If you travel for more than a year, and especially if you earn an income while abroad, you may have to file taxes from abroad. Here are some tips for how to do this.
What Kind of Income Are you Earning, and Where?
If you have a working holiday visa or working rights in the country you are visiting, you’re generally required to file taxes in both the country where you’re working, and your home country. Although this can be a bit of a hassle, don’t worry about paying taxes twice; in most cases there will be a tax treaty between countries that protects you from overpaying.
If instead you have a location independent career where you earn money online, you don’t have to file taxes in the country you’re visiting (especially if you’re visiting on a tourist visa and remain an official resident in your home country), but you are required to report worldwide income on your home country’s taxes. In many cases your income won’t come from reportable sources (or sources that will be sending your tax department income slips); regardless, it’s your responsibility to report this income.
How to File Taxes from Abroad (Whether or Not You Want To)
When I first started traveling full-time, I was away from Canada for two years. With very little income to speak of (and more than enough deductions), I knew I wouldn’t owe any taxes in those years so I planned to wait and file both years’ taxes when I returned to Canada for a visit.
CRA (Canada’s Revenue Agency) didn’t see it this way. 1.5 years in, they sent me a letter demanding I file the prior year’s taxes. I ignored it (knowing I’d file on my return), so they sent me another letter with a filing deadline.
I emailed my accountant for advice, saying I’d be back in six months to file both years’ taxes anyway, and asked if I could ignore the letter. He said that if I didn’t file by their deadline, CRA could seize my bank accounts until I filed, since they were expecting that I owed them money and they wanted it.
(Ironically when I did file (using the method below), I ended up getting thousands of dollars back. I figured that would be the end of CRA’s demanding letters so I was late in filing the following year’s tax return, only to get another demanding letter – and another tax refund of thousands when I filed. Now I just file my taxes from abroad anyway, but I’m sure if I delayed I would discover that they still haven’t learned).
Step 1: Have an Accountant in Your Home Country
Before you go traveling, develop a relationship with an accountant or tax-preparer who has filed for you before and is familiar with your taxes and anticipated income situation. You want to be able to comfortably communicate with them from abroad, and you may need to sign paperwork in advance to give them the ability to communicate with your country’s revenue agency on your behalf (for example, to access income slips or in the event of an audit).
Step 2: Forward The Accountant Your Income Slips
If you receive income slips from investments or reported income in your home country, they will be sent to your home address (aka your designated representative or virtual mailing service). You’ll need to have them forwarded to your accountant in preparation for filing your taxes. In some cases accountants can access income slips directly through the revenue agency, with your permission.
If you are self employed, most of your income won’t be reportable through income slips; instead you are responsible for reporting worldwide income like the good honest citizen that you are.
Step 3: Assemble Records of Receipts
In addition to tracking your expenses for budgeting purposes, you also track your tax-deductible expenses as you go, right? If not, read up on how to track and record your tax-deductible expenses and receipts; an especially important technique to stay organized while traveling.
Remember to note the currencies you incur your expenses in (I’ve racked up expenses in eight different currencies in a given year); I also make note of the conversion to my home currency on the date I incur the expense, however in lieu of on-the-spot conversions, accountants will use an average conversion rate for the year determined by the revenue agency.
I record all my tax-deductible expenses as I incur them throughout the year, and at the end of the year I organize the spreadsheet and expenses so my accountant can easily organize and plug my numbers in where they need to go.
(Step 4: Assemble Income Numbers)
If you’re self employed, you also need to track your income (in each respective currency) and the source of the income. You can also organize this into a spreadsheet.
Step 5: Email Income and Expenses to Your Accountant
Email your account the spreadsheets with your worldwide income and tax-deductible expenses from abroad, and they should have everything they need to file your taxes for you.
In many countries your accountant can file electronically, and any refund payable to you is transferrable directly to your bank account. If you owe taxes, your accountant can advise you how much to pay, and you can often transfer money directly from your bank account. If your accountant needs you to sign anything, you can do it via mail, fax, or electronically.
Please note: Although I am a former Certified Financial Planner, I’m not familiar with tax regulations for all countries (including the US), thus you would be strongly advised to consult a tax professional who can help you with your specific situation and national tax regulations.