Whether we’re helping someone save $52,000 in taxes for the business they recently started, or helping someone else save over $1 million in taxes on their Amazon FBA venture, the goal is the same.
And the rewarding feeling we get each time we help someone design their offshore plan is more than satisfying.
But there’s one thing we don’t always mention when we talk about all the incredible tax benefits that come with going offshore: “Nomad taxes.”
If you’re planning to live the offshore life, it’s good to know what you are signing up for before you completely jump in.
That’s why we have compiled a list of the most common Nomad taxes you will pay for the privilege of living overseas… even if your official tax bill is $0. There are also some excellent real-world tips from our Founder, Andrew Henderson, on how best to limit the expense of Nomad Taxes.
Nomad Capitalist has helped 1,500+ high-net-worth clients from around the world. Find out how here.
The Price Of Living An International Life
Nomad taxes do not always come in the form of an official tax levied by a government. Instead, they are the costs that come with an international lifestyle that Nomads would not have to pay if they weren’t… well, Nomads.
These costs often get ignored when folks are making the decision to live overseas, either because they have no experience living abroad yet or because they do not realize that these expenses would cease to exist if they chose to just sit at home.
While these “Nomad taxes” are the price of living an international life, they are nothing in comparison to the thousands – if not millions – of dollars you would be handing over to your government each year if you remained in your home country.
Let’s say you had to physically mail a tax return to the United States because the return required your live signature. Doing so comes with a hefty shipping fee to get the documents safely across the ocean and securely delivered to the IRS office in the United States.
One of our team members has dealt with the same problem for many years. While she is a US citizen, her husband is not. And, even though they lived overseas at the time and none of their income was US-sourced, her tax forms always requested that she write her husband’s Social Security number on the form anyway — a number he did not have.
Since she could not type in a number, the available electronic filing systems would not allow her to file her taxes until she filled in the information. The solution? She had to print out the documents, write in “Non-Resident Alien” where the form requested her husband’s SSN, and then mail in the tax return.
She had to do this every year, just for the one line on the form she could not fill out electronically. So, while she could claim the Foreign Earned Income Exclusion each year and avoid any other taxation, she did have to deal with several annoying trips to the DHL office each year and $40 shipping fees any time she needed to file her taxes. Taxes are not the only documents you will need to have shipped either.
Referencing his experience, Andrew Henderson says, ‘’I found it prohibitively difficult to ship the myriad documents I needed to complete an application for economic citizenship while I was living overseas.
‘’It wasn’t the actual cost of sending the documents that caused me problems but the time costs and organizational headache of figuring out how to get and send documents while I was traveling non-stop without a permanent address.
‘’I was able to eliminate the issue simply by choosing a different economic citizenship program, but not all problems of this nature can be solved the same way.
‘’If you plan to get a second residence or passport, you will need to send documents at some point in time. And this will always come with a cost,’’ he adds.
Solution: If possible, file your tax returns electronically. If you are doing a residency or citizenship program, plan on doing the paperwork while you are in one place to simplify the process and maybe even make it possible to drop off documents at government embassies and consulates instead of having to mail them in.
If neither of these options is available to you, take comfort in the fact that you are saving much more in real taxes than what you are paying in “Nomad taxes” to ship your documents across borders.
Many Nomads also find themselves in the need to ship more than just documents. Whether you simply want to send a gift to family back home for Christmas or you need to get something to yourself that you purchased online in another country, at some point in your international travels, you will probably need to ship a parcel.
The cost to ship packages overseas can be incredibly expensive. This often means that, even though you can find products for much cheaper in another country, the cost of mailing them to yourself eliminates any cost advantage you had purchasing them there in the first place.
If you can buy the products while you are in the country and pack them in your bags, however, this can eliminate any shipping costs you would incur otherwise.
Another way to reduce costs if you are shipping within a country is to use local shipping agencies over international companies like FedEx or DHL.
Andrew says, ‘’I recently did a cost comparison between the Mexican shipping company Estafeta and DHL (which is more reasonably priced in Mexico compared to FedEx) and found that DHL’s prices were over 60% higher than the Mexican-based company’s prices.
‘’It may be tempting to use a brand you already know like DHL to ship your packages, especially if you are sending valuable items, but it can also be much more cost-effective to use local companies that can cut your expenditures in half.’’
Solution: Plan to pick up online purchases in the country where you purchased them while you are there visiting, or purchase the items in person. And, before you pay exorbitant fees to ship a package with the big shipping companies, consider local companies first.
There is a mistaken notion that everything in emerging countries is cheap. The truth is that goods and services in emerging countries can often be more expensive than in your home country.
Because of this, it is important to create a plan that takes into account where you would like to live and which products you want to buy.
‘’I recently had a new pair of Warby Parker glasses and underwear sent to me from the United States,’’ Andrew says.
‘’Thanks to market efficiencies and a heavy reliance on e-commerce, the glasses I like are a lot cheaper in the United States than they are in Eastern Europe.
‘’While Serbians are still buying those overpriced Armani glasses at tacky optical shops, Americans have been blessed with the convenience of cheap, designer quality glasses from Warby Parker for $95 (or, if you’re nearly blind as I am, $125).
‘’And, while Serbia has a wide variety of underwear available, they don’t have the exact kind I like. However, some other services can cost more, too. For example, cosmetic procedures can often cost more overseas due to a lower supply of providers.
‘’While an Australian doctor I am helping explained that his skin clinics offer Botox at cheap prices to stay competitive, Serbia’s relative dearth of English-speaking clinics means monopolistic pricing for those who need them.’’
Solution: Incorporate shopping and healthcare hubs into your life if you don’t plan to live in one. Consider getting some services in your home country if you visit, or plan layovers or short-trips to nearby hubs where they are available.
‘’When my friend first visited Malaysia, she made a startling discovery,’’ Andrew says. ‘’Strawberries at Kuala Lumpur’s western-friendly grocery stores cost at least 1,000% more than they did in her native Europe.
”When her friends came to visit, it became a source of amusement to send them to go buy strawberries at the market just to see their sticker shock.
‘’Of course, strawberries grow all over the place in Europe’s summer months, while in Malaysia they have to be flown in.
‘’There are certain comforts of life that we all like, whether it’s strawberries, fresh fish, or 2006 Dom Perignon. Each country has its own products that are affordable (thanks to local production) as well as products that are not (thanks to import costs and tariffs).
‘’While fruits imported for a small expat class can be pricey, pineapples and mangoes in Malaysia are dirt cheap. This means that the cost of your “Nomad tax” can depend on how adaptable you are.
‘’For me, the day-to-day life experience is part of going where you’re treated best. When Europe is frozen over, it feels great to be in Southeast Asia eating tropical fruits and shopping at modern malls.
‘’By the time summer rolls around, the urge for something different kicks in. You can use this to your advantage more than a traditional expat by getting your fill of different local foods and experiences,’’ Andrew concludes.
Solution: Move between home bases or schedule your travel so that you get your fill of cheap strawberries before moving on to something else. Being adaptable and open-minded also goes a long way.
Some places have an amazing selection of goods and services, but at higher prices than the West. Malaysia is a good example of this; e-commerce facilities aren’t quite up to Amazon levels, but they are almost as good.
Similarly, you can find almost any store or brand you want. The only issue is that western and luxury goods can have a high markup due to tariffs.
While Malaysia only recently introduced a rather reasonable 6% GST, they impose heavy tariffs on luxury products and especially vehicles.
‘’Personally, I prefer not to drive, Andrew says. ‘’So the $200,000 price tag on a mid-level Jaguar doesn’t bother me.
‘However, you may be frustrated to learn that your favorite Prada bag can cost double or triple what you would pay in the United States, Britain, or the European Union.
‘’There also seem to be fewer sales in Asian luxury boutiques merely because the demand for such products is stronger among Asian and Middle Eastern consumers. Even with a sale, you may still pay more.
‘’Imagine my delight when I recently stumbled across a “50% Off the Entire Store” sale at an Ermenegildo Zegna boutique at the Qatar airport… only to discover that the prices were still about 20% higher than what you would pay in Munich or Amsterdam.
‘’This isn’t relegated to Malaysia or Qatar. In fact, tariffs are an issue for western shoppers in almost all of the Middle East and Asia, from Dubai to Bangkok. Shoppers in free ports like Hong Kong, where tariffs are not an issue, may still pay more as shops pass along their high rent costs.
‘’There is a reason Milan and Paris are full of Chinese shoppers purchasing luxury goods; it’s usually cheaper to shop there — even before the tax refund — than it is in China. If you live in Malaysia, you might decide to plan a twice-a-year shopping trip to London to stock up and save.
‘’One other issue to consider is alcohol. If you live in a Muslim country — even a secular and easy-going one like Malaysia —-you are likely going to pay more for alcohol. Wines in Malaysia are expensive and of low quality, causing my team and me to switch to cocktails while there. And there were none of the $1 shots you’d find in Cambodia, either.’’
Solution: Use layovers, schedule short trips to shopping hubs, or incorporate shopping into your ongoing travel plans by planning ahead.
‘’Do not let the idea of inconsistent service in another country deter you. We have long held the United States up as a bastion of impeccable service, but even those lofty expectations went unrewarded on my first return visit to the US in several years,’’ Andrew confirms.
‘’Some countries will have bad service where you least expect it.
‘’If you enjoy a luxury lifestyle, you will need to learn which places to avoid and which simply have cost imbalances. I once asked my hotel in Budapest to handle some laundry for me and agreed on a date when it would be returned to me.
‘’However, the hotel’s laundry service dropped the ball and couldn’t deliver my clothing before I planned to leave the city. The five-star hotel’s reply: a shoulder shrug and pouted lips. In that case, I was fortunate that my assistant was staying in Hungary and was able to retrieve the clothing the next day. If that had not been the case, the potential cost of unexpected poor service could have been rather high.
‘’The challenge with service is that it is highly personal and any experiences are anecdotal. I find Budapest to be full of racism and it-is-not-my-problem-level service at all levels. (A waiter called me a “f***ing Jew” on my last visit.) That said, you may find Budapest delightful but dislike somewhere else.”
Solution: Trial and error. There is an element of adventure here; to reduce it, stay in international chains and call ahead to clarify any upgrade policies or service priorities.
Nomad Taxes vs Real Taxes
It can be easy to paint life abroad as a walk in the park. It’s much easier to see things in black and white, which is why a lot of people tend to think in terms of high costs of living and high taxes in their home country and total and complete freedom elsewhere.
The real picture is a bit more gray. Life always comes with expenses, whether you are living in the most expensive city in the world or you have taken up residence in the extremely affordable and beautiful country of Georgia. These “Nomad taxes” are a simple proof of that.
There is always a cost. The difference is the time and the amount you pay. You may prefer to deal with a few frustrating trips to the DHL office and a hefty shipping fee to file your tax returns if the amount you owe in taxes is $0.
And, while planning layovers to get better deals on products is nowhere as easy as joining all the Black Friday shoppers in the United States, it also means you get to visit more countries and live the kind of life you want, free of any ties to one place.
Just know that there are costs involved with living and traveling overseas that you would not have if you chose a different life path. The key to avoiding frustration is to realize that your “Nomad taxes” are so much better than the real thing.
Nomad Capitalist is a turnkey solution for offshore tax planning, dual citizenship, asset protection, and global diversification, find out more here.