I realize the answer will be “it depends” since there are nearly 200 nations in the world, so there would be nearly 200 answers.
But - if you work for an American employer, but you are traveling abroad on vacation in, say, Spain (or any other country), you are likely to still receive one or a few paychecks from your employer during that time if you’re taking PTO, since Paid Time Off is…paid. So even while in Spain, your bank account might go up by a few thousand dollars. (Let’s assume that you can use ATMs or other means to collect such money while in Spain, too.)
You wouldn’t be performing work while in Spain, though, you’d just be vacationing but collecting passive income from your employer this way. Is this generally not counted by Spain (or whichever other nation you’re traveling to) as taxable income? Is taxable income all dependent on you performing some sort of task while in a nation? I know there are some nations that require you to file a tax return if you were staying there for a long enough time, such as 90 days in a year.
Spain has zero claim on this. No work was done in Spain.
Where it would get complicated is if you are a digital nomad, living in Spain and working for a US company. It would depend on if Spain considered you a tax resident.
It seems clear to me that, while you are collecting money while abroad you are not earning any and owe no taxes. Here is a more dubious situation. My son visits us and continues to work while here, entirely on zoom. He is paid by his Washington State employer for the work he does here. He probably should pay Canadian taxes for what he does here. He would a tax credit on his US taxes if he did that, but the paper work would be daunting. My son is a dual citizen, so permission doesn’t arise.
Now try this. I go on vacation in Europe or elsewhere. I am (or was, anyway) a research mathematician and part of my professorial duties was to do research and publish it. Now I could no longer cease to think about what I was working on than cease to breath. So I am actually working in a foreign country without a work permit and without paying taxes on my earnings. Even if I could figure out what part of my pay was attributable to any special period.
There are “residence” rules, AFAIK. (Not an accountant). I recall a warning that snowbirds from Canada who accidentally overstay their 180-day limitation in the USA may find themselves liable for income tax there. Basically, country where you earn the pay (your employer) has first dibs, then the country of residence.
What about retirees? I’ve considered moving to Thailand from California. I “earn” about $80k off my investments in the US. What happens then? PS I’ve not done even 1 year tax filing on this, newly retired, perhaps it’s not that complex?
My father retired to the USA from Canada. He was a resident there, then eventually a citizen. (My stepmother was American) His pension from Canada was taxed in Canada. He then paid taxes in the USA as a resident. The idea is, you can deduct your taxes paid at the source (Canada) from the amount owed in the country of residence (USA). so you are not so much taxed twice as taxed at the maximum of the two countries.
Since US taxes tended to be a bit lower than Canada, he paid AFAIK no taxes in the USA. (Obviously, he had to pay all thouse things like Medicare extras, etc.) Canada and the USA have a special tax treaty, so whatever is allowed as a deduction in Canada can be used in the USA. For example, there was a “Senior deduction” from taxable income (reduced your taxable income by, at the time, $8,000) which he could use in calculating USA taxable income.
However, the USA and Eritrea are the only countries that make their citizens pay taxes on all income even if living abroad. Eritrea accomplishes this by threatening the families and relatives of expatriates who don’t pay up. The USA only threatens your bank. There’s something about banks that want to deal with the US system have to report Americans with assets and income over a certain amount.
For Canada, you are not obliged to pay taxes on foreign income if your residence that calendar year is outside of Canada and you have effectively moved (i.e. no home in Canada, not running businesses etc. in Canada). Obviously, any income in Canada you still pay taxes on first, like my dad did. But if he’d had American income, that would only be taxed by the USA.
I assume something similar applies in Thailand.- you could move there, collect your pension, and just submit US income tax returns on your (total) income, and whatever taxes Thailand also levies - presumably they let you deduct the US taxes paid from that amount owed.
When the USA began imposing their banking rules, there were a flurry of people with dual citizenship renouncing their US citizenship so they would not have to pay taxes on world income. (Futile, of course, if your pension originates from the USA).
From a thread here I recall something that a person who renounced their citizenship was limited to 30 days a year to visit the USA. I.e. can’t renounce citzenshp but spend the tourist’s 179 days a year there.
Tax law obviously varies from country to country, but I doubt that any country seeks to tax you purely on the basis of your temporary presence in the country as a visitor or tourist. (Not least, because most countries want to encourage inward tourism.)
Most countries have a rule that identifies who is a “resident” of the country, and will then tax residents, typically on their worldwide income from all sources. In addtion they will tax non-residents on income earned within the country.
This obviously creates scope for double taxation. If a resident of Ireland owns an apartment in Germany which is let to a tenant, the rental income is potentially taxable both in Ireland (because Irish residents are taxable on their worldwide income) and in Germany (because income earned from a Germany property is taxable in Germany). Each country will have its own rules to mitigate the impact of double taxation in these circumstances (e.g. by allowing tax paid in one country to be claimed as a credit against tax due in the other) and in addition there will often be a Double Taxation Agreement in place between the two countries to mitigate it further. (In this example the Ireland/Germany DTA provides that rent received by a resident of one country from a property in the other is taxable in the country where the property is located.)
Some countries adopt modified rules to encourage particular kinds of immigration. Thailand, a mentioned above, won’t tax retirees who immigrate to Thailand on income they earn abroad — obviously they have a policy of attracting relatively wealthy retirees to come and spend their retirement income in Thailand. Other countries that want to attract, say, foreign direct investment might have rules designed to enable executives of multinational companies to live and work in the country for a while without becoming liable to tax on their worldwide income.
But, in general, if you’re contemplating going to live in another country you should assume that the default is that you will be taxable there on your worldwide income from all sources, unless you can find particular rules in that country that would apply to your circumstances and would impose some lesser tax burden.
I guess the other issue is - what if you are a nomad going from country to country, say in the EU, without putting down roots in any one country for an extended period that would qualify for residency? Or like a couple I heard of, then go to Albania to wait out their time untl their Schengen time limits reset…
Particularly if your profession is something like author or artist - an author presumably gets a royalty cheque from the publisher every so often - if I tell them to mail it to my swiss (or Dubai) bank account, does the USA get their paws on it? If Vincent van Picasso III sends a painting to an art dealer who then sends him a cheque for a tidy sum, how does anyone corral the income tax if the artist moves around every 3 or 4 months from country to country?
If Vincent von Picasso III * is an American citizen, then the check he receives from an art dealer in Paris which he deposits in a bank in Italy while living in Tokyo will be taxed in America.
For verily, I saith unto thee, the IRS doth follow thee unto the ends of the earth.
This is done by requiring American citizens overseas to file a form called the FBAR, listing every bank account you have ever touched, in any country, along with your regular tax 1040 tax form.
*(this wins the prize for the best turn of phrase I’ve seen on the Dope! )
While a country’s rules of residence are generally designed not to catch tourists, they can nevertheless be quite widely drawn. For instance you are tax-resident in the UK if:
you spend 183 or more days in the UK during the tax year; or
you have a home available to you in the UK, and spend 30 days or more (not necessarily consecutively) in the UK during the tax year; or
you have “sufficient ties” with the UK. The “sufficient ties” test looks at your family links to the UK, your accomodation links, how much (if any) work you do in the UK and how many days in the tax year you spend in the UK. Effectively, a complicated “points system” based on all these factors is applied to determine whether you are resident in the UK for the tax year.
Other countries will have different rules, of course, but none of them are designed with an eye to ensuring that those who travel a great deal can avoid being tax resident anywhere. Those who travel a great deal are, on the whole, much more likely to find that they are tax resident in more than one country than to find that they are resident in none.
As for how tax is collected in such cases, when the taxpayer may have moved on before payment actually becomes due, simple tax evasion may, in practical terms, often be possible. But not always; a lot of countries have withholding taxes; people in that country making payments abroad are required to withhold a percentage of the payment on account of tax that may be due by the recipient overseas, and it’s then up to the recipient to lodge a tax return and reclaim any amount by which the witholdin exceeds the tax liability. The US has a withholding tax of 30% on most payments to “foreign persons”, but US citizens are not foreign persons, even if abroad.
Genuinely curious: on that FBAR, is that American citizen required to list not just accounts that he deposits checks into, but also cash that he got handed?
Now, now, now, my dear friend…why would a law-abiding person want to receive cash? We all know that over thousands of years of civilization, humanity has developed a wonderful system of ethics in which each and every person pays his fair share of taxes-- gladly, and for the common good.
And of course, in accordance with that wonderful system of ethics, we all keep track of any cash income, so that we can report it to the government,
However, to answer your specific question, we do not report it on the FBAR form, which is specifically restricted to bank accounts . Instead, we all report the cash income on the IRS form 1040, line 1H, labelled “other income”.
We all do this gladly, and for the common good. So if Vincent van Picasso III is resident in the United States while receiving cash from an art dealer in Paris, then of course he,- gladly and for the common good-, notifies the IRS. This enables the government to disperse benefits to all of us fairly, gladly and for the common good.
Much of this depends on whatever tax treaty is in effect for that country. Tax treaties are intended to prevent double taxation. Spain has one with the US.
So without knowing more specifics about the situation, the tax treaty generally means that the US need not bother with Spanish taxes because it’s understood they’re still US taxpayers (and vice versa for Spanish citizens in the US). And thanks to the foreign income tax exclusion the first $107K would be tax free.
So US expats living in a treaty country definitely do need to file a US tax return, but there’s a good chance they won’t actually owe any tax.
A couple of comments. On the FBAR (which I call FUBAR) unless you are below the limit (which I thought was 100K, but maybe it is only 10K), you have to report every bank or similar account that has your name on it. And for each account you have to list the name and address of the account as well as the full name and address of any joint owner. I may have a savings account, checking account, and tax-free savings account and at different banks, several of them joint. And you don’t file a paper return you have to do it on a fillable PDF form. Naturally, this gets quite annoying. But I have discovered a nice legal workaround. I just take last year’s form, unsign it, relabel it with the current year’s date, change whatever numbers have to be changed (the amounts in the accounts), resign it and submit it as this year’s form. Only the amounts have changed; all the addresses and such remain the same. Changes it from most of a day to an hour, mostly spent collecting the numbers. This is not included with the tax return. What is included is the 8938 form that has essentially the same information and is just as annoying. In that case, what I have done is made a mockup of an 8938 that looks a lot like the original form, but I update it every year and again just change all the numbers to the correct ones. This means I cannot file electronically, so I mail in paper forms and never got any complaint about my mockup version.
One other point. If you are a snowbird and want to avoid counting as a US resident for tax purposes, it is not merely that you must not be physically present for 183 days or more, but must add the number of days of the current year plus the 1/2 the number of days for the preceding year plus 1/3 the number of days for the second preceding year and that must total < 183. I think I have that right. The net result is that if you do it every year, you cannot really spend more than 3 months every year there. But then why would you want to?
You actually can exceed the limit, but you need to file IRS Form 8840 to confirm you have closer ties to a foreign country and not a tax resident of the US. My mother spends about 4.5 months a year in Florida and we update it and send it in to the IRS each year.
The limit without reporting is the days last year + 1/3 of the previous year + 1/6 of 2 years prior.
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