Are you a U.S. citizen who’s a remote worker living in Europe? Thinking about throwing everything into a backpack and traveling through Europe?
It really can be a dream come true to embrace the digital nomad life, but thoughtful people, before they book their airline tickets, as they make their plan, may be wondering where and how you are supposed to pay taxes when working while traveling abroad for extended periods of time.
With more and more people working remotely and companies offering flexible work arrangements, it can be confusing for U.S. citizens to know where your tax obligations lie.
Here’s the bottom line:
As an U.S. citizen, you’re still obligated to pay U.S. taxes on all income earned regardless of where it was earned. (1)
Even then though, you still may have questions like:
- Is there a danger of double taxation?
- Do you have tax liability for the country you’re visiting?
- How do taxes apply for remote employees and independent contractors?
Whether you’re a U.S. citizen living off your dividends and capital gains, an independent contractor or a remote employee working abroad on a visa, in this blog post, we will explore the ins and outs of paying taxes as a remote worker living in Europe.
We will examine the factors that determine where you pay taxes, as well as some common misconceptions about the topic. By the end, you should have a better understanding of your tax obligations and how to fulfill them as a remote worker living in Europe.
Real quick, before we get too far into it here, if you want to connect with other remote workers or would love to make your home office space the best join my free private Facebook group, Home Office Hacks here.
Where do I pay taxes?
The good news is, Europe is making this lifestyle manageable and easy for ex-pats. With new options like the digital nomad visa, or the Portugal passive income visa, your remote life just became easier.
If you’ve decided to take the leap and get foreign residency, there are programs such as the non-habitual residence tax that could benefit you.
If you’re traveling to Europe as an American Citizen, you’ll want to know you’re obligated to pay taxes to the United States. Regardless if you’re a remote worker, living off of dividends, or being employed by a company outside of Europe. (2)
The US is one of two countries in the world that tax you on your citizenship versus your country of residence. (The other one is east African nation of Eritrea. Obscure, right?) Once you’ve decided on your income, chances are when filing taxes, you won’t be using a W-2 form (3). Instead, you’ll have to file a 1099 form (4). A 1099 form is your tax paperwork that declares you are an independent contractor, such as a freelancer working remotely.
What income is taxable?
When you are a US citizen, you fall under the supervision of everyone’s favorite government agency, the Internal Revenue Service (IRS). And you’re under obligation, as a U.S. citizen, to pay income taxes just as if you were living in the continental United States.
For tax purposes the sources of income that you have to pay close attention to are capital gains, earnings dividends, gross income, along with social security contributions.
There are few non-taxable incomes such as fringe and miscellaneous benefits. Although nontaxable, you will still need to report these. (5)
What foreign options do I have?
In the case that you wish to live in Europe, but still, wish to keep your full US citizenship there are visa options that legally allow this. Although even with these visas, your tax obligations don’t change. If you wish to surpass a temporary residency visa and get partial or full residency, then your tax obligations will alter.
Digital Nomad Visa
The digital nomad visa is issued for someone living a digital nomadic or remote lifestyle. It’s for private individuals that are either working as an independent contractor or freelancer via the Internet. Obtaining this document gives you the right to work in a foreign country for up to one calendar year. The European countries that offer this visa or one of their own are Portugal, Croatia, the Czech Republic, Estonia, Germany, Hungary, Greece, Iceland, Italy, Malta, Romania, Spain, and Norway. (6)
Furthermore, if you obtain a digital nomad visa, you’re still obligated to pay taxes to your home country, not your host country.
Portugal Passive Income Visa
A popular destination for digital nomads in Portugal. They offer economic and social stability, wonderful countryside, and clear tax rules. They’ve just recently opened the gates for their digital nomad visa, but have had other foreign visa options for quite some time. If you earn over 705 Euros a month in passive income (real estate, pension, dividends), and you are purchasing or planning on purchasing investment properties in Portugal, you should qualify for this visa. (7)
Once obtained you’ll be a permanent resident, working towards your citizenship with the ability to travel freely to any of Schengen Countries visa-free (more on this in a minute). In addition, you’ll qualify for the Non-Habitual Resident Tax.
Non-Habitual Resident Tax
This program was designed to help alleviate the tax burden on foreign residents living in Portugal. Although if you’re a long-term resident (before 2009) you won’t qualify. On the other side if you’re a new resident(post-2009) this is a tax haven.
Basically, with this program, you’ll be paying fewer taxes. For example, if you’re receiving a pension for the US, and switch residency to Portugal, you’ll have a “flat tax rate” of 10%. As well, as a tax exemption on foreign sources of income, a 20% flat rate tax on Portuguese income (normally 48%), and tax exemption on gifts and inheritance to family members. (8)
This tax break sounds almost too good to be true, but it is real, and a great opportunity.
When do I pay taxes in Europe?
When living in Europe or one of the European Union states, you won’t pay taxes to any European country, unless you’re a resident, temporary resident, or a citizen. There a very few times when you’ll be taxed by Europe, but if your job is directly out of a European country then the country will tax you.
As well, prior to the digital nomad visa, foreigners traveling and working through EU member states would have to obtain a working visa or do a “visa run” or “country hop” to keep from becoming illegal aliens.
By not following immigration law you are susceptible to fees, restrictions, and deportation. This is synonymous with working in Europe as well. You still fall under tax obligation, this is a general rule for western world countries. But, to stay in good standing with Europe you’ll have to follow these outlined rules.
Foreign Earned Income Exclusion
If you exceed 330 days in one calendar year, then your foreign status gives you the ability to not have to claim US taxes on that income. This is referred to as foreign earned income exclusion. You will not be forced to pay taxes to the U.S. as long as you were out of the country for at least 330 days. Furthermore, you’ll need to earn under a certain amount.
This tax exclusion program gives you perks while living in another country and keeping your US citizenship. You’ll have to have a temporary residency in another country and personal or rental property.
The IRS is making everything much simpler, there is now an interactive tool where you can calculate if your income deserves exclusion for this tax year. Digital nomads are taking advantage of this program for good reason. (9)
Temporary residence
Each European country has its own set of rules for temporary residency. But regardless of the country, once temporary residency is obtained you are obliged to pay taxes on income earned in that country. Some countries have stricter policies than others.
A large array of countries truly welcome digital nomads. We’re bringing in income for their people. As we mentioned earlier Portugal, Croatia, the Czech Republic, Estonia, Germany, Hungary, Greece, Iceland, Italy, Malta, Romania, Spain, and Norway all welcome remote workers.
Temporary residency in Portugal
Portugal is one of the leading countries in Europe for digital nomads. They’ll give the ability to legally live/work in the country. Once a temporary resident, you also become a tax resident after 183 days of physical presence in the country. After this, you’ll be obligated to pay taxes on only the money earned in the country. All other sources of income, such as passive income or not included in the taxable income.
Portugal offers multiple different visas for digital nomads, but most notably the digital nomad visa and passive income visas are the most beneficial to us.
Remote working in The Czech Republic
The Czech Republic is welcoming of remote workers, although they haven’t developed a “digital nomad visa” per se. Generally, taxation rules are applied as with a regular job in The Czech Republic.
Some pros of working remotely in the Czech Republic are you don’t need a vis for 90-180 days while there. Once these days are passed the Czech Republic offers a remote work visa called Zivno which gives you a calendar year, and then can be extended another 24 months. It is the Czech version of the digital nomadic visa.
One of the biggest perks of Zivno is the ability to travel to any of the 27 Schengen countries while on this visa. (10)
What is the “Schengen Area” and why is it important for remote workers to know about?
The Schengen Area is a group of 27 European countries that have abolished passport and other types of border control at their mutual borders. This allows for free movement of people within the Schengen Area.
The Schengen Area is important for remote workers to know about because it can affect their ability to travel and work within Europe. As a remote worker, if you are living and working in a country within the Schengen Area, you may be able to travel freely within the area without needing to go through passport control or other types of border checks. This can make it easier for you to travel within Europe for work or leisure.
Remote working and dual citizenship
In general, your tax obligations will depend on a variety of factors, including your citizenship, the country in which you are currently residing, and the country where your employer is based, if you have a traditional job.
If you hold dual citizenship, your tax obligations may be even more complex.
In some cases, you may be required to pay taxes in both countries. For example, if you are a citizen of both the United States and France, you may be required to pay taxes in both countries, depending on the specific circumstances of your situation.
In the United States, citizens are generally required to pay taxes on their worldwide income, regardless of where they are living or working. This means that if you are a U.S. citizen working remotely while traveling, you may be required to pay taxes on your income to the United States.
In France, the tax rules are slightly different. French citizens are generally only required to pay taxes on their income earned in France, unless they are considered a “non-resident” of France. If you are a dual citizen of the United States and France and you are working remotely while traveling, you may be considered a non-resident of France, which means that you would be required to pay taxes on your income earned in France.
It is important to keep in mind that the tax laws of both the United States and France can be complex, and the specific rules that apply to your situation may vary depending on the details of your situation. It’s always best to consult with a tax professional who is familiar with international tax implications to determine your specific tax obligations.
It’s also important to keep in mind that tax laws change over time, so it is a good idea to periodically review your tax obligations to ensure that you are in compliance.
How are resident aliens taxed?
What if you have resident alien status? How does this all apply to you?
In general, resident aliens are subject to the same tax laws as citizens of the country in which they are residing. This means that if you are a resident alien living in France and working remotely for a company based in the United States, you may be required to pay taxes on your income to both France and the United States.
As always, it’s important to keep in mind that tax laws vary from country to country, and the specific rules that apply to your situation will depend on the details of your specific situation so always consult with a tax professional who is familiar with the tax laws of the countries involved to determine your specific tax obligations.
Foreign Tax Credit for remote workers
One way to reduce this burden is to claim a foreign tax credit on your tax return. This credit allows you to offset the taxes that you have paid in one country against the taxes that you owe in another country.
For example, if you are in a situation where you are required to pay taxes in both the United States and France, you may be able to claim a foreign tax credit on your U.S. tax return to offset the taxes that you have paid in France. This can help to reduce your overall tax burden and make it easier for you to fulfill your tax obligations as a remote worker living in Europe.
Final thoughts
The ability to travel and work simultaneously is truly a privilege. We have the chance to see the entire world, create an income, and even change residency if we wish. Regardless if we’re US citizens or dual citizens, we still need to follow our obligations or face some rather unpleasant consequences.
By obtaining a remote workers visa you’re opening more doors for yourself; the ability to travel to any of the 27 Schengen countries, the ability to find a tax break, and even the ability to create passive income through foreign real estate are among just some of the possibilities.
Next Steps
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References
- https://www.hrblock.com/expat-tax-preparation/resource-center/income/foreign/do-i-pay-foreign-income-tax-if-im-a-u-s-citizen-working-overseas/
- https://www.supportadventure.com/taxes-working-remotely-in-europe-as-a-freelancer-or-business-owner/
- https://turbotax.intuit.com/tax-tips/irs-tax-forms/what-is-a-w-2-form/L6VJbqWl
- https://turbotax.intuit.com/tax-tips/irs-tax-forms/what-is-an-irs-1099-form/L3NxSPMUe
- https://www.irs.gov/publications/p525
- https://www.ivisa.com/visa-blog/europe-work-visa
- https://www.atlys.com/country/portugal/national-type-d-7-visa
- https://immigrantinvest.com/blog/beneficial-tax-regime-nhr-in-portugal-en/
- https://www.irs.gov/individuals/international-taxpayers/foreign-earned-income-exclusion
- https://racheloffduty.com/blog/remote-work-guide-czech-republic/
