While the digital nomad lifestyle was already gaining steam pre-COVID, more companies are now looking into the potential of long-term remote work, and even questioning the need to return to a traditional office space at all.
It’s safe to say the coronavirus pandemic has affected millions of employers and employees around the world. With the global impact of COVID-19, governments have increased efforts to protect their economies through strategies for job retention and opportunities for remote work.
Working remotely while travelling is a dream for plenty of people, but it’s not simply a case of picking a destination at random and assuming it’ll all be smooth sailing; you need to plan carefully and work out which countries will be most suitable for your planned freelance lifestyle.
So that you can navigate this process efficiently and also make the best choices from a financial perspective, here are just five of the top countries to consider for a year of remote working. For location-independent workers, one of the questions that pops up regularly is how do digital nomads pay tax?
Portugal
Sitting in the southwest of continental Europe, the sun-soaked nation of Portugal is packed with history and culture, as well as being a thoroughly modern, safe, and civilized place to pick as a destination if you are a digital nomad.
The cost of living is comparatively affordable and the capital of Lisbon is an excellent place to set up your base of operations thanks to the quick internet connectivity, solid infrastructure, and amenability to English-speaking visitors it offers.
Non-residents, including those from the US, will need to file taxes locally and pay a flat rate of 20%, regardless of their earnings. This means taxes for freelancers from overseas can be quite favorable, particularly if you are a higher earner.
For freelancers, getting a resident visa is necessary to live and work there, and applications can be made to embassies and consulates operated internationally. This will give you the ability to work there for 12 months, with the option to renew annually for up to 5 years. Applying costs around $25 and if you are approved you will need to pay a further $85 to complete the process.
Philippines
Asia offers American remote workers some of the best options in terms of low living costs and appealing tax scenarios, although some nations will be relatively difficult to acclimatize to because of the language barrier. This is not the case in the Philippines, where English is the 2nd most common language spoken and the culture shock will not be so severe.
The vibrant capital of Manila could be great for anyone who loves being in the thick of the action, whereas more remote places like Palawan and Cebu offer a lot for those who crave peace, quiet, and jaw-droppingly beautiful coastal tranquility. For living costs of under $1000 a month, this could tick all the boxes.
A sliding scale is applied to income tax for residents of the Philippines, ranging from 0% on incomes of under the equivalent of $5,200 up to 35% for those making over $164,000 annually. These taxes apply whether you earn the cash directly, or from capital gains and other sources. When filing for taxes in the Philippines, remember that you can claim against your liability for taxes payable in the US as well, which allows you to offset costs to an extent.
To be considered a resident, you need to live in the Philippines for more than 180 days in a given year. You will also need to secure the Alien Employment Permit from the Department for Labor and Employment, which again can be applied for at any of the Philippines’ embassies and consulates. The AEP costs just under $185 for a year and can be renewed for roughly $82 for subsequent years of residence.
Germany
Another of Europe’s great cultural and financial powerhouses, Germany is a thoroughly modern and forward-thinking place for Americans to live and work for a year.
It may be more expensive than the likes of Portugal and the Philippines, but it is still cheaper than places like the UK and Sweden, as well as offering exceptional quality of life in combination with decent weather and top-notch amenities all around.
Berlin is definitely the place to be, with its world-class nightlife, relatively affordable housing, and a host of working spaces.
Tax is an interesting issue in Germany, as rates are higher here, particularly for those with healthy incomes. This may not apply to many freelancers, but if you make more than the equivalent of $67,400 a year then a 42% tax rate applies. Below this, it scales down to as little as 14%, but being aware of how much you will need to pay before you travel makes sense.
Another boon for US freelancers is that the German tax year shares the same dates, and you can get an extension on the filing date if you get an accountant to do this for you, which may be worth considering.
A residence visa is a necessity once more, and while it is possible for US citizens to work in Germany without one in theory, in practice it is better to organize this in advance at an embassy or consulate. Fees of around $80 are payable for those looking to work remotely in Germany for a year.
UK
If you want to have the most straightforward experience of working in another country as an American, then a year in the UK will present you with the fewest barriers. Everyone will speak the same language as you, it leads the way in everything from healthcare to road safety and major cities like London and Birmingham are more than capable of catering to digital nomads from every corner of the globe.
Living costs in the south may be steep, but heading further to the north will allow you to find plenty of cost-effective places to set up shop, from the always-hip Manchester to the Scottish staples of Edinburgh and Glasgow.
A basic tax rate of 20% is applied on all earnings over around $16,400, and if you make more than $65,500 a year you will be taxed at 40%. Only top earners on more than $196,000 annually will pay a higher rate of 45%.
Thankfully the tax treaty that the UK and the USA share means that you should not be liable for unnecessary additional taxation if you are resident in Britain as an American remote worker. There are some fairly complex visa conditions to meet and different tiers present, but costs of around $250-$350 dollars for submitting an application can be expected.
Canada
In terms of sheer simplicity and easy integration, working in Canada is much like working in the UK if you are an American on the move.
Major cities like Toronto and Montreal have so much to offer, and the sheer scale of the country means that you can explore far and wide all year and never manage to see all of it.
Taxes are payable at a federal and a provincial level, and income is taxed at a basic federal rate of 15% for those earning under $34,000 annually. From here it rises incrementally up to a maximum of 33% for top earners. Provincial taxes vary, with Ontario offering a lower 5.05% as a basic charge, compared with the 15% levied in Quebec, for example.
A permit to work in Canada costs the equivalent of just under $120, and because a tax treaty with the US has been in place since the 1980s, all information is shared with the IRS so filing full, accurate returns by the relevant deadlines is a must.
Barbados
Living and working on an island paradise like Barbados might seem like an unattainable dream, but it is actually an attractive prospect for many freelancers.
The capital of Bridgetown is sun-soaked, affordable to live in, and allows you to explore the rest of this modestly-sized nation with ease.
The tax treaty between Barbados and the US means that paying income tax on your IRS return will be creditable towards what you owe in Barbados while you are resident there. A basic rate on income of 16% applies to earnings of roughly $17,400, while earnings above this are taxed at a flat 28.5% rate.
A via for remote workers costs $2000 for individuals or $3000 for families, so long as you make at least $50,000 annually. This is part of the Barbados Welcome Stamp scheme, set up specifically for the purpose of encouraging foreigners to head to the island.
Georgia
Clustered in the Caucuses and hemmed in by the Black Sea, Georgia is a weird and wonderful place to spend a year. The capital of Tbilisi is full of incredible architecture and is eminently affordable, although other urban centers like Batumi might also catch your eye.
You only need to pay tax on income earned in Georgia itself, so if you are working remotely you need not file with the authorities while you are there, even if you still need to send a return to the IRS back home. Income tax is charged at a fixed 20% rate for all residents, which is comparatively low, especially for higher earners.
You do not need a visa to stay in Georgia for up to 365 days, which is convenient, although overstaying will of course result in a fine. This means that if you want to optimize your income and avoid additional expenses, Georgia could be perfect.
Estonia
Another European nation that has risen to prominence amongst digital nomads, Estonia has heaps to offer visitors. The coastal delights of the capital Tallinn make it the top place to be for work, entertainment and sightseeing, while Tartu is an in-land alternative that also has attractive features galore.
Like Georgia, residents of Estonia only need to pay 20% tax on their income, which is a status that applies to any foreigners staying there for more than 183 days in a year. You will need to apply for a residence permit, get approval and jump through a few other hoops before you are allowed to work in Estonia. The fee for the visa is around $120 and also applies if you want to travel to states that are part of the Schengen area, including the likes of Austria and Luxembourg.
Ultimately while there are challenges to working remotely wherever you go, you can definitely make life easier for yourself by planning ahead, managing your expenses, and doing all the paperwork as thoroughly as possible. While you may not be able to travel widely this year, it would be good to start planning for the next year or so.
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