A Digital Nomad’s Guide to Paying Taxes

Before I became a full-time digital nomad, I was actually thinking of being on the road so I won’t have to pay taxes. (Haha!) After all, you hear that all the time from other digital nomads (mostly Westerners): travel the world and earn money, tax-free! That’s their catch phrase for luring people into this lifestyle.

Depending on which country you’re from, you can do it this way.. legally. 

Just not if you’re a US Citizen! 😛 The IRS has clout everywhere (which is why offshore havens have started crumbling in the recent years).

It’s also possible to structure your business entity in such a way that you pay little to no taxes. This is why company registrations are popular in Hong Kong and Singapore.

But what about the Philippines?

If you’re NOT a Philippine citizen/resident, you can legally stay here and pay nothing in taxes as long as your income is not derived from the Philippines. That means, you don’t do buy and sell, or local e-commerce. Otherwise, you’ll be liable to paying taxes on income derived inside the Philippines.

Here’s a screenshot of a file from the Bureau of Internal Revenue (the Philippine tax authority):

If you want to read the entire document, you can find it here: BIR Primer on Taxation of Nonresidents

This is great for foreigners and digital nomads who want to establish their base in the Philippines.

But what about Filipino digital nomads?

Filipino Digital Nomads: Are you required to pay income tax in the Philippines?

First, let’s establish the difference between these terms. If you have a Philippine passport, then you’re a Philippine citizen. What you’re legally required to pay taxes on depends on whether you’re a resident or non-resident.

• Resident citizen — if you’re residing, or have a permanent home in the Philippines. Tax liability: required to pay taxes on BOTH income derived in the Philippines AND from worldwide sources
• Non-resident citizen — these are people who have a Philippine passport but are living and/or working abroad. Tax liability: required to pay taxes on Philippine-sourced income ONLY

So, in which category do where do digital nomads fit in?

First, let’s examine how the Philippine Tax Code define a ‘nonresident citizen’.

I have compared this with TRAIN (Republic Act No. 10963), but there’s no change or amendment in definition. So let’s go with this:

Source: The LawPhil Project – R.A. 8424 (An Act amending the National Internal Revenue Code, 1997) Jump ahead to Section 22 for the Definitions.

Definition number 1 and 5 are out since we don’t want to involve the BIR Commissioner 😀

Definition number 4 is for those who have lived and worked abroad but have recently to the Philippines.

This definition was applicable to me when I went back to the Philippines in late October 2013 after having lived and worked in the UK for nearly 4 years. Basically, what the tax law is saying is that I am not liable to pay income taxes on my earnings while I was still in the UK.

So that leaves us with definition number 2 and 3:

(2) A citizen of the Philippines who leaves the Philippines during the taxable year to reside abroad, either as an immigrant or for employment on a permanent basis.

Digital nomads aren’t usually seeking employment as they either (1) work for themselves, or (2) have client/s who they work with on a contract basis.

However, this can be loosely interpreted as having an employer for whom who do ‘remote work’. For this definition to apply to you, your employer must not be based in the Philippines.

(3) A citizen of the Philippines who works and derives income from abroad and whose employment thereat requires him to be physically present abroad most of the time during the taxable year.

Digital nomads (well, Filipino digital nomads anyways) almost always derive income from abroad. But here we are faced with the “employment” situation again.

What if you’re a traveling writer? Blogger? Digital marketer?

The law is once again fuzzy. But it’s not surprising, considering the Philippine tax law has not kept up with the times.

What does ‘physically present abroad most of the time’ means?

Source: “The new rule on taxation of nonresident citizens” by SGV & Co. Philippines Accounting Firm

What does this new ruling mean?

Basically, if you are NOT working for a local (Philippine-based) company, and as long as you’re OUTSIDE the Philippines for at least 183 days (roughly 6 months), then by this definition, you’re not required to pay taxes.

Should you pay taxes or not?

It depends on YOU.

If you’re living outside the Philippines for at least a year, you can probably get away with not paying taxes.. technically speaking.

But do consider that you won’t have a business entity. You won’t have a legal record of your income. That can be detrimental to you in the future especially if you wanna settle down and live in a first-world country. Unless of course, you end up marrying a citizen or resident of that country. But let’s not count on that 😀

Here’s my take on it..

If you ask, I say yes. Even if we’re location independent and can live anywhere with internet connection, it’s still a wise idea to pay taxes. If you’re gonna pay taxes anyway, might as well your home country, right? 😉

Personally, I still pay taxes. I have been paying taxes for 3 years running.

>> Check out this article: 3 (Selfish) Reasons To Register and Pay Taxes

I haven’t tried to live abroad as a digital nomad for over a year. Not yet, anyway. I still love to go back home to the Philippines and spend Christmas with my parents and siblings. My only surviving grandparent is celebrating her birthday every January and I want to be there. She raised me when I was still a baby and my parents were working. So naturally, I want to be there during her birthday.

Having the freedom to do this is one of the reasons that motivated me to work hard and succeed online. Back when I was still a nurse, I couldn’t just request for a leave during Christmas.

As much as I want to explore the world and travel longer, the sappy side of me will always want to be with family, particularly during the holidays.

I also have different investments in the Philippines, with property being one of them. It is my goal to have many rental properties and earn passive income from real estate (a la Rich Dad, Poor Dad 😉 )

Having a tax record helps with visa applications

Applying for Visas is another reason for me to continue paying taxes even though I’m OUTSIDE the Philippines most of the time.

The Schengen visa requires you to apply in your ‘home country’ or ‘resident country’. I could probably get away with this by getting long term student visa or business visa (which is easy to get in Thailand and Vietnam). But I’m not even sure I want to spend that much time in either countries.

Applying for a Schengen visa requires income documents (tax return). It doesn’t matter how much money you have in your bank account; if you don’t pay taxes, it won’t be considered “legitimate” by foreign governments.

I’ve heard stories of online Filipino freelancers getting denied Schengen visas despite having hundreds of thousands (in Philippine pesos) in their bank accounts. For the simple reason that they don’t have an ITR.

So if you’re even considering traveling to Europe, I recommend paying taxes in the Philippines. It doesn’t matter how much income you “declare”, and whether you declare your full income or not, it’s up to you 😉 Even among online Filipino freelancers, still only a small percentage (I estimate less than 50%) are paying taxes.

At the moment, I do all my visa applications when I’m in the Philippines for the holidays. I was back in my hometown for Christmas 2017. I didn’t leave again until after my brother got married last March 2018. Whilst waiting, I applied for my multiple entry visa to South Korea, and I also got my US Visa.

How do digital nomads pay tax?

Glad you asked! 🙂

Filipino digital nomads who want to pay tax in the Philippines but are mostly abroad have 2 options:

1. Hire an accountant to file on your behalf.

This is what I did when I started traveling long term in February 2017. After filing my own taxes using eBIRForms for over 2 years, I outsourced tax filing and preparation to a local accounting office recommended by a friend.

2. Use Taxumo.

Even before, Taxumo has caught my attention. After all, who doesn’t want to just file and pay online, and not have to go to the bank? The only reason I didn’t use it was that the subscription fee at that time was the same as what I was paying my accountant.

This year, I am currently testing using Taxumo to file and taxes on behalf of my Mom (she runs a dental clinic).

With the recent implementation of TRAIN this year, it’s nice to see Taxumo getting on top of things. And they’re recognized by the BIR too!

I’ll see how it goes. I might end up switching to Taxumo once I go back to the Philippines for Christmas. 😉

How about you?

First, if you’re still with me up to this point, thanks! 🙂 I know taxes can be a tough subject for a lot of people.

Are you a digital nomad paying taxes?

If yes, good on you!

If not, may I ask why? Let’s hear it! Comment below.

DISCLAIMER: 
I am NOT a tax expert. I don’t have an accounting background. 
I am just a digital nomad trying to make sense of tax laws. 
This article is the outcome of my own research. 
It is based on my own opinion and interpretation. 
Please consult a tax lawyer or an accountant for professional advice.