Freelancing offers freedom—the ability to work from anywhere in the world, choose clients, and take on projects that inspire you. But with this freedom comes complexity, especially when it comes to taxes. One of the biggest challenges for freelancers working internationally is double taxation. What is it, why can it become an issue, and how can you avoid paying taxes twice? Let’s break it down.
Double taxation occurs when the same income is taxed by two different countries. This happens if you, as a freelancer, work for clients in another country and also reside in a different country for tax purposes. In this case, your income may be subject to taxes both in the country where you earn it and in your country of tax residence.
For example, if you are a freelancer from Ukraine working with clients in the United States, your income could theoretically be taxed both in Ukraine and in the U.S. This is certainly not ideal and could become a significant burden.
Typically, double taxation happens due to a lack of agreements between countries regarding this issue. Each country has its own tax rules, and sometimes these rules overlap.
For instance, many countries tax the income of their citizens worldwide, even if it is earned abroad. At the same time, other countries may impose taxes on income earned within their borders, regardless of whether you have tax residency there.
Now that we understand why double taxation can be problematic for freelancers, let’s look at how to combat it. Here are several strategies to help you avoid paying double taxes:
Most countries sign Double Taxation Avoidance Agreements (DTAs) to determine which country has the right to tax certain income. If there is such an agreement between your country and the country where you work, you can avoid double taxation or receive tax relief.
For example, Ukraine has DTAs with many countries, including the U.S., the U.K., Germany, and others. Under these agreements, freelancers can receive tax credits or reductions if their income is taxed in another country.
Many countries have rules for determining tax residency. Usually, it depends on where you spend the majority of your time (typically 183 days a year). If you spend significant time in one country, you may become a tax resident there.
The key rule: if you are a tax resident of a country, you must file your tax returns in that country. However, this doesn’t mean that all your income will be taxed only in that country—always check for DTAs between the countries involved.
If there is no DTA or you cannot take advantage of the benefits, you may still need to file tax returns in both countries. In such cases, one country might grant you a tax credit to reduce your tax liabilities in the other country.
For example, if you earn income from freelancing in Germany but are a resident of Ukraine, you must report your income in both countries. Ukraine would grant you a tax credit for the taxes paid in Germany, helping you avoid double taxation.
If you’ve already paid taxes in another country and they weren’t properly accounted for in your home country, you may be able to request a tax refund from the tax authorities. This applies in cases where the tax was incorrectly or excessively paid.
Some countries have tax benefits or simplified tax systems for freelancers. For instance, in Ukraine, freelancers can register as individual entrepreneurs under a simplified tax system, which allows them to reduce their tax burden.
Oksana is a freelancer living in Ukraine who works with clients in the U.K. and the U.S. She earns money in both countries and is concerned that taxes may be charged on her income twice. Oksana researches Double Taxation Avoidance Agreements between Ukraine and the U.K. and the U.S. It turns out that Ukraine has agreements with both the U.K. and the U.S. that allow her to avoid double taxation, and she can receive tax credits for income earned in the U.S. Now, Oksana files her tax return in Ukraine, accounting for the taxes paid in other countries.
Double taxation is a real issue for freelancers working internationally, but with the right knowledge and strategies, you can successfully avoid this burden. Understanding Double Taxation Avoidance Agreements, determining your tax residency, and properly filing your income taxes are key elements that will help protect your finances.
If you are a freelancer and want to learn more about how to avoid double taxation, contact our experts. We can help you organize your tax affairs properly and minimize your tax burden. Schedule a consultation today!
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Serhii Floreskul
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Violetta Loseva
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