literally had to get word directly from the mouth of the 年金局の国際年金課長.)

~~~
gsb
Relating to #3, if you expect to be overseas long term and you are in a
situation where foreign tax credit will cover your US tax liability, it can be
advantageous to use the foreign tax credit instead of the FEIE even if your
income is less than the ~100k FEIE limit. This is because the unused credit
can be rolled forward and used as a buffer for cases where you do something
tax-advantaged in your country of residence which is not honoured by the IRS.
Most commonly this could be capital gains on the sale of a primary residence
which is tax-free in many countries but only partially so in the US. But there
are many other such possibilities, like retirement savings not covered by
totalization agreements, special treatment for redundancy payouts, lump sum
retirement payments, etc. There is this general idea that tax agreements
eliminate double taxation, but they only do so imperfectly because the
legislation is tailored for people temporarily working overseas, not people
who make their home overseas.

These cases are perhaps not relevant to the typical digital nomad when they
set out, but things happen and you may choose not to return to the US. In
those cases, it is good to have chosen to file your taxes in a way that
maximises future choices.

In my view the FEIE should only be used if you KNOW you will go back to the US
soon and want the easier filing it provides, or if your foreign tax credit is
simply not enough.

------
hluska
> but all the advice I find online either sounds made-up or is "consult with
> your accountant".

There is a reason that so much of the advice is 'check with your accountant'
\- the U.S. tax system is incredibly complex and the IRS does not accept
ignorance as an excuse for non-compliance.

In this particular instance, you will need information about tax treaties.
Here is one page - [http://www.irs.gov/Businesses/International-
Businesses/Unite...](http://www.irs.gov/Businesses/International-
Businesses/United-States-Income-Tax-Treaties---A-to-Z)

However, I cannot minimize how important an accountant is. Your last sentence
seems to indicate that you think this is a joke. First, the IRS is not a
laughing matter. Second, accountants are professionals and tax law is not the
kind of thing you can pick up on a forum someplace.

Finally, the IRS filing deadline is April 15, you do not have an accountant
yet, and it strikes me that you just started thinking about US tax. You need
to get on this right away because again, ignorance is not an excuse for non-
compliance.

~~~
patio11
That isn't his filing deadline, FWIW.

~~~
abrugsch
no it isn't. expats have an automatic 3 month extension to June 15 and an
optional extra extension if applied for (and if he has no tax to pay to the
IRS, then there aren't really any fines for missing the said deadline either.
(I missed mine last year... oops. but am under the 90K threshold mentioned)

------
davidw
If you're from the US, you have to file a US tax return, wherever you live,
even if you pay taxes locally.

[http://en.wikipedia.org/wiki/International_taxation](http://en.wikipedia.org/wiki/International_taxation)

It's the only country in the world that forces its citizens to do so (besides
Eritrea), which is why record numbers of people who don't live in the US are
giving up their US citizenship.

If you actually have residency in some country, then you probably need to pay
taxes there. But if you're actually being a 'nomad', are you going to be
anywhere that long?

> If I had an accountant I wouldn't be searching for this info!

Find one, then; ask your friends for recommendations. If you are a US citizen,
then there is likely a tax treaty between the country you are a resident in
and the US. You need an accountant that knows about this. I'd be happy to
recommend one for Italy.

~~~
sitkack
From my understanding, please correct me, is that America(tm) requires that
you never _save_ money by leaving the country and working somewhere else.

Say your US tax rate is 27%, you are working in Canada and your tax rate is
32%, you pay Canadian taxes first, then file with the US which charges you
nothing.

If you are working in a place with a 5% tax rate, you will owe the US the
difference. When you are a US citizen, your global minimum tax rate is your US
tax rate. You can never save money on taxes by leaving the country, only by
giving up citizenship.

You _can_ save money on taxes by living somewhere with a lower cost of living,
make less, spend less.

~~~
briandear
I would beg to differ on the saving money on taxes. I live in France, I have
the $96,000 foreign exclusion, so the first $96,000 I make is US-tax free. I
have to pay taxes everything above that no matter where I live.

The following is just for informational and entertainment purposes only.

So, if I were to hypothetically make $200,000 per year, I would pay US taxes
on roughly $104,000 per year, instead of $200,000, plus I get to take
deductions. So If I have $20,000 in deductions, I pay taxes on $84,000.

When I file my French taxes, my income justification is based on my Adjusted
Gross Income on my US tax return since I don't make any money from French-EU
companies. If I make $200K, have $96K excluded because of the foreign income
exclusion, then $20K deductions, my AGI is roughly $84,000. So the $84,000 is
my income in terms of France. Now, I get to then take whatever French
deductions we are eligible for and pay taxes on whatever the reminder happens
to be. Let's say that remainder is $80K. I now pay French tax on that $80K,
which would be taxed at an effective rate of 22% (the French system is similar
to the US in that each "band" of income it taxed at a higher rate with the top
marginal rate being 45%.) So that's roughly $17K in taxes, which are then
dollar-for-dollar deductible from US taxes owed. (That dollar for dollar
deduction is based on the US-France tax treaty, so that might not apply to
other places.)

Let's say the approximate effective tax rate of $84K is roughly 22%. That
means I'd owe $17K to the US, but I paid $17K to France, so I pay zero US
taxes under this scenario and overall I paid $17K in taxes on $200K in income,
which works out to an 8.5% tax rate. This of course would not apply if you
earned income from within Europe.

If you want to live in the Bahamas and you have an adjusted gross income of
$96K or less per year, you'll pay zero total taxes. Same for Bahrain, Brunei,
Kuwait, British Virgin Islands. But you also have countries that don't tax
your worldwide income, only income earned within that country. So if you're
clever and do your research, you will absolutely save money on taxes living
outside the United States. You also get the bonus of not paying any state
income taxes either. Given the EUR/USD weakness at the moment, there really
hasn't been a better time to live in the EU if you're making US dollars.
However, the tax regimes of each country are often very different, so do your
homework.

~~~
patio11
_When I file my French taxes, my income justification is based on my Adjusted
Gross Income on my US tax return since I don 't make any money from French-EU
companies._

This step is, and I am choosing my words carefully here, criminally
fraudulent. If this is your actual tax strategy, speak to an accountant. They
will say "NON!"

~~~
briandear
AGI is what the French social security, the CAF (Caisses d'Allocations
Familiales) office and every other public office uses to determine our income.
That wasn't our choice, it's what they use.

~~~
maxerickson
There's a big chance that _When I file my French taxes, my income
justification is based on my Adjusted Gross Income on my US tax return since I
don 't make any money from French-EU companies._ isn't the right way to
interpret the source of your income.

(I'm not offering that as advice, I'm pointing out that those offices are
relying on a characterization that you and whoever is paying you are making. A
US corp with all of its operations in France probably doesn't qualify as a non
EU entity...)

------
davewasthere
Actually, you can be resident for tax purposes in Spain and be required to pay
taxes in both countries. That said, you'll get credits for the dual taxation,
so it's not as bad as it sounds. However, if you're managing to avoid being
tax-resident in Spain, then you've really just the IRS to deal with.

If you ever fancy renouncing your US citizenship, then you might be able to be
not tax-resident anywhere... (see five flag theory:
[http://en.wikipedia.org/wiki/Perpetual_traveler](http://en.wikipedia.org/wiki/Perpetual_traveler))
Or if not completely avoiding tax residency, you can at least minimise your
exposure for the taxes you do need to pay.

Also, tax and healthcare mostly have nothing to do with each other... It's
mostly your residency status (which is totally unrelated to Tax residency
oddly). You can be resident in a country for tax purposes, but still not be
eligible for Heath care or other social services...

Hope that helps somewhat.

------
mellavora
I'm an American expat, 15 years in the EU, and 10 years working cross-border
within the EU.

The IRS is very clear that you have to file with them regardless, though you
may not have to pay anything (due to FEIE or similar).

What you haven't mentioned is your legal status in "Spain." Are you on a
tourist visa, or do you have legal residency? Do you have a work permit?

If you are in Spain under a tourist visa, then you cannot legally be employed
in Spain, which means you have no tax duty in Spain. If you happen to be
employed by some US company and you happen to be doing work for them while you
happen to be sitting in a cafe in Barcelona, well, you are in a legal grey
zone-- you do not have the right to work in Spain. You cannot "come clean"
with the Spanish government, as you have no right to work there without the
proper residency permit. The best you can hope for is they ignore it, the
worst is they prosecute you for visa violations.

European health systems are tied to legal residency, which can (but does not
always) include some duty to pay taxes. If you have a Spanish residency
permit, then you have rights to Spanish health care.

If you also have a Spanish work permit, the next question is if your employer
is registered as a Spanish employer (most US startups are not). If not, again
there are problems which make it difficult for you to pay income taxes in
Spain.

Note that I'm only talking income from your employer.
Interest/dividends/capital gains are a whole nuther thing.

I'm guessing you are on a tourist visa. Enjoy your time, don't stay longer
than 90 days, and buy private insurance. Also, if you try to stretch the 90
days by a quick trip to England, this might only work the first time.

------
bhuga
This was a pain for me for years when I was a nomad. The US and North Korea
are the only two states that tax citizenship instead of residence.

Since US taxes were unescapable, I eventually went for tourist visas, moving
every 3 months. The host country does not consider you taxable. I used this in
Spain in particular. It worked out fine. I had a spanish lawyer and a spanish
accountant, both were of the opinion that it was above board as long as I took
longish trips every few months. As long as you're still working remotely and
not using social benefits, there's no real legal category for you yet.

There is private health insurance explicitly designed for Americans living
abroad. It's dramatically better (and cheaper) than regular american health
insurance. Mine, for example, was $1700/year for 100% coverage outside the US
and an extra $2900/year for 80% coverage if I wanted it active in the US too.

~~~
jambo
I thought the Schengen area had a 90 days in/180 day limit for USians? Is that
only for the visa waiver?

~~~
codecamper
That's true. I wonder how he could take those short vacations. Maybe he was on
a Spanish non lucrative visa?

------
kephra
> If I had an accountant I wouldn't be searching for this info!

Most accountants only know B&M, M&D, and SBOs. Accountants who know
international tax laws, are seldom seen in the wild, but mostly employed as
specialist in big companies.

In Germany tax office is required to answer every question. They wont tell you
how to reduce your taxes, so you need to ask the right questions. But you have
a signed paper afterwards, that you can show, if your books are checked 10
years later, telling that a tax officer claimed you did it right.

I can only tell the other way round:

If you are a German, and have an LLC in Tennessee, then this LLC is a path
through taxed company, so you have to pay US income tax on it. Germany and US
has a double tax agreement, so I do not need to pay taxes on the US income,
but the US income is added to my German income to calculate the percentage of
my Germany income that I have to pay as taxes.

Its now a bit more complex for US citizen in Germany. You have to file your US
taxes till 15. Juni, if living outside US at IRS Center, Austin, TX,
73301-0215, USA. And your German taxes 10th of Mai. I advise to file the
German taxes as early as possible, if self employed. You dont need to worry
about this, if you are employed in your own company with payroll tax. Just
ensure that your German tax return is ready, before you need to file your US
tax. The double tax agreement between US and Germany will cause IRS to look at
German taxes, whine and laugh, because German taxes are higher, and tell you
that you need not to pay additional taxes in US.

My advise is to ask IRS.Frankfurt@irs.gov to confirm this!

Coming back to paying low taxes, and getting good health care same time with
an US/Germany combi: Regardless if you are German or US citizen, imho the best
combination is being employed at your own uGmbH in Germany, for only
€1000/month. The uGmbH is not funded and owned by yourself but by your LLC in
US that owns the intellectual property of your business. File invoices from
your LLC to your uGmbH regulary. Your LLC will have nearly no costs. File US
taxes as early, and German as late as possible in this case. So you benefit
from low US income taxes, and an incredible low health care and unemployement
insurance based on your low German income. Add a PLC in Estonia if you need a
tax free money sink.

Optimizing Spain/US might be totally different. But you likely will be paying
US tax as happy as I do - even if I'm not a US citizen ;-)

------
dmichulke
Most probably there is a treaty to avoid double taxation between both
countries.

The general rule is IMO (I'm not an accountant): You either are employed in
the US and pay US taxes or you are a company or individual in Spain offering
services to a US company, then you are taxed in Spain. The latter means you
have no employment contract but a consulting contract.

I am European but I work also for American companies as consultant and as such
I _have to_ pay taxes in my country of residence (Luxembourg).

The good thing in my case is you avoid VAT, the subjective thing (good or bad,
depends on your perception) is that you are subject to the obligatory social
security deductions ranging from 25% to 40% (in the countries I know).

Taxes must be paid as well if you pay social security but they shouldn't play
the big role unless you earn big (>= 8k E per month)

Whether paying social security is good depends heavily on your country of
residence and it is kind of up to you. I'd preferably not pay social security
in Germany but in Luxembourg it's tolerable.

~~~
Luc
> The general rule is IMO (I'm not an accountant): You can choose to be
> employed in the US and pay US taxes [...]

I'm not an accountant either, but I'm pretty sure any European nation's tax
office would take a dim view of this point of view. If you do the work in
Spain, you'll need to be taxed in Spain, especially if you're not trying to
fly under the radar.

~~~
dmichulke
I know a few people who live in France, Germany and Belgium but are (IMO
fully) taxed in Luxembourg based on the fact that they work there. They are
called Grenzgänger / frontaliers.

[http://www.diegrenzgaenger.lu/](http://www.diegrenzgaenger.lu/)
[http://www.lesfrontaliers.lu/](http://www.lesfrontaliers.lu/)

------
markokrajnc
Cross-country tax issues can be challanging, because they are changing and
just a few people understand them completely. The most important factor in
your case is "center of living", which is defined very broadly, but for ease
of understanding this is the country where you spend 183 or more days/year and
where your family lives and where you have most friends and most private
social life. This is where you will normally pay your personal taxes... if you
pay some taxes in US already, then Spain will most propably deduct them and
you will need to pay only the difference between spanish taxes and US taxes
(under assumption there is "double tax treaty" between US and Spain).

------
kokey
Many accountants tend to avoid trying to give you advice on cross border tax
issues, mainly because they aren't qualified to give you proper advice and it
can be so complex that even the authorities don't understand it. So, you
sometimes have to figure it out for yourself, and the best way to approach it
is to look at how the authorities in each jurisdiction will see it from their
perspective. If you work and pay Spanish taxes, I assume you have the right to
work in Spain too (e.g. EU citizenship or spouse of an EU citizen). In
countries with strong government health insurance, private insurance is often
not that expensive.

------
thatusertwo
My step mother renounced her american citizenship because she has lived
(permanent residence) and worked (clients and income) in Canada for most of
her life and still had to worry about American Taxes (maybe not pay but file).

~~~
brianwawok
Question: If you never plan to go back, does it matter? Could they come after
a citizen living in Canada for owing the US back taxes?

~~~
loumf
Yes. Canada and US have extradition treaties in place. Also, you never know
when it could hurt you -- for example a background check could turn it up.

------
collyw
I applied for a remote job in the states and looked this up.

In the case of working from Spain for an American company, you pay American
taxes, and if those add up to less than what you would have paid in Spain, you
pay Spain the remainder.

~~~
coppolaemilio
Muy buenas, te importaría mandarme un email a coppolaemilio@gmail.com con la
información que conseguiste? estoy en una situación similar y muy perdido. Un
saludo!

------
philiphodgen
This is what I do in my day job. International tax lawyer.

There are two taxes that you are talking about: income tax and Social Security
tax.

First, income tax.

Because you live in Spain, you must pay income tax to Spain on your income.
The source (a U.S. company) is irrelevant. You are a Spanish resident
performing services in Spain.

Because you are a U.S. citizen you must pay income tax to the USA. The fact
that you are living in Spain is irrelevant.

There are two ways to ease the pain:

\- Foreign Earned Income Exclusion. See Form 2555 to determine if you qualify.
If yes, the first $100,800 of earned income (be as careful with your
definitions as you would be with the programming language of your choice) is
not taxed by the USA, thus making the first $100,800 of earned income taxable
only by Spain. You must file a U.S. tax return to get that benefit.

\- Foreign Tax Credit. A dollar of income is at risk of tax twice: once by
Spain, once by USA. The USA gives you a tax credit (see Form 1116) for tax you
paid on that dollar of income. It isn't high precision math, but you can
bludgeon the numbers to a close enough result.

\- Use Both. You can use both. Use the Foreign Earned Income Exclusion for the
first $100,800 of earned income, and the Foreign Tax Credit for earned income
above that.

Second, Social Security tax.

Because you are working in Spain, you are supposed to contribute to the
Spanish equivalent of Social Security.

You get around this by getting an exemption application via the totalization
agreement between the United States and Spain.
[http://www.ssa.gov/international/Agreement_Pamphlets/spain.h...](http://www.ssa.gov/international/Agreement_Pamphlets/spain.html)

This allows you to contribute to the U.S. system and not the Spanish system.

This exemption is typically good for 5 years with an option to extend to six
years. Then you have to start contributing to the system where you live --
they figure if you've been camping out that long in Spain you must really be a
resident there and therefore should contribute to the system.

Third, getting covered by the Spanish national health system.

Don't know. I did some stuff with Spain a little while ago and my memory is
that if you contribute to the Spanish social security system you get the
medical coverage and if you do not contribute to the Spanish social security
system you don't get the medical coverage.

Fourth, what are you?

You are ambiguous about your relationship with the American startup. Are you
an employee or an independent contractor? Either way the result should be the
same (in the long run) but the paperwork required will be different (in the
short run).

If you are an independent contractor, permit me to make a shameless plug: a
recent blog post I did about how to be digital nomad, work abroad, and pay no
Social Security tax. [http://hodgen.com/how-digital-nomads-can-avoid-paying-
social...](http://hodgen.com/how-digital-nomads-can-avoid-paying-social-
security-tax/)

Fifth, talent and cost

There are very few people who know this stuff well. The ones that are out
there tend to be (a) overworked; and (b) expensive. Sorry. Blame your
government for emulating the Byzantine

Empire or medieval theologians for the complexity and burden imposed on you.
If you do your tax work properly, you will probably only pay tax in Spain and
pay nothing the USA. And to get there you will pay several thousand dollars a
year in accounting fees.

My suggestion is that you practice Extreme Minimalism in your business affairs
because you are far better off if you optimize for minimum tax advice expense
first, then minimize tax second. :-)

Sixth, blowback

Let me just say that the biggest single part of our international tax law firm
(and international tax is the ONLY thing we do) is expatriations. U.S.
citizens giving up their citizenship.

This is especially true for Americans abroad and doubly true for American
entrepreneurs abroad.

Disclaimer/warning shot/preemptive strike/we had to destroy the village in
order to save it/etc.

I am an international tax lawyer. This is not legal advice to you because
we've never met and I have no idea what is going on in your life. You'd be a
damned fool to make important legal and tax decisions based on stuff you read
on some random discussion board on the internet.

/Phil.

------
rlmw
Hire a professional accountant. They'll give you better advice than discussion
forums on the internet. Even though HN is pretty decent for tech/business
discussion generally.

------
kcole16
If you want public health insurance, you will need to pay taxes in Spain. You
could get private insurance through a number of different companies, though
this will likely be much more expensive.

As far as being above board, it really depends on how long you are planning to
stay, and whether or not you are a permanent resident.

------
chucksmart
Tax laws are like spaghetti code.

~~~
mikkom
Even worse than that - Intentional spaghetti code

~~~
kalleboo
The ultimate expression of job security

