Whenever we talk to entrepreneurs, remote workers or freelancers who are about to embark on their Digital Nomad journey one of their main concerns is ‘tax’.
Therefore, before you start reading the content of all different sorts of online forums and before freaking out when googling ‘international tax law,’ I want you to know a thing or two about it on here.
Our goal is to make you aware of how ‘international tax law’ really works and hopefully this article will open up your mind about the fact that really there is no such thing as ‘international tax law’ but rather lots of different countries that are trying to design the most competitive tax laws to attract individuals and companies into their economy whilst still making sure that everyone is contributing their fair share to the government.
# International tax law keeps constantly changing
When I mention to people that I work in taxes most think about how boring that must be. But the truth is there is no other legal field where change is as constant as in international tax law. That’s what makes it so fascinating to me.
Governments are constantly creating new tax incentive programs to try and attract more money into their countries. For example, Serbia just recently announced that it will implement a tax program in 2020 so that Digital Nomads won’t have to pay any taxes for up to 90 days.
With every new presidential campaign, there appear to be more changes in tax law. We all know that citizens want lower taxes so if a party promises lower taxes after their election it is often likely that those changes will be implemented with the new government in place.
Lately, there has also been a trend in lowering corporate tax rates to make nations’ economy’s more attractive. For example, the UK has a current corporate tax rate of 19% which is already pretty low. However, by April 2020 they will be reducing the corporate tax rate to 17%.
This year has been all about Digital Services Tax and governments are trying to figure out how they can charge taxes on businesses not on their physical presence but based on where their consumers are located.
Although the EU failed to design a European Digital Services Tax, the OECD has publicly announced that in 2020 one of its main objectives with regard to tax is to draft a Digital Services Tax regulation.
Therefore, it is important that you consume your knowledge from sources that stay up to date because international tax laws keep constantly changing.
# Not everything is regulated
Most of the time legal systems leave room for people to interpret the laws.
Think about it. If everything was regulated there wouldn’t be any need for judges, prosecutors nor lawyers who interpret the law and who can argue one way or another way.
The same is true, especially about international tax law. The law leaves room for a lot of interpretation.
Especially when it comes to concepts such as what is considered to be ‘reasonable’ and what makes ‘economically sense’ one can easily argue one or the other way.
Even when it comes to tax residency questions it is debatable whether a cabin on a yacht can constitute a ‘home’ or how long ‘permanent’ or ‘temporary’ is.
The law requires a lot of interpretation. Even if concepts are backed up by precedent cases one can argue one or the other way.
If you are unsure of how to interpret the law, then make sure you have help from a professional such as us who can guide you through the legislation.
# Enforcing tax laws is different than writing them
Having regulations and laws in place is one thing. But making sure that the laws are enforced is another story.
Some countries claim to have Golden Visa programs which allows wealthy people to obtain citizenship. However, the reality is that it is nearly impossible to obtain such a Golden visa.
Sometimes the administration burden is simply too high to bother to actually take advantage of such tax incentive programs. Other times immigration won’t collaboration with the internal revenue office or vice versa and it just becomes a nightmare to even bother to take advantage of those tax incentive programs.
On other occasions putting international tax law into practice means that you will have to hire a lawyer not only in your home country but also in your new destination and potentially also an accountant in both places.
Many countries implement a self-assessment tax system. This means that you are responsible to figure out how much taxes you own the government. You are also responsible to lodge your tax returns in time. If you don’t comply with tax laws, you can receive a fine from the revenue authorities.
If you engage in tax evasion practices such as not paying taxes or hiding your income by falsifying a return you risk a fine or even imprisonment.
Even though there can be many players in the international tax law sphere you have to remember that you are the main player and the main person that is responsible to figure out what you are allowed to do and what is prohibited.
# Tax laws differ from country to country
You have to always keep in mind that there is no such thing as ‘international tax law’. The truth is that every country has its own tax laws. Some countries have even different state taxes or municipality taxes.
The tax rates that apply in your home country can be completely different from the tax rates in your new destination country.
The number of days necessary to become a tax resident in one country can be 183 days and its neighbouring country might categorize you as a tax resident from the day you move there, or after 90 days.
Just because tax incentive programs for wealthy people can be categorized under the term ‘Golden Visa’ doesn’t mean that the Golden Visa requirements in Malta are the same as they are in Cyprus.
Even when you hear that 100 OECD countries have signed an agreement – those agreements will still have to go through the national legislative system to become laws in that country and oftentimes they will have to be adapted and changed before they will be accepted into the country’s system.
# International tax laws don’t necessarily make economic sense
Keep in mind that just because one country has attractive tax laws, doesn’t mean that it will make economic sense to you. If your business doesn’t need an Asian base, then why would you go and set up in Hong Kong even though their low taxes are very attractive?
Or simply because a country is offering residency permits in exchange for some economic investment doesn’t mean that obtaining that country’s residency will benefit you in the long run.
For example, if you obtain a European residency, you’ll also have to think of other things that will add up such as Social Security Contributions, possibly registering your business for VAT, etc.
Therefore, you might want to do your proper investigation, find out where you could possibly set up a company based on what makes economic sense for your business before you decide to simply incorporate a company in a country based on its low tax rates.
Do you want professional help with your own International Tax Strategy and Corporate Structure?
Check out our current services. We are here to guide you and help you navigate through the complex world of International Taxes and Business Structures.
We hope you have enjoyed this article. If you have any further questions please leave us a message below and we’ll get back to you as soon as we can.
NOTICE: The content of this article is not to be considered as a legal opinion or tax advice. Wanderers Wealth does not hold itself out as a legal or tax advisor. If you want to receive a legal opinion or tax advice on the matter in this article please contact us directly and we will refer you to a legal practitioner.