The structure of work has changed dramatically over the past few years, and the digital nomad lifestyle is being tagged as a major trend for 2018. And if you’re looking to ride this wave - or are already successfully surfing it - understanding how to manage your taxes is crucial to giving you as much financial freedom and flexibility as possible.
We’re no experts here, but we do know one thing: For citizens of many countries, Unsettled’s one-month and two-week retreats, across all our locations, can be tax deductible.
How? It’s simple: You’re working. You’re networking. You’re learning. You’re taking meetings, planning new products, and collaborating with potential clients. Even though you’re abroad, you’re still focusing on your professional endeavors, and many of our workshops are designed around both personal and professional growth, and so big portion of our coworking retreat falls under the tax deductible blanket.
While we still recommend you chat with a qualified accountant, we’re going to give you a little taste of how to make the most of your digital nomad life while living Unsettled.
The United States is one of the few countries that still uses a citizenship-based tax system rather than a residence-based tax system. This means that you are required to pay federal income taxes no matter where you decide to spend your digital nomad life.
“When travel is outside of North America (Rev. Rul. 2016-16 has the current list of countries that are considered to be within the North American area), a taxpayer can deduct 100% of the transportation and lodging expenses only if the entire time was spent on business activities,” suggests Teri M. Kaye, Partner at Daszkal Bolton LLP.
“If the travel was primarily personal, but there was some business activity, the transportation expenses are nondeductible. Expenses incurred during the trip that are directly related to business (for instance, seminar registration fees, or in our case the Unsettled program fee) are deductible, even when the travel costs are not. Out-of-pocket costs incurred on personal days are never deductible.”
Ms. Kaye recommends each traveler should consult their own tax advisor to determine how the rules will apply to them and each potential trip.
Things are a little different across the pond in the United Kingdom. Firstly, you need to spend an average of less than 91 days in the country each year to be eligible to pay tax. So if you’re a serial nomad, you’re already in luck. The UK (just like most European countries, Canada, Australia and New Zealand) practices residential taxation. Which means that if you’re a resident in another country, and abiding by that country’s laws then you are exempted to pay taxes in the UK.
If you’re freelancing for a UK-based company, you can earn tax-free wage of around £9,000. If you’re a partner at a UK-based firm, you can reduce your company’s taxable profits by claiming legitimate expenses while you’re on a coworking retreat abroad. If you show your business is online, you can reasonably claim internet fee, computer and telephone costs against tax at the end of the financial year. If you work with VA or use any location-independent freelancer platforms for your company, you can claim that as a business expense too.
And just how much of an Unsettled retreat can be a tax-deductible for freelancers, creatives, and entrepreneurs in the UK?
More than you may have thought. Remote freelancers are considered sole traders (or entrepreneurs) in the UK, and Her Majesty's Revenue and Customs (HMRC) permits to “claim tax relief on some home or travel expenses as long as they are within reasonable measure”. However, similar to North America, expenses incurred during a business trip for sole traders are considered as “allowable expenses”.
While there are bigger factors that weigh for what percentage of a coworking retreat can be claimed back for tax purposes, there is a very strong case favouring for freelancers and location-independent entrepreneurs in the UK.
Europe, Australia and Canada
In Europe, most countries practice a residential taxation. If you live there long enough, often 183 days or more per year, you’ll be taxed on your worldwide income. However, the claimable expenses for Europeans abroad vary from country to country. Check with your local accountant for more details on how much of your travel expenses are deductible.
As per Australian Tax Office, expenses incurred during a “business trip” are claimable to a reasonable amount, however, “as a sole trader you can't claim deductions for money 'drawn' from the business. Amounts taken from the business are not wages for tax purposes, even if you think of them as wages”.
If you are self-employed and traveling, the Canada Revenue Agency allows you to deduct a range of business expenses at the end of the financial year. If you’re starting a new business (and doing it while on an Unsettled 30-day experience), you can claim business operating expenses as a deduction. These advertising fees, start-up costs (including interest and fees on money borrowed for your business), and delivery or shipping costs.
In addition, if you travel to a convention, meeting or other business-related event, you can deduct all of your travel expenses, including public transportation fees, hotel costs and conference fees. You can only deduct 50% of your meal and entertainment costs.
if you’re a freelancer, but have set up your business as a legal entity in South Africa, you should be able to claim the entire Unsettled experience either under Travel, Conferencing or Research & Development Incentive. As per the official sole trader laws, you would only need to show that the expense was incurred in the hope of improving profit (whether it does or not is irrelevant) i.e make business contacts, develop new strategy, collaborate with creatives or entrepreneurs alike.
So, if the digital nomad life is one of your goals for 2018, then definitely check with your accountant how you can make the most of out.
For a 30-day experience of a lifetime, Unsettled is probably the best tax write-off you can treat yourself to this year. At least in our humble opinion.