The post-COVID era has made many businesses and freelancers embrace remote work. Embracing this freedom has allowed people to work for companies and international clients from anywhere in the world. You could be a Mexican enjoying the layback life in Indonesia while working for a company based in the US.

The lingering concern, however, is how to handle foreign income taxes as a remote worker. Should you pay to the country you’re working from or to the country your company is located in? Should you pay the taxes to the country whose citizenship you hold?

If you are earning foreign income, this article addresses how to manage your taxes.

Read also: How non-US citizens can open a US bank account online.

Considerations for foreign income tax management

Handling foreign income taxes as a remote worker can be tricky, but here’s a general guide:

1. Understand your tax residency status

Your tax residency status determines where you're obligated to pay taxes. Some countries tax based on citizenship (e.g., the US), while others tax based on residency. Check the specific rules of your home country and the country you're working from. Tax residency in Europe depends on the country. Generally, you are considered a tax resident if you stay more than six months in a year (183 days). However, you will still be a tax resident in your country if you stay for less than six months in other countries.

2. Know the tax obligations of the country you're working from

You may need to pay income taxes in the country where you're physically present, even if your employer is based elsewhere. Research local tax laws, including income thresholds, filing requirements, and potential tax treaties with your home country.

Read also: Navigating forex regulations as a freelancer in Africa

3. Double taxation agreements (DTAs)

Some countries have DTAs to prevent you from being taxed on the same income by both countries. These treaties can offer relief through exemptions, reduced tax rates, or tax credits.

4. Consider foreign-earned income exclusions or tax credits

If you're a US citizen, for example, you might qualify for the Foreign Earned Income Exclusion (FEIE) or claim a foreign tax credit to offset taxes paid to another country. Many other countries offer similar reliefs.

Read also: How to manage international payments while living abroad

5. Maintain accurate records

Keep detailed records of your income, expenses, tax filings, and relevant documents. This is crucial to prove your income sources or claim deductions and credits. Use payment platforms like Grey to help you track your earnings.

6. Get professional advice

Tax laws can be complex and vary widely. Consulting a tax professional with expertise in international tax laws can save you time and money.

Read also: How freelancers in Europe can efficiently manage foreign currencies

7. Stay updated on changes

Tax regulations are evolving, especially those concerning remote work and digital nomads. Review your situation regularly to ensure compliance.

Managing your earnings with Grey

Many remote workers might be confused about where to pay their taxes as a remote worker. Most often, you are required to pay to the country where you are working from, especially if you have stayed for up to six months. It is, however, best to check out the taxation laws in your home country and your country of residence.

Managing your finances with Grey ensures you can accurately monitor your earnings and file your taxes accordingly. Send invoices to your international clients and easily receive payments in your multicurrency account. Grey also offers a versatile virtual USD card and favourable exchange rates. Ready to take control of your finances? Sign up with Grey today.

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