Digital Nomadism vs. the State: the struggle for tax jurisdiction in a digital world
The world is constantly going digital, and technology allows us to cross borders like never before (it’s never been easier or cheaper to travel).
You would think that those borders don’t make sense in the online world (in my work, I hardly feel borders at all, only when I’m traveling).
There is an intense territorial struggle between states for you as tax residents. The state always has to know who your tax slave is and, if it’s not them, which other state it is (and if it’s not, they usurp you as Czech/Slovak citizens just based on your citizenship, and you don’t have to live in the Czech Republic or Slovakia at all).
When you have an e-shop, it is illegal to sell anything on it anonymously – without at least asking for the country of the recipient of the service or product. Running a global e-shop with services offered globally means you must determine from your clients what tax jurisdiction they fall under (honor exceptions like dark markets, where nobody addresses this).
If you are supplying digital content to clients in the EU, you need to be registered with an office in the EU. It doesn’t matter that you are supplying these services from Chile. Imagine if the regulator in Cambodia wanted you to register with the local tax office if you wanted to sell digital content from Europe to clients in Cambodia.
All global online fiat payments need to know the country of your tax slave (in Argentina, you must enter the recipient’s tax number for every MercadoPago payment – not only for payments to companies but also for payments to individuals).
So much for how states “help” make global business “easier” – in effect, they usurp maximum territorial control over it.
You feel that you live and work in a global online world, but as far as your income and expenses are concerned, you live in a highly territorialized world where it must be 100% clear which particular state has the right to usurp a share of your productive life.
Moving from one country to another becomes paradoxically more difficult (the conditions for obtaining permanent residency, especially in countries with territorial taxation, become more complicated); tax hells (like Germany and others) introduce an “exit tax” – a ransom you have to pay if you want to leave the country.
Schengen is half-dead, the borders haven’t fully opened after the COVID-19 pandemic, and Austrian or German customs officers are still making up reasons why they want your passport or OP.
Digital nomadism is growing worldwide, but countries are not welcoming it with open arms. Because it significantly disrupts their territorial concept.
Estonian companies for digital nomads are a mockery because the state/bank needs to know exactly in which state you are based, where you make decisions, and where you have customers so that in the final analysis, it is always clear where you have to pay taxes. Every bank you have an account with needs to know this. And if you accidentally change it to an “inappropriate” country, they will cancel your account.
Because countries have a problem with nomads (and historically always have) – they can’t control them well enough or enforce all the rules against them – nomads are here today. Still, tomorrow they could be somewhere else entirely.
In fact, maintaining a fragmented world of states and regulating human migration as much as possible is absolutely key to maintaining the status quo - nation territorial states.
Although in the global online world, this will seem more and more bizarre to us.
Digital nomads demonstrate that the concept of territorial states is outmoded.
Constantly moving people are really hard to control and even harder to tax.
States would prefer to outlaw nomadism if they could (unfortunately, attempts at blanket global reporting, global taxes, etc., are still going on worldwide).
And since most developed countries can’t do it properly anymore – they have to compete for nomads. Especially since they are the better earners, they have better conditions in various countries than locally settled tax slaves who can’t leave so easily.
They offer them either tax holidays (Uruguay), none (Dubai), only territorial (Paraguay), or significantly lower taxes (you can see it nicely in Georgia or other countries where service companies have lower taxes than local companies that cannot leave so easily).
The ability to leave easily allows you to choose – the best of the current global menu.
Think about that before you decide to put all aspects of your life in the hands of one slave owner.