Tax residency for the Mustachian digital nomad

[kaetana]

I'm currently living in the Netherlands with a favorable tax arrangement (the 30% ruling) that will expire in a few years. Currently, I am treated as a Dutch "partial non-resident taxpayer", which means my main source of income is taxed in the Netherlands, but real estate and investments I hold overseas are taxed in those countries, not in the Netherlands. I work remotely for a multinational employer.

When the Dutch tax arrangement expires (in 2 years), my taxes will increase significantly, to the tune of about €1000/month, not including intricacies of double taxation that I have yet to work out. Clearly I would prefer for that not to happen, and so I find myself in the position of needing to decide where in the world to move. Due to my citizenships, I am able to live anywhere in the EU, Australia/NZ, and some parts of Asia without a visa. I am leaning towards somewhere in Europe due to the lack of travel restrictions.

A few things I've considered:
1. Some countries allow spouses to file taxes jointly. This may decrease my taxes to a more comfortable level if I am effectively able to halve my income by sharing it with my husband, who is already enjoying retirement.
2. Portugal's Non-Habitual Residence scheme seems to allow people to stay there without being taxed there as long as income is not sourced within Portugal. I already have an Estonian company that I could potentially use to receive and distribute income that I believe would qualify as external income.
3. I would be willing to buy a house if that helps with tax residency.

Are there any digital nomads who have gone down this road and found a good country/setup to minimize taxes? I'm looking to decrease my tax obligations (legally) to 20%ish.

[PDXTabs]

Portugal's Non-Habitual Residence scheme seems to allow people to stay there without being taxed there as long as income is not sourced within Portugal.

Not just that, locally sourced income is taxed preferentially for 10 years as well, AFAIK.

[deborah]

As you have Australian super, you should be able to put most of your money into super, both your husband’s and yours. In retirement phase it’s not taxed at all (including within the superannuation fund). Maximise the non concessional contributions each year for both of you.

[former player]

Tax residency is usually established by spending 90 days in a year in one country.  As a digital nomad in northern Europe the standard route out of paying tax is to buy a live-aboard barge and rotate around the canals and navigable rivers of the Netherlands, Belgium, Luxembourg, Germany and France, spending less than 90 days in any one of them in any one year.  There's a whole community of digital nomads doing this.

[kaetana]

Not just that, locally sourced income is taxed preferentially for 10 years as well, AFAIK.

Interesting-- I didn't realize this. Good to know. This Portguese deal seems too good to be true, really. Makes me think I'm missing something.

As you have Australian super, you should be able to put most of your money into super, both your husband’s and yours. In retirement phase it’s not taxed at all (including within the superannuation fund). Maximise the non concessional contributions each year for both of you.

Not sure I understand. To make non-concessional contributions, I'd have to pay the higher income tax on it before converting to AUD and moving it over... Or are you suggesting I become a tax resident in Australia again? The problem I've seen with that is that Australia would tax me on worldwide income, which I'd like to avoid if possible, given that we have property and other investments in a few other countries.

Tax residency is usually established by spending 90 days in a year in one country.  As a digital nomad in northern Europe the standard route out of paying tax is to buy a live-aboard barge and rotate around the canals and navigable rivers of the Netherlands, Belgium, Luxembourg, Germany and France, spending less than 90 days in any one of them in any one year.  There's a whole community of digital nomads doing this.

I believe it's roughly 6 months that establishes residency for most countries, is it not? I think this lifestyle may work better for "true" nomads who haven't put down roots anywhere and maybe do more freelance work. In my case, if I suddenly decided to do the same, I'd have trouble convincing the Dutch tax office that I'm suddenly no longer tax resident despite being a citizen, owning a house, having investment and bank accounts, and receiving a salary all in the Netherlands. There's also the difficulty of proving I'm out of the country if I don't leave the EU.

I'm not sure how others do it legally-- every time I've moved to another country (4x now), my experience has been that I've had to prove that I'm a tax resident of a new country before the old country concedes they can't tax me anymore. I wonder if it's just that those people haven't been caught.

[deborah]

I assumed that you wouldn't be able to make concessional contributions because you're not a tax resident, and so have no income that fits this. You say you're currently paying lower than normal income tax, so the non concessional contributions would have already have the low tax paid on them in the Netherlands so you wouldn't need to pay tax twice - for instance see

https://www.afr.com/wealth/superannuation/can-i-maximise-super-contributions-if-i-live-and-work-overseas-20191204-p53gq9

[MrThatsDifferent]

Portugal has the best tax arrangement that I’m aware of.

[kaetana]

I assumed that you wouldn't be able to make concessional contributions because you're not a tax resident, and so have no income that fits this. You say you're currently paying lower than normal income tax, so the non concessional contributions would have already have the low tax paid on them in the Netherlands so you wouldn't need to pay tax twice - for instance see

https://www.afr.com/wealth/superannuation/can-i-maximise-super-contributions-if-i-live-and-work-overseas-20191204-p53gq9

So that is great for now, and it's certainly something I will look into doing, thank you. However, in two years, my marginal tax rate will be ~52%, so even if I have super investments that won't be taxed, I'll lose a lot more tax from my income, which is not ideal.

[former player]

Tax residency is usually established by spending 90 days in a year in one country.  As a digital nomad in northern Europe the standard route out of paying tax is to buy a live-aboard barge and rotate around the canals and navigable rivers of the Netherlands, Belgium, Luxembourg, Germany and France, spending less than 90 days in any one of them in any one year.  There's a whole community of digital nomads doing this.

I believe it's roughly 6 months that establishes residency for most countries, is it not? I think this lifestyle may work better for "true" nomads who haven't put down roots anywhere and maybe do more freelance work. In my case, if I suddenly decided to do the same, I'd have trouble convincing the Dutch tax office that I'm suddenly no longer tax resident despite being a citizen, owning a house, having investment and bank accounts, and receiving a salary all in the Netherlands. There's also the difficulty of proving I'm out of the country if I don't leave the EU.

I'm not sure how others do it legally-- every time I've moved to another country (4x now), my experience has been that I've had to prove that I'm a tax resident of a new country before the old country concedes they can't tax me anymore. I wonder if it's just that those people haven't been caught.

Residency can have different criteria for different purposes and tax residency is often a different concept from having permission to live somewhere and has different qualifying criteria. Owning a house may be relevant for tax residency but not necessarily: it could be difficult to convince the tax authorities that you had moved away permanently if the house were empty but if it were permanently rented out that would be different.   I think you could establish no longer being resident for tax purposes by providing evidence of having moved, renting out your house and being paid in a different country/countries - which means that the barge scheme probably won't work for you as long as you are receiving a salary in the Netherlands.

Avoiding tax is in general a tricky business and worth getting paid professional advice on.

[kaetana]

Residency can have different criteria for different purposes and tax residency is often a different concept from having permission to live somewhere and has different qualifying criteria. Owning a house may be relevant for tax residency but not necessarily: it could be difficult to convince the tax authorities that you had moved away permanently if the house were empty but if it were permanently rented out that would be different.   I think you could establish no longer being resident for tax purposes by providing evidence of having moved, renting out your house and being paid in a different country/countries - which means that the barge scheme probably won't work for you as long as you are receiving a salary in the Netherlands.

Avoiding tax is in general a tricky business and worth getting paid professional advice on.

Agreed; I've been able to successfully convince the Australian tax office that I'm no longer a resident despite owning property there (being rented out), but to do that I had to show them I'd put down roots elsewhere. I expect to do the same thing with the Dutch tax office when I leave. Their site suggests they look at proof of being "outside the Netherlands" to determine whether I've emigrated for tax purposes: https://www.belastingdienst.nl/wps/wcm/connect/en/individuals/content/moving-abroad-emigration. That's difficult to prove without a permanent address, insurance, salary in another country.

I do have some leeway in the country that I get paid out of; the company I'm working for has branches in several countries, but unfortunately, Portugal is not one of them.

I have previously hired a tax professional specializing in international tax, but it wasn't a great experience. I'm trying to narrow down the list of countries to research so that I can approach another professional with more specific questions relating to that country. I'm hoping that would make it easier to find someone good!

[deborah]

With super, you can co-contribute to your spouse. He is already getting super, so I assume his is in retirement phase rather than accumulation phase, so the income isn’t taxed, nor is the super fund itself. Anything you add to his super won’t be taxed at all once it’s there including its income. For instance, you could use the bring forward rule to add three years of non concessional contributions at once, but you wouldn’t be able to add any for two years afterwards (ie you’re paying in three years worth in the first year), so you could add $100k to his and $100k to yours this year, $300k to each next year (the last year you have a lower income tax), for a total of $800k (if you both have that much room below the cap), $400k of which is tax free, and is readily accessible because he’s already drawing a pension and he’s above preservation age, and $400k of which isn’t readily available because it’s in your super, and you’re still in accumulation phase, and the super income is paying 15% tax. All this makes a few assumptions that you’d need to check out, but you should be able to reduce tax on income from the capital you have outside super.

[kaetana]

With super, you can co-contribute to your spouse. He is already getting super, so I assume his is in retirement phase rather than accumulation phase, so the income isn’t taxed, nor is the super fund itself. Anything you add to his super won’t be taxed at all once it’s there including its income. For instance, you could use the bring forward rule to add three years of non concessional contributions at once, but you wouldn’t be able to add any for two years afterwards (ie you’re paying in three years worth in the first year), so you could add $100k to his and $100k to yours this year, $300k to each next year (the last year you have a lower income tax), for a total of $800k (if you both have that much room below the cap), $400k of which is tax free, and is readily accessible because he’s already drawing a pension and he’s above preservation age, and $400k of which isn’t readily available because it’s in your super, and you’re still in accumulation phase, and the super income is paying 15% tax. All this makes a few assumptions that you’d need to check out, but you should be able to reduce tax on income from the capital you have outside super.

Thanks, this is a good strategy for income from investment earnings, and one we are already employing for the most part (most of our capital is already in our supers from years of co-contribution or properties). My main concern, though, is how to minimize taxes from employment income. If I lose up to half of my salary at the highest threshold on taxes, there won't be too much left over to contribute to super.

[PDXTabs]

Not just that, locally sourced income is taxed preferentially for 10 years as well, AFAIK.

Interesting-- I didn't realize this. Good to know. This Portguese deal seems too good to be true, really. Makes me think I'm missing something.

Well, they do still get their (rather high) payroll taxes if you work locally. Also, they are trying to attract foreign talent.