Tax Implications of Remote Working From Abroad - Careers (2024)

As more and more companies transition to fully remote work environments, there’s an exciting opportunity to consider working from another country. With the freedom to work from anywhere, why not take advantage of better weather and lower living costs in another part of the world?

Most countries will allow foreign remote workers to stay and work remotely for up to 183 days in a year without becoming tax liable. After that period, a person becomes a tax resident on their worldwide income. Yet, US citizens will be responsible for paying taxes in the US in any case.

Many employees enjoy the flexibility that comes with working from home. It can also be very tempting to do the work on the beach in Mexico or Columbia. However, working from abroad can come with different consequences, such as tax and social security liabilities, that both employers and employees must consider. Moreover, the question of a suitable visa and work permit can also arise.

One of the biggest advantages of remote work is the ability to work from anywhere in the world. This has led many companies to embrace remote staff, reducing costs and increasing flexibility. However, both employees and employers need to be mindful of certain considerations.

For example, if an employee’s home office is located outside their official country of work, it can have implications for their income tax and social security. It’s important to carefully navigate these regulations to ensure a smooth and legal remote work arrangement.

Taxation rules in Europe

Paying taxes while living in one place and working in another is always a challenging question. Thankfully, regulations of many countries are quite similar regarding tax residency.

The general rule for the EU is that you become a tax resident when spending more than 183 days in one country. Hence, legally you should file a tax return and pay your taxes in the state when only spending over 183 days. You will be liable for all worldwide income in that case.

While staying less than 183 days in the year, a person will be only taxed on the income generated in that particular country. Yet, remote work can easily fall into this category, because legally you are working where you are physically located.

If you don’t want to pay taxes during these first six months, you need to keep a residency in some other state, so you can continue to pay taxes there. After the initial 183 days, the residence won’t matter, and you will pay taxes in that country anyway.

Social security in the EU

An employee will be liable to pay social securities taxes in the EU country after three months of staying and working remotely in one place.

Double taxation agreements

Employees can benefit from various double taxation treatments so that they won’t pay income taxes twice. Hence, you might still be able to pay income taxes in your home country if it has the agreements with the state you are living in for now.

Employees in the EU

There are different complications associated with a situation when an employee of one company based in the EU decides to work remotely from another EU state. For instance, if we take a German employee working for a company in Germany and who chooses to work from Portugal for some time.

In that case, HR managers of that company must apply for the Portuguese tax number for the German company, so the employee can also pay taxes in Portugal.

It involves a certain amount of bureaucracy. Eventually, they must apply at the Portuguese tax office for an identification number (NIF) for the employer. Secondly, the German company must register with the social security authority in Portugal, responsible for the employee there.

In addition, the A1 certificate for social security must be applied for. After spending over three months in Portugal, the employee and employer must pay social security contributions.

Moreover, the German employee will be liable to pay the social contributions in Portugal if the company does register a branch there.

According to the law, the social contributions must be paid in the state where an employee spends most of the time.

What does a home office from abroad mean for employers?

Professional activities of an employee who is residing (or stays temporarily) in a different country generally cause obligations to the employer, e.g., payroll taxes and social security contributions abroad.

In many countries, to fulfill tax obligations, companies must register (or have registered) with the local tax and social security authorities abroad.

This definitely ends up being a complication. Additional work for the company is doing a monthly payroll in the respective country abroad plus the actual payroll where the company is based. Besides that, the income taxes and social contributions will also be paid abroad.

Taxes abroad for US citizens

As you might know, US citizens are taxed in the US for all their income, even if they are spending some time abroad. The 183 tax rule in Europe won’t apply. Americans still will be tax liable in the US.

Generally speaking, US citizens are subject to US tax laws regardless of where they reside and for how long. If they stay longer than 183 days somewhere, the double taxation agreement will apply, so they won’t be taxed twice.

Therefore, when US citizens become liable for taxes in some EU country, they pay taxes first, and after they get a US tax credit based on the European taxes paid. Just keep in mind that taxpayers will generally have to file returns in both countries.

Can you not pay taxes at all?

Well, yes and no. Avoiding paying taxes can have bad consequences, but nevertheless, there are many remote workers and digital nomads who manage to do so.

According to the general taxation law, if you have deregistered from your original country and don’t spend over 180 days in any other country, you will be “tax-free.”

However, is it a feasible option at all? In many cases, you will have a base or at least an employment agreement in some country and thus will be liable to pay taxes there.

If you are:

• self-employed in some country with low taxes
• have no base, meaning you have deregistered yourself from the state, don’t have an apartment there, or any of your belongings or assets
• manage to spend under 180 days in any other country

Then you most likely will be successful in avoiding paying income taxes, yet, you should still pay your taxes for self-employment or business.

When working for a company, a company must be obligated to pay payroll taxes in some country, either where the employer is based or where the employee is located most of the time.

Tax advantages when working remote from abroad

There are some tax advantages one can enjoy while working remotely from abroad. Sometimes it depends on your nationality, sometimes on the country where you are working from.

Moreover, some countries offer digital nomad visas, which also can positively change your tax rate. This method of reducing income tax can also be utilized by Americans who work remotely while traveling rather than residing in a single foreign country.

Income exclusion for US citizens working abroad

For instance, Americans who live and work abroad can profit from the tax benefits available in the US. It’s called the foreign earned income exclusion. Claiming this exclusion when filing US taxes from abroad can, in many cases, reduce one’s US tax bill to zero.

Therefore, Americans who work remotely abroad for a US firm or as a freelancer with US clients can claim the exclusion of foreign earned income, so they pay no income tax on their earnings.

US citizens have to pass one of the IRS tests to claim the foreign earned income exclusion. These tests prove the fact that you are actually living abroad.

They will test your physical presence in a particular country where you need to demonstrate your permanent residency in another country. At the same time, the physical presence test requires you to verify that you spent at least 330 full days outside the US in 365 days.

A digital nomad work visa in another country will be sufficient to prove that you reside abroad.

Furthermore, US citizens working remotely abroad must file IRS Form 2555 with their Form 1040 to claim the foreign earned income exclusion. The exclusion allows qualified Americans to exclude their earned income up to a limit of $112,000 in 2022 from US income tax.

Moreover, if you are above the limit, you may still be able to claim other exclusions or credits. For instance, the foreign housing exclusion allows US citizens renting accommodations abroad to exclude a proportion of their housing expenses on top of the foreign earned income exclusion maximum.

So as you can see, being taxed in the US can also be very beneficial for your pocket if you are able to set up your taxes in a smart way.

Taxation program in Portugal

Some countries like Portugal have developed some attractive tax programs for foreign citizens willing to work remotely. So, Portugal has developed a tax beneficial NHR program for non-habitual residents residing in the country.

Where your income can be taxed with a fixed rate of 20% (+ social security) over the next ten years, regardless if you are self-employed or an employee. Particularly high earners can reduce their taxes that way.

In order to be qualified for this tax rate, you must belong to one of the following professions from the list:

• Archaeologists
• Architects
• Sculptors
• Biologists
• Programmers
• Data processing specialists
• Designers
• Geologists
• Engineers
• IT consultants
• IT experts and specialists
• Theatre, radio, ballet, and TV performers
• Life science professionals
• Medical practitioners
• Painters
• Musicians
• News agencies and other reporting personnel
• Psychologists
• Scientific research and development professionals
• Senior executives, except for directors
• Singers
• Tax consultants
• University professors
• Web developers and designers
• Tax auditors
• Dentists

By meeting this requirement, your income received in Portugal will be taxed at 20%, and all foreign income sources will be tax-exempt.

Become self-employed for taxation reasons

Becoming self-employed, a freelancer, or a business owner is the best solution for some people when working remotely from abroad. You can get a self-employed residence permit in various European countries. This also allows you to find work as a contractor for the US or any other foreign company.

As a contractor living and working from some country abroad for a long time, you will pay local taxes. An independent worker must be registered as a sole trader or single-person company in some country to bill their employer or client.

Consequently, you won’t be fixed to one particular company as tightly as employees do. This can cause a large number of limitations and complications when working remotely from another country.

Moreover, self-employed contractors can write off some costs, depending on where they are registered. However, as a self-employed, you will take care of things like taxes, social security, immigration, employment law, and organizing your own life insurance, medical coverage, pension, etc.

Besides that, a contractor doesn’t enjoy paid sick days and holidays. As you can see, there are some trade-offs here.

Getting paid while working remotely

The other question that probably comes to your mind is, “How will I get paid when working remotely from abroad?” Since banking transfers overseas can get pretty expensive, we would recommend avoiding them at all costs.

You can still receive your income on your regular salary card from your home country. It also will be better for your taxes, so the place where you are staying doesn’t havemuch control over your finances.

Besides that, you might consider setting up a different structure with your employer by using online payment platforms like PayPal, Stripe, or Wise. In our opinion, Wise is by far the best solution and what we use with our staff. It sends money from one banking account to another at a minimal cost and with the best currency conversion rates.

Wise also has a built-in currency exchange if your employer sends money to your account. Their rates are the best, especially when compared to the normal bank. It’s also fast, and you can receive money on the same day.

Want to work remotely from any country in the world?

Complications with taxes can scare many employers from allowing their staff to work remotely abroad. Yet, our company, Support Adventure, has been hiring talented people worldwide to enable them to work from anywhere thanks to the fully remote job.

Support Adventure is an expat outsourcing company. Our employees specialize in IT, in particular, the IT help desk. If you have experience or background in IT, don’t wait and apply for a remote job with us!

You can see our current positions here. Working with us will make your dream of living and working remotely from abroad come true!