A reader asks:
I am a freelancer working largely through agencies. I am retired and a US citizen, and I currently live in Vietnam. I am considering relocating to Europe – more specifically, France – and I am uncertain what the tax consequences would be. Currently I do not pay taxes to anybody except the USA, I am not paid directly in Vietnam for any work I do and none of my agency contacts are in Vietnam. My suspicion is that if I were to relocate to France I would have to pay French taxes on my work (and perhaps charge VAT) even though none of my clients are French and I am paid for all my work by transfer to accounts in the USA or Thailand currently.
I should say that I’m not an international tax expert, and I don’t live in the EU, so I’m mostly looking for input from other readers here. I have investigated freelancing in Switzerland since my husband is a Swiss citizen, but that’s a different situation since Switzerland is a member of the Schengen Area but not the EU. It seems to me that freelancers who want to do the location-independent thing for a while (and why not…it’s a huge advantage of our profession) have a few issues to think about:
- Immigration/visa requirements
- Tax requirements
- Getting paid
So let’s have at it! Readers, I’m looking to you for tips, so please add them in the comments.
Immigration/visa: this reader didn’t mention whether he’s a citizen of any EU/Schengen Area country, but let’s assume not. If you’re a US-only citizen, you’ll need to figure out how to legally stay for more than 90 days in the EU (after which, on a US passport at least, you have to leave for at least 90 days before you can re-enter). Here’s a post from Nomadic Matt that gives a good summary of the situation and your options. There are EU countries that issue long-stay tourist visas (I know two freelancers currently using that option: one in Spain and one in Italy), but it’s a long process to apply for one, and many countries will require that you have a significant amount of money in savings and that you waive your right to work while you’re there. It’s also a little unclear whether you’re considered to be “working” if, for example, you’re freelancing for clients in the US but living in France? More on that later…
Out-of-the-box options that might be worth investigating: The Savvy Backpacker has a full rundown of these, which may be more or less appealing depending on your financial resources and risk tolerance. Apparently, Germany has a freelancer visa that you can apply for in Germany, as opposed to other countries’ long-stay visas that you must apply for in your home country. If you have even a moderate interest in being a full-time student, you could investigate the student visa requirements for the country where you’d like to stay. There are also ethically dubious, but probably often-used, ways to stay in the EU: finding an inexpensive university program and paying the tuition in order to get a student visa, but never attending classes (or attending only on the first day so that there’s some record that you attended; overstaying your tourist visa, hoping you don’t get arrested for anything, leaving the EU over land or on a ferry (where you’re less likely to have your passport checked), and then flying out of a non-EU country. Not recommended, although many people probably do pursue those options.
Here I’ll have to defer to readers who know more about this than I do. Do not take any of this advice as reliable: always consult an attorney or tax professional before you make any decisions about taxes. Short version: it’s complicated. Basically, if you’re a US citizen, you probably have to file US taxes no matter where you live or earn money. This is unusual: I’ve even seen claims that only the US and Eritrea require non-resident citizens to pay tax on the income they earn while living abroad.
However, there is a substantial (up to $99,200 for the 2014 tax year) exclusion for *earned* income (not pensions, interest, capital gains, etc.). Note that this applies only if you meet the definition of “living outside the US”: currently, you must live outside the US for at least 330 days in the calendar year, not just for a majority of the year. I’m also not clear on whether that exclusion applies to income earned from US clients, because it’s called a “foreign income exclusion.” Here’s an article from The Freelancers Union that touches on some of those issues. Whether freelance work performed in a foreign country for a US client would be considered US-sourced or foreign-sourced, I’m not really sure.
Depending on where you live, you may also have to pay taxes in your country of residence. Here’s the IRS web page for US citizens and resident aliens abroad, and here’s the introduction to taxes abroad page from the American Citizens Abroad organization. Whether you have to pay in-country income tax depends on the US tax treaty with the country where you live. To answer our reader’s question, my impression (see disclaimer above) is that a US citizen in France would have to file a tax return in both the US and France, and pay French tax at least on his/her French-sourced income. Our reader comments that he doesn’t have any clients in France, so this might not be an issue for him.
To address the VAT issue: again, it’s complicated, not least of all because EU-based clients seem to have differing views on paying VAT on non-EU translators’ work. For example, many of my clients have told me that it’s financially advantageous for them to use non-EU translators because translation services procured outside the EU aren’t subject to VAT. But then, other translators have told me that that’s completely false, and that any translation service that an EU client pays for is subject to VAT. No clear answer there, unfortunately. Readers, I’m counting on you for some insights!
If you live abroad, it’s worth thinking about how your clients will pay you: not least of all because the payment method may affect your immigration status (complicated enough for you yet?). For example, if you’re a US citizen living in France, but with no French clients, and all of your clients are paying into your US bank account, it seems that you could make a reasonable argument that you’re not “working on the local economy.” But if you do have French clients and they’re paying into a French bank account, it might be hard to make that same argument. I think that it’s ethically fairly straightforward if your clients are in the US and paying into a US bank account; it’s less straightforward if you have clients in the country where you live. For example if you direct those in-country clients to pay into your US account, that might look fishy (tax evasion) if the in-country tax authorities investigate you.
The bottom line
Like lots of other things in life, this whole process is easier if you have a significant savings cushion. If you have enough money in savings or enough income from other sources (retirement accounts, investments, etc.) that you can present yourself as not needing to work in order to pay your basic living expenses, you have a much better chance of getting a long-stay tourist visa from an EU country. If you have all of your clients pay into your US bank account, with no income funneled through the EU country and no EU-based bank accounts, and you pay US taxes on what you earn, the chances are probably slim that you’ll run into trouble. The situation gets more complicated if a) you’re dependent on your freelance income to support yourself (as most of us are!) and/or b) you have clients in the country where you’re hoping to live.
I’m sure that there are some social/cultural factors at work as well. For example in our reader’s case, the fact that he’s retired from another career is probably a plus: he has an ostensible source of income in the form of personal savings, Social Security or a pension. I’d say that in the EU, it’s also more common for people to completely retire in their 60s, so people probably won’t wonder how our reader supports himself; that situation would be different for a younger person and certainly for a family. So, lots to think about here!
Readers, over to you (help!).