Digital Nomad Money Guide: Taxes, Pensions, Retirement and Banking

Being location-independent may mean freeing yourself from being tied down to any one place, but working online doesn’t necessarily mean escaping all the drudge that goes with employment. We often get asked questions about all the nitty gritty details of being digital nomads and working online – how we pay taxes when working abroad, do we have a pension, and so on. The answers are often less than simple as the genre of digital nomad is a relatively new one and lots of the old bureaucratic processes haven’t quite caught up with it yet. This results in a lot of grey areas, and you’ll find that many digital nomads  and ex-pats have different answers about  how they navigate the system.

Working abroad tax tips

We’ve put these digital nomad guides together to share our specific experiences as digital nomads. They are meant as a means of sharing what we do and what we’ve learned, rather than instructions on what you should do. Remember, we are in no way financial or legal experts, and there will be different answers for different people. However, we hope they’ll be useful to you as a starting point and another voice in the ‘how to be digital nomads’ debate.

This guide focuses on all things money including tips for working abroad taxes, pensions, retirement and banking. It could be useful for ex-pats, career breakers, and gap year students as well as digital nomads. We’ve written another guide covering visas, communications, insurance and voting.

Please note that as we’re from the UK, our experience is most relevant to UK nationals.That said some of the general principles apply worldwide.  

UK guide to taxes for travellers living abroad

Taxes for UK residents living abroad

This is one of the first questions people tend to ask. How/where do digital nomads and people working online pay tax?

The answer for us is the UK. We’re both registered as self-employed and do our own self-assessment tax returns. The reason for this is that although we’re living abroad, we’re still considered residents in the UK. Even though we don’t live in the UK full-time, we choose to be resident there as it comes with benefits such as having an address, a pension, and healthcare. We also own a house in the UK so have to pay tax on the rental income from that. It makes sense for us to pay all our tax in one place.

Other nomads choose to become resident in a different country where tax rates are lower, and some forego residency altogether and become tax nomads. This can mean avoiding tax altogether if you never spend more than 180 days in any one place. We haven’t done this so can’t say much on the subject.

If Steve and I were to start spending long periods of time in one particular country other than the UK, our tax would become a little more complicated. We’d likely have to pay taxes on anything we earned while living in that country. Fortunately, the UK has a double taxation treaty with many other countries, meaning we wouldn’t have to pay our taxes twice. However, this isn’t always the case so do double check that a double taxation treaty is in place with the country you plan to stay in.

It should also be noted that some countries have rules that ask you to pay taxes on any money earned there regardless of how long you’re there for. You need to check with individual countries to see if this is the case.

Another option we’ve heard people go with is to set up a corporation based in your home country, which would make all money earned originate there. If you go down this route, it’s best you speak to an accountant, as it’s definitely a more complicated option.

Pension / retirement planning for long-term travellers

When you register as self-employed in the UK, you are also supposed to register for Class 2 National Insurance contributions. If you pay these for 35 years, you are entitled to the full state pension when you retire.  If you earn less than £5,725 a year then you can apply for an exemption. However, doing so will count against your 35 years. At less than £3 a week for a pension of around £140 a week, we consider it worth it.

The basic state pension is likely not enough to maintain one’s way of life post-retirement so many people choose to save in other ways too. For example, most people who live and work in the UK pay a percentage of their earnings into a pension fund, which their employee then tops up. The standard amount for this is about 6 per cent from both you and the employer. People choosing to become self-employed / digital nomads sometimes worry about missing out on this “free money” from their employers. For us, the benefits of being self-employed and able to travel outweigh that money.

However, I am not in the camp of eschewing pensions / savings altogether. I have no idea what the future holds and while some people use this as reasoning not to have a pension/ savings (financial markets might collapse, governments might fall etc etc), I see it as a reason to save. My Mum’s pension enabled her to have an income after she fell ill with a long-term illness, and my Dad’s pension / life insurance meant that he could provide for Mum and I in some ways after he died. Steve and I don’t yet know if we’ll have children, but if we do, having a retirement fund means we’ll be able to better provide for and support them. Also, although I enjoy my work, I doubt I’ll have so much energy or brainpower for it when I’m older, so even if I continue to work in some way, having an extra source of income will likely be necessary.

For these reasons, I am currently in the process of setting up a retirement fund. Currently I see two options: investing in a traditional pension plan or choosing to invest in ISAs. Both have different tax benefits and advantages, which are described in this Telegraph article. I go cross eyed when it comes to terms like annuity, Sipps and the like so I have enlisted a financial advisor to help me choose what to do. I don’t want to make a costly mistake that will bite me years down the line – better to invest in some advice now, rather than risk that in the future.

I think the main thing to take into account is that the earlier you start saving, the less you need to save each month because the savings will acquire interest over time. I was interested to read that someone who saves £100 a month from the age of 20 will end up with a bigger pension than someone who saves £200 a month from the age of 40. That’s not to say you need to start saving at 20, and many experts suggest that you only need to start considering a pension once you reach your 30s. They advise to clear your other debts before that too. I found this handy calculator quite useful when trying to get an initial idea of how much I need to save.

I should also add that none of these are hard and fast rules and I am definitely not an expert. There are many options when it comes to retirement planning and many choose a variety, from investing in property to pensions to ISAs. Unless your financially literate, I definitely suggest getting some advice from a financial advisor.

Banking on the road

Because we are considered resident in the UK, we bank in the UK too. We have one joint account and two separate bank accounts each. To see how we chose these, read our post on managing money when abroad, which has useful tips on how to save money on cash withdrawals and what credit card to choose.

Of course, also make sure to sign up to online banking before you leave.

Where to register your address while travelling

For all of the things mentioned above, you need an address. We are registered at Steve’s parents house in the UK. All our post goes there and Steve’s Mum kindly opens and scans it all to send to us (Thank you Ros!). It’s also a good idea to register for paperless accounts when it comes to banks, telephone bills etc. That way you can manage everything online. If you start to spend more than six months in one country, you might want to consider becoming resident there. It’s a good idea to look into the different tax laws and health provisions / insurance requirements before making that step.

Do let us know in the comments if you have any additional tips.

If you have more questions about the practicalities of living abroad, we’ve written another guide covering visas, communications, insurance and voting.

22 thoughts on “Digital Nomad Money Guide: Taxes, Pensions, Retirement and Banking”

  1. We’ve been on the road only eight months and have been living only with our savings for now, but sooner or later we’ll need to figure out where, how and if to register as freelancers. So, thanks for opening this topic, because not many travel bloggers talk explicitly how they cope with finances, taxes etc. Cheers and looking forward for any update or other tips!

  2. This may only apply to people with U.S. residency, but my partner Tom and I bank with Schwab and it makes all things financial so much easier! With the free Schwab Bank High Yield Investor Checking account there are no foreign transaction fees and ALL ATM fees anywhere in the world are reimbursed. We can also deposit checks with our iPhone, though I think most banks do that nowadays. We don’t work for schwab, nor are we reimbursed in any way for spreading the word. We just think they are a great company and it’s amazing to be able to take out money from ATMs as many times as we want and have all the fees refunded.

    We work for ourselves and pay taxes in the U.S. (California) if anyone has any specific questions they want to ask us. I really muddled through figuring out how to make this work over the last few years and would be happy to share anything I have learned 🙂

    • Hi, Jenny! I’m also from California, and traveling. I have Schwab now too. I’m trying to find some good financial advisors for digital nomads, to help me (and others) actually come up with a plan so I can avoid paying more tax than necessary. I’m having a hard time with this. Do you have anyone advising you? What have you learned and what do you do?

      • But why wouldn’t you traveling Californians become citizens of a non-tax state income tax state if you spend most of your time abroad?

  3. What if I don’t have a stable address in the uk? I am a UK resident and thats all. I have no family in here and I am not a house owner…. I would like to pay tax in the uk if possible

    • Hmmm, I’m afraid I don’t have an answer for that. I think you’d need to contact HMRC. You may need to use a friend’s address.

    • In the States, we have “registered agents”. When you register your business, you can choose to register with an agent address versus a “home” address. This helps ensure you get all of your important tax docs and won’t have to submit a change of address everytime you move.

      Maybe there’s a such thing in other countries as well.

  4. I’ve also heard good things about Schwab Bank. Especially with the no ATM fees and foreign transaction fees, it’s a much better deal than the bank I’m currently at, so I’ll probably switch over soon.

    One thing I didn’t see you mention specifically is the legality of “working” in certain countries. This is really one area where the law has not kept up with the digital age. I know in Thailand many expat business owners and retirees look down on digital nomads as lawbreakers because 99% of them don’t have a work permit and are in the country on visa types that don’t allow one to work legally. I don’t know if it’s something that people worry about much in other countries or not.

    • Thanks Ryan. Good point!

      And yes, lots of people seem to recommend Schwab Bank, but I think it’s for US-citizens only.

  5. Great post, thanks for it. I was wandering about that side of full-time traveler life and there you go, you have some answers. The retirement bit is quite important to me, I guess I have a security about my financial future issues here 🙂 I am still not sure if full time traveling is something I want to do, hope to find out soon as I am planing 3 or 6 months trip soon – just want to learn Spanish as I want to visit Spanish speaking countries. We will see how it goes 🙂 Anyway, I think a lot of people might find your post useful!

  6. Thank you so much for this article! As I’m lucky enough to hail from Denmark, probably the country in the world with the most social benefits, I think I should pay my taxes there, but for the last couple of years I’ve lived in Hong Kong, Rwanda, Brussels, Paris, DC and now New York for longer periods of time, and it’s so messed up. I’ve even had problems finding a tax accountant who can figure out my situation…

    • My intuition is, unless you find a new country to call home for the medium-long term, do as much as possible to try and maintain residence in your home country. Benefits include a system you know and can even download software and do your own finances. Same language. Disadvantages include possibly paying higher taxes for not ever stepping foot in the country or using the social services. From what I understand of tax treaties, you do not have to keep moving to keep home tax residency. You can say be a resident of the UK but live 5 years in Spain. If the tie-breaker rules lean toward UK, then I’m not sure you even have to file any returns in Spain or if you do, it may be a special form saying, according to tie-breaker rules, I have a greater presence in UK. That would be much easier. The real lucky ones are those who live in a low-tax home country and maintain residence there while on the go. In the end, I see lots of talk of tax havens, etc..but the bottom line is your lifestyle will dictate where you want to live. If you hate a little island in the ocean and no tax, who cares right? 🙂

  7. Great post (again) lol…

    We find that most banking and cards, you have to get from your country of residence. Also you have to pay tax where you are registered (at least that is what we were informed).

    We have an agent back home that prepares our returns. Just have to remember to always keep a file in the cloud for all stuff re TAX.

    I was not aware that this was even possible, quote

  8. Great post!

    The first remark that I want to make is that as a digital nomad from any country in the world except the US you can structure your life in such a way that you do not have to pay taxes anywhere.

    You mention two things: one is the use of double tax treaties (DTT). The other is setting up a company in your home country but living in another country.

    Then you will have to take into account what is your permanent establishment (PE). The most important aspect of that is where is the company ACTUALLY managed. You need to be able to proof this in order to make use of DTT’s.

    If you live in a new country, and run the company from there, the government could claim that the company is a de facto resident in the new country, and has to pay taxes there.
    The lesson being that in international taxation, the facts are most important.

    You mention getting advice but to really use advanced tax planning and making use of DTT’s goes beyond the scope of most digital nomads.

    As mentioned, all non-us countries tax income based on residency. There are countries that do not have taxes or do not have taxes on foreign sourced income.
    If you live in a country like that, and have a company that is also located in a country that does not tax on its foreign or any income, you have a good combination.

    It might be a bit of a puzzleand paperwork to set it up. But far less than keeping books and filing tax returns.

    You can travel around the world, not pay taxes, not have to file tax returns, not going through audits. Etc.
    You can have health insurance a affordable rates because most digital nomads are young and healthy and probably get better healthcare then you can get from your government scheme. And you can save for your own pension.

    You mention a very important point about the address. This is very important for opening bank accounts.
    I would like to add that they often specifically ask for a utility bill (gas, water, electricity) to proof that you actually live somewhere.

    Coming back to your statement of the world not being able to cope with the new DN life, because the point of being a digital nomad is not having these.

    Anyway, I wrote an introductionary article for digital nomad on how to reduce taxes:

    https://theglobalcitizen.co/reduce-taxes/

    Have a nice day,

    Julius.

  9. I´m not a full time visitor (have 2 dogs, we can´t fly with him), but i love the digital internet business lifestyle and we hate to support war and mass-murd with taxes and support of corrupt organisations like monsanto. So we looking since 2 years for a new location. We found dubai it´s perfect destionation, it´s possible to save money with residence visa via Company outside of dubai (in Ras al Khaimah . I know, we doesn´t need to stay 183 days in emirates to live tax free for residence status in emirates. If we would have no dogs, we would traveling from may – september to other locations and would be living in the “cold months” in dubai.

  10. Thanks for the post! I have a question as a currently self-employed UK citizen leaving the UK to live and work abroad as a remote consultant. I see that you chose to remain UK residents. Do you still have to pay tax on your income acquired abroad? So, if I am based outside of the UK and make my living working remotely, am I liable for that income? I would appreciate hearing about your personal experience.

    Thanks!

  11. Pingback: Do digital nomads pay tax? | Live, Travel and Blog

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