Digital Nomads & Remote Work Tax Challenges
As a remote worker, you may still be subject to taxes in your home country, as well as in the country where you are working. It’s important to understand your tax obligations and to seek professional advice to ensure compliance with tax laws in both countries.
We have watched a growing number of digital nomads arriving in Portugal during the past years. Some of them stay in the country for short periods of time, without effectively establishing residency for Immigration or Tax purposes.
For those who stay for relevant periods of time, applying for a Remote Work Visa or not (check our guide here), all new comers, freelancers or employees, who are or should be setting up as legal residents must know about all the implications from a tax perspective.
We face new challenges regarding the applicability of the existing tax rules to the increased globalisation and mobility.
Both Portuguese tax law and double tax agreements were conceived in a different environment that may not correspond to the extension of the professional flexibility we are seeing these days.
Remote work can present a number of tax challenges for both individuals and companies, including:
- Tax residency: When you work remotely from a country other than your home country, you may trigger tax residency in the country where you are working. This means that you may be subject to local taxes on your income in addition to any taxes you are already paying in your home country. It is important to understand which country has power to tax your income under the international rules and how to avoid/eliminate double taxation.
- Tax implications for employers: If you are working remotely for a company based in another country, the company may have to deal with additional tax compliance issues, such as registering for taxes in the country where you are working, or withholding taxes on your behalf. In some cases, depending on your specific role, the Company may be taking the risk to be seen as having a Permanent Establishment abroad.
- Tax reporting: Remote workers may need to report their income and pay taxes in multiple countries, which can be complex and time-consuming. It’s important to keep accurate records of your income and expenses, and to seek professional advice to ensure that you are meeting your tax obligations in each country.
- Tax deductions: Remote workers may be eligible for tax deductions for expenses related to their remote work, such as home office expenses, travel expenses, and internet and phone expenses. However, the rules and regulations governing these deductions can vary widely depending on the country, and it’s important to understand the local tax laws and regulations to ensure that you are eligible for any deductions you are claiming.
Overall, the tax challenges of remote work can be complex and depend on a variety of factors, including your country of residence, the country where you are working, and the nature of your work.
The Digital Nomads & Remote Work Tax Challenges and most important factors you should be alert to, when it comes to Portugal, are as follows:
- Personal Income Tax
First of all, under the Portuguese Personal Income Tax Code, you become a tax resident of Portugal, for tax purposes when you spend more than 183 days in Portugal or even for shorter periods, when your place of abode is in Portugal.
It is also relevant, and commonly ignored, that, according to the Portuguese Personal Income Tax Code combined with the interpretation of the Double Tax Agreements signed by Portugal, professional income should be taxed in the country where the professional activity is provided from.
- Non Habitual Resident Tax Regime (NHR)
Activities performed online from Portugal, even though the result is effective abroad, result in income subject to taxation in Portugal. For all remote workers who are deemed as tax residents in Portugal, the NHR may have a huge impact.
The NHR tax regime will not change the above mentioned rules and does not grant any exemption on professional income that may be considered Portuguese sourced (employment income, even if paid from abroad; or self-employment income, when the relevant conditions around a permanent installation abroad are not met, as required under the double tax agreements).
However, it can be determinant to reduce your taxation, if you are eligible for a reduced tax rate based on your activity.
- Social Security
A significant impact can result also from Social Security contributions, which are due, in principle, in the country where a considerable part of the professional activity is carried out.
Digital nomads may easily fall into a complex array of rules, that must be properly assessed before any relocation decision, not only from a Portuguese perspective but also considering the rules in force at the country of origin.
Additionally, after a concrete analyses of the tax applicable regime, we face the constrains of the practical bureaucratic steps related to payroll on a remote employment situation, which will imply a pragmatic approach. We are available to assist you with determine the best path to follow in the right direction to Portugal.
We are available to assist you with:
- Immigration options available to your specific case;
- Determining if you should be registered as a tax resident in Portugal and the correct moment to do so;
- Determine what are the specific tax rules and tax rates that will apply to your sources of income;
- Determine if you would be fully compliant under tax laws and Social Security law once working remotely from Portugal;
- Advise you on the steps and procedures you should take as an employee or freelancer working remotely from Portugal and where your employer should be available to help you.
Digital Nomads & Remote Work Tax Challenges by Raquel de Matos Esteves.
If you are looking to or working remotely from Portugal, get our assistance and guidance:Contact us