I have a question about income taxes does foreign income has to be reported right? Are we taxed off this even though the earnings weren't coming from our country? BTW: I'm from Canada, the land of the high income taxes
I can't be certain for Canada, but in the UK and the vast majority of countries yes you legally need to pay tax on money earned in other countries.
Okay, the issue of where you get taxed depends on your domicile at the point of the contract. If you are located in Canada and sold something or provide a service over the internet to someone from South Africa, you will be taxed in Canada. The reason being that although the customer is in South Africa and even if they use paypal to collect payment for you, you are still in Canada when you conclude the deal. As such, you will be taxed in Canada. However, if the same situation but you need to take a plane and travel to South Africa to get the work done then your domicile would be South Africa and you will be taxed in South Africa. Then there is the sticky issue of remittance. If you spent the money in South Africa then that is that but if you bring the money back to Canada, you may be taxed again (depending on your country tax) unless Canada has a double-taxation treaty with South Africa then that income will no longer be taxed in Canada but just in South Africa.
When you start getting five figure numbers, i'd suggest you make yourself a company (a great and legal way to avoid much of the tax hassle).
Domicile is not based on the location of where the work was performed. Your domicile is based on your permament place of abode, the time you spend in a country and the social ties you have to it. Usually the first test is to see where you have spent more than half a year, the second test will be too see where you have a permanent residence in terms of apartment/house and the third one will look at your social ties to a community. So even if you spend more than half a year in a tax free location you may still be liable for tax in your home country if you have not ended most of your ties to the country. In summary, Canada taxes you on worldwide income.
Do not incorporate in Canada for tax purposes. Having a corporation introduces a lot of hassles in terms of accounting, fees, filing tax reports. Some people argue that you can get GST back but if you want to do that then it will most of the times create more work then it's worth. Just state the income as foreign personal income and pay your taxes, it is much easier.
Actually that's not correct, if you earn money whilst physically in another country, then it is that country's tax system that applies, not your home country. If that second country doesn't have a double taxation treaty with your home country then you will get taxed on that income again by your home country. If it does have the treaty then you have to make sure that both countries know that you earn money whilst physically in another to avoid the double taxation. I have just had to go through this with my business partner being a Norwegian native and resident whilst I am a UK native and resident. Our company is registered in the UK and my partner earns from it whilst he is in Norway, usually, but would be taxed by the UK authorities on any earnings he makes when he comes to the UK. And the Norwegian tax authorities are terrible to deal with, it took them 3 months to answer a simple question that I emailed them, whereas the same question to the UK authorities was answered over the phone immediately.
Haven't thought about other countries while i made that post. This applies if you live in a hell hole country like mine, where tax rates are way too high. The method of creating a company and spending the money on 'company property' to avoid most of tax payment, such as a house, a car, a cellphone, a laptop - and so much more that goes under the criteria of a needed company accessory. Many do that here, and spend much less money rather than not declaring themselves a company and get the money in cash - with taxes eating half of the sum.
In the original question, selling services/ products to international people. You pay the income tax in your country. If you are required to charge your customers sales tax you may not have to charge your foreign customers this subject to exact details - eg within the EU you would as there are agreements in place.
in Israel you pay tax if you don't have any income. for example, if you don't work, you owe to the country something like $30 per a month... i can consider my forigen income as a 'work' but then i will have to declare my self as independent which has a lot of headache...
Best way to avoid all this bullshit is to fly to some European country, and open a bank account there, as well as get visa. Transfers go directly to your bank account in another country - and you can do pretty much anything with the visa without paying a single $ for taxes.
i have a US bank account though becasue i live in israel not many companys will do the wire. and as i said, we pay here cash even if you do not work, for example if you don't have any income threw the tax department (or something like that) then you owe to the country X cash... annoying isn't it?
ok but how do you avoid tax? tax for not working :S basically what i do with the checks i recive is send them to my US bank...
Have you guys considered offshore companies? They can be set up easily and anonymously and depending on your situation they can remove a lot of paperwork and hassle. I work for a company doing this HERE so I would be happy to give free advice by pm if anyone needs it.