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The Fast Company Executive Board is a private, fee-based network of influential leaders, experts, executives, and entrepreneurs who share their insights with our audience.

How entrepreneurs can travel the world (and minimize taxes)

If you aren’t tied to your current location, there are a few benefits to working remotely from overseas.

How entrepreneurs can travel the world (and minimize taxes)
[karyakinvitaliy / Adobe Stock]

Do you dream of working from Bali or perhaps the Swiss Alps? Remote work isn’t new, of course, but over the last year, millions more people and businesses have embraced the experience of working remotely.

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As international travel restrictions lift, the number of people seeking to work remotely from abroad is forecast to skyrocket, fueled by the proliferation of remote working and a thirst for adventure.

Remote work is just as appealing for business owners, freelancers, and entrepreneurs as it is for employees. As a business owner, if you and your team are working remotely already, and you aren’t tied to your current location, then you might consider building your business while traveling the world.

The systems, platforms, and tools required for working remotely are the same whether you and your team are based in the same town or spread out around the world, so the transition to building your business from overseas should be seamless from a technological perspective if you’re already set up for remote work.

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There are new sites and apps that you’ll want to familiarize yourself with too, such as Nomad List, which connects like-minded international digital Nomads so they can share information, swap tips, and network.

If you aren’t tied to your current location, there are a few benefits to working remotely from overseas. There’s the opportunity to travel and explore without having to take a career break. And some people also view remote, overseas work as a chance to save money on taxes while investing in and growing a business.

In fact, with careful planning, it may be possible to pay zero tax while building your business faster and simultaneously exploring exotic, distant lands.

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HOW TO MINIMIZE TAXES ABROAD

The U.S. tax system is unusual in that it taxes all American citizens and Green Card holders on their worldwide income, wherever in the world they live or roam. This means that American business owners (as well as employees) working remotely from overseas still have to file U.S. taxes.

If you settle in one country abroad, rather than traveling from country to country, you may have to pay foreign taxes as well.

The simplest way to avoid paying foreign income taxes while building your business from abroad is to travel from country to country rather than spending too much time in any one country. Alternatively, if you would prefer to be based in one place, try to choose a country that has either low or no income taxes. Either way, it’s important to research the tax rules and rates of the countries you plan to visit in advance.

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How you minimize your U.S. income tax bill while running your business remotely from abroad depends on the details of your situation.

For example, if your income is either a salary or self-employment income, and if you meet certain conditions, you can claim the Foreign Earned Income Exclusion, which lets you exclude the first around $107,600 (the 2020 figure — $108,700 in 2021) of your earnings from U.S. income tax liability.

For most international remote workers, to qualify, you must spend at least 330 full days in a 365-day period (which doesn’t have to be a calendar year) outside the U.S.

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The Foreign Earned Income Exclusion can’t be applied to unearned income such as dividends, however.

Another way to claim the U.S. Foreign Tax Credit is if you settle in another country and you pay foreign income tax there. The Foreign Tax Credit gives you U.S. tax credits for the same value as the foreign taxes you’ve paid on any income, including dividends.

There are other credits and exclusions available just for Americans living and working abroad too, some of which may be more (or additionally) beneficial to your personal situation.

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A WORLD OF OPPORTUNITY

Keep in mind that you may need to do some business restructuring before you jet off if you want to ensure that your business and personal compensation are set up to take full advantage. Planning your travel schedule and how you receive your income, combined with claiming the Foreign Earned Income Exclusion, can offer a rare opportunity to greatly reduce or even eliminate your income tax bill, which can help you grow your business by giving you more money to invest in marketing, new hires, or a new product or service.

Furthermore, the opportunity to network internationally often brings about new opportunities that you hadn’t previously considered. New partnerships, collaborations, and ventures happen all the time thanks to chance encounters with other digital nomads around the globe.

The information provided here is not investment, tax, or financial advice. You should consult with a licensed professional for advice concerning your specific situation.

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Katelynn is a CPA, a partner, and COO at Bright!Tax Expat Tax Services, the award-winning U.S. tax provider for Americans living overseas.

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