Paying Tax As an International Freelance Writer

Here's the question: If you live in one country and you're earning money from another country, where do you pay tax?

I know we've covered this topic before and you can even find the original post right here (http://ravens-writing.blogspot.com/2009/03/international-freelance-writing-and.html). Unfortunately, I still receive a LOT of emails asking me to answer this question again.

So let's get into some detail. Please understand that I'm going to get just a little bit repetitive here, but there's a reason for it. You see, the original example I gave in the post noted above didn't seem to make sense to people. For this reason, I'm going to try hard to make it as clear as I possibly can.

Before we get into it, I need to point out that as a freelance writer, you are self-employed.

You may get lots of work from one company, or you may have lots of clients paying you in various currencies, but your tax bill is not their concern. It's yours. You're a business owner, selling your products to clients.

With that said, let's take a look at an example of one international writer working for various international companies.

Example One:
Let's say you live in Australia and you want to work for a UK company earning UK pounds. You also have another client who is in the USA. Does this mean you have to pay tax in the UK and in the USA?

Easy answer: NO. You do not.

Detailed answer: If you live in Australia and you're earning UK pounds and US dollars, then chances are you need to convert those currencies over to regular old Australian dollars before you can spend them. This means you need to write down or keep track of the number of Australian dollars those different currencies added up to. This amount, in AUD, is the amount you report to the Australian Tax Office.


No matter WHERE you live in the world and no matter WHAT currency you earned from an international company, you can easily convert that to your own local dollars so you can spend it. This local-dollar amount is the amount your OWN taxation department, right there at home, wants to know about.

I'll explain why:

Exporting 101

When you write something, you're creating a product. That product was created right on your own computer. Let's say you live in America. This means your product was created right there in America.

If you live in India, your product was created right there in India. If you live in England, you have an English-made product. If you're in Singapore or Malaysia or Canada or South Africa or New Zealand or Zimbabwe, you still created that product wherever it is you live.  If you live on Mars, you are the proud owner of a Martian product. You get the point, right?

Okay. So YOUR product was created wherever it is you work from and it's a product of the country in which you live.

Then you went and sold it to a foreign company and they paid you with foreign currency. This is called exporting. You made a product locally and you sold it overseas. Cool, huh?

But the money you earned was brought back to your local workplace and spent locally. This means you would have exchanged it over to your local currency so you could spend it. The amount of money you exchanged DOES have a local-currency value. This is the amount you report to your own local taxation department.

You don't need to report it to the country from which that foreign currency derived. You don't need to pay tax in that foreign country, because you're not earning it from there. You're simply an international exporter, selling your written products to buyers who don't live where you live.

Now It Gets Tricky

When you exchange a foreign currency amount over to your local currency, you'll find that the exchange rate is not the same from day to day. This is important to remember. As the values fluctuate so often, you simply can't expect to write down all the bits you earned internationally at the end of the tax year and get it right.

You really need to do it on the same day you exchange it. Write it down. Enter it into your spreadsheet or accounting software immediately. But don't just write down the amount of local money you received. Your taxation department will need more information than this.

You see, if you earned 100 British Pounds for your writing and you converted that to US dollars, you would have received $154.13 US dollars
(correct as of 30 December 2011 = 1GBP=1.541USD)

Your taxation department will want to know that you have records documenting how much you earned in foreign amounts, but also how much you declared in your LOCAL currency for tax purposes.

It seems like a pain to do this, but many tax offices around the world will offer some very cool incentives to people and companies that export goods around the world. I'm not going to go into that here, as I'm in Australia and I only know lots about our own cool incentives. Your accountant can tell you more about your own cool exporting benefits.

Example Two:
Let's make this example a little trickier than the first. Let's assume I'm an Australian and I'm taking a working holiday in Thailand, where I need to spend Thai Baht in order to eat and pay for cool day trips to visit tigers and elephants, or to buy umbrella drinks from the pool bar. But my client pays me in UK pounds. Then another client places an order and pays me in US dollars, but I'm still partying my way around Phuket, writing in style from my resort balcony only when I'm not in the pool.

Now where do I pay tax?

1) In Thailand? That's where I was when I created the product.
2) In England? That's where the UK pounds came from.
3) In America? That's where the US dollars cam from.
4) In Australia? That's where my exporting business is registered and where I am a permanent resident.

The answer is number 4: where my business is registered and where I live normally.

No matter which country you change it to, no matter where you live, and no matter what currency you need to spend to pay your bills - if you earn a foreign currency and you convert it over to your own money at home, you pay tax right there at home in your own currency amounts.

Easy, huh?

I hope this clears up the international tax questions a bit more for you all :)


Knoji for writers said...

I would say you explained it very well. I am in Canada, one of the freelances places I write for is Knoji, in the USA, however as you say, I only pay taxes here. Makes total sense. This is where my social insurance number is. Freelance writing is self employment. Anyone working as a freelance writer needs to remember to set money aside for retirement too! Great blog, love all the freelance writing information you have packed into this blog, well done.

Traveling Freelancer said...

Makes total sense to me, too. And I wish my situation was that simple. :)

What if I gave up my apartment in my home country to travel and don't have residency anywhere? What if I didn't spend 183 days or more per tax year in any one country? What if my income is not from my country of citizenship, nor from any of the countries I visited. Where do I pay tax?

This is my situation right now. I gave up my apartment in 2010 and have been traveling since. I have no idea where to pay tax for 2011.

Anonymous said...

What if I am a us citizen residing in Guatemala but working online for a us company?

Anonymous said...

I pay taxes in the US even though I live abroad, and write off a lot of things. It sucks to still pay a lot I'm taxes, but as a small business owner (freelancer) there are a lot of perks too.

SGeorge said...

Thank you!

Jords said...

What about this. A further complication....
Australian writer, living in Spain for the year.

Australian government still classifies me as a resident for tax purposes. Spanish tax office says I need to pay tax here as I will be here for more that 180 days.

Any advice before I pull my last hairs out.

Bianca said...

I think yet another post about international taxes is in order here to clarify some more points!

LeannaJ said...

Luckily, I'm starting out in the US with a baby business, so this was really helpful!

I am pretty curious about the "no residency" question though...seems like you'd just drop off the map as it were.