As remote work becomes more popular, digital nomads encounter complex tax requirements, no matter which foreign country they are in. Understanding the tax obligations that come with this freedom is critical. Digital nomads often have to deal with several tax jurisdictions, each with its own rules regarding income earned abroad.

This article guides compliance, available tax treaties, and strategies to manage tax efficiently. It also goes into how various countries handle taxes for digital nomads, such as foreign tax credits. Additionally, it covers taxes on foreign-earned income and whether there is a foreign-earned income exclusion.

Whether temporarily relocating or constantly traveling the world, staying informed is essential. This is to avoid legal issues and maximize your earnings while working remotely.

Do Digital Nomads Pay Taxes?

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However, digital nomads are still liable for paying taxes, and the amounts can vary significantly based on their home country, the countries they work in, the duration of their stays, and the nature of their work. Here are a few things to keep in mind when it comes to paying taxes as a remote worker:

Residency: Tax residency determines where you are liable for paying taxes. Countries have different rules for establishing residency, often based on physical presence, permanent ties, or a combination. Digital nomads must understand the residency rules of each country they live or work in to determine their obligations.

Income Source: The source of income can affect where taxes are owed. If you work remotely for a company based in one country while living in another, both countries may claim the right to tax your income. This can lead to additional taxation, where two countries tax you on your income.

Tax Treaties: Many countries have tax treaties to prevent multiple taxation. These agreements outline how income is taxed when it crosses borders, often allowing tax credits or exemptions. Digital nomads should familiarize themselves with relevant tax treaties to ensure they are not overtaxed.

Compliance and Reporting: Digital nomads must comply with tax laws in each country where they earn income or reside. This includes filing tax returns, keeping accurate records, and adhering to deadlines. Compliance is crucial to avoid penalties and legal issues.

Where Do Digital Nomads Pay Taxes?

Navigating the complexities of where and how digital nomads should pay taxes can be overwhelming, but understanding the key factors involved can simplify the process. The main considerations for digital nomads regarding tax residency and obligations include home country requirements, host country regulations, and the source of the money. Whether you’re an experienced traveler or new to the nomadic way of working, understanding the three tax systems will help you stay compliant and make informed decisions about your tax responsibilities.

Home country

For digital nomads, understanding the tax obligations of their home country is crucial as it often forms the foundation of their overall tax strategy. Many countries, particularly the United States, require their citizens and residents to report and pay taxes on their worldwide income, irrespective of where the income is earned. This means that even if you are living and working abroad, your home country expects you to file a tax return and pay taxes on your total income. This is known as citizenship-based taxation.

Host country

Digital nomads must also consider their tax obligations in the countries where they physically reside and work. These obligations are determined by the tax laws and residency rules of each host country. Many countries use the “183-day rule” to determine tax residency. If you spend 183 days or more in a given country within a year, you may be considered a tax resident of that country. As a tax resident, you could be subject to local income taxes on your worldwide income. This is known as residence-based taxation.

Source of funds

Even if you are not considered a tax resident, you may still be liable for taxes on income earned within the host country. This is known as source-based taxation. For example, if you perform work while physically present in the country, that income may be taxed locally. For example, a digital nomad working on a project while temporarily in Thailand may owe Thai taxes on the income earned during their stay.

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Withholding Taxes and Double Taxation

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The entity paying the income—such as an employer, client, or financial institution—is responsible for deducting the tax and remitting it to the relevant tax authority.

The main purpose of withholding taxes is to ensure tax compliance and facilitate the collection of taxes, especially from non-residents who may not otherwise file tax returns.

Rates of withholding taxes and the types of income they apply to vary by country. For example, a US company might withhold taxes on payments to a digital nomad living in another country, or a foreign company might withhold taxes on payments to a nomad working within its borders.

Digital nomads can often reduce or eliminate multiple taxation on this withheld income by claiming tax credits. Understanding withholding taxes is essential for digital nomads to effectively manage their global tax obligations and avoid unexpected tax issues.

Double Taxation

This occurs when the same income is taxed by two different jurisdictions, which is a common concern for digital nomads who earn income while living and working in multiple countries. This can happen when both the nomad’s home country and the host country claim taxing rights over the same income.

For instance, a US citizen working remotely in Spain might be required to pay income taxes in both the US and Spain. This overlapping tax obligation can significantly impact their financial situation if not managed properly.

To mitigate this taxation, many countries have established Double Taxation Agreements (DTAs). These agreements delineate which country has the right to tax specific types of income and often provide methods for taxpayers to avoid or reduce this taxation. Typically, DTAs allow for tax credits, where the tax paid to one country can be credited against the tax owed to another, or for tax exemptions on certain types of income.

Digital nomads should familiarize themselves with the DTAs between their home and host countries to understand their tax liabilities better.

Personal Taxes for Digital Nomads

It’s important for digital nomads to understand the different types of personal taxes that may apply to them based on their specific living and working arrangements. These taxes can differ based on their country of residence, the countries they work in, and their home country’s tax laws. Here are the main types of personal taxes that digital nomads should consider:

Income Tax: Many countries tax their residents on worldwide income. This includes salaries, freelance earnings, investment income, and any other sources of income. However, some countries tax non-residents on income earned within their borders. This is common for digital nomads who may be taxed on income generated from work performed while in a specific country.

Self–Employment Tax: Self-employed digital nomads may be required to pay social security taxes to their home country or the country where they are working. In the US, this includes Social Security and Medicare taxes. In some countries, self-employed individuals must contribute to national health insurance schemes.

Capital Gains Tax: These are taxes on profits made from selling assets like stocks, bonds, or real estate. These can be taxed differently depending on whether the assets are held short-term or long-term. Many digital nomads deal with cryptocurrencies, which may be subject to gains tax in several jurisdictions.

Value–Added Tax (VAT): When purchasing goods and services, digital nomads may be subject to VAT or GST, which is added to the price of products and services in many countries. If running a business, digital nomads may need to charge VAT/GST on sales and remit it to the tax authorities.

General Tax Guidelines for Digital Nomads

Navigating taxes as a digital nomad can be complex due to the itinerant nature of their work and lifestyle. However, some general guidelines can help simplify understanding and compliance with tax obligations. Following these guidelines can help digital nomads navigate the complexities of international taxation, ensuring legal compliance and financial security as they live and work globally.

Residency vs Tax Residency

Residency and tax residency are terms that often overlap but have distinct meanings and implications, especially in the context of taxation for digital nomads and expatriates. Understanding the difference between residency and tax residency is crucial for digital nomads. While residency determines your legal right to live in a country, tax residency determines your tax obligations. Digital nomads should pay attention to each country’s specific rules and criteria to ensure compliance and optimize their tax situation.

Keep Track of All Income Sources

Maintain comprehensive records of all your income streams, including freelance work, employment, dividends, and interest. This is crucial for accurate tax reporting in your home country and any country where you owe taxes and can be done by keeping a detailed foreign bank account report to pay self-employment taxes where needed.

Understand Your Home Country’s Tax Rules

Some countries, like the United States and Eritrea, tax citizens on worldwide income regardless of where they live. If you are a citizen of such a country, you must file tax returns there, regardless of your residency elsewhere.

Report Foreign Bank Accounts

If you have foreign bank accounts, you may need to report them to your home country’s tax authorities. For example, US citizens and residents must file an FBAR (Foreign Bank and Financial Accounts Report) if they have over $10,000 in aggregate foreign financial accounts at any point during the year.

Best Countries for Digital Nomads

Spain

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It allows them to live in Spain while contributing to the local economy without entering the Spanish job market.

To be eligible for this visa, applicants must show that they have a stable and sufficient income, typically around 2,000-2,500 euros per month, to support themselves without relying on local employment.

The income should come from remote work for companies outside of Spain. Additionally, applicants are required to have health insurance that covers their stay in Spain and must not have any criminal records.

The visa is initially valid for one year and can be extended for up to five years if the conditions are met continuously. After five years, holders of the visa can apply for long-term residency.

One of the attractive features of the Digital Nomad Visa is the favorable tax treatment, offering a reduced tax rate for the first four years of residence. This initiative benefits the nomads and aims to enhance Spain’s position as a hub for international talent and innovation.

Understanding local tax obligations is crucial for digital nomads in Spain. As a resident (typically defined as spending more than 183 days per year in Spain), you are taxed on your worldwide income.

Non-residents, however, are only taxed on Spanish-sourced income. Introducing the Digital Nomad Visa under Spain’s Startup Law allows for a simplified and potentially reduced tax regime for qualifying individuals. Special consideration is given to those who can initially apply under the non-resident tax status, often with a lower rate on Spanish-source income.

Portugal

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This visa is particularly appealing due to Portugal’s mild climate, relatively low cost of living, and vibrant expat community. To qualify for the D8 Visa, applicants must demonstrate a stable passive income that covers their living expenses in Portugal. This income can come from remote work, pensions, dividends, or rental earnings.

The minimum financial requirement is around €3,280.00 per month, but this amount increases if you apply with family members.

The D8 Visa initially allows a stay of one year, which can be renewed for successive two-year periods. After five years of legal residency, holders can apply for permanent residency or Portuguese citizenship.

Digital nomads on this visa must spend at least 16 months in Portugal during the first two years and should be away for at most six consecutive months. Tax implications include potential eligibility for the Non-Habitual Resident (NHR) tax regime, which offers reduced tax rates and certain exemptions for ten years.

Is NHR ending?

The State Budget Law for 2024 determined the end of the NHR regime from 1st January 2024. However, certain individuals can still apply up until 31st March 2025, and the scheme is being replaced by the Tax Incentive for Scientific Research and Innovation, which has now been implemented. To learn more, please refer to Is The Portugal NHR Ending?

Tax obligations in Portugal for digital nomads can be nuanced, largely depending on their residency status and the source of their income.

If you spend more than 183 days in Portugal during a year, you will be considered a tax resident and must pay tax on your income earned anywhere in the world. However, if you spend less than 183 days in Portugal, you will only be taxed on the income earned within the country.

The Non-Habitual Resident (NHR) Regime program provides newly resident individuals with reduced tax rates and certain exemptions for ten years. Under the NHR program, foreign income such as pensions, dividends, royalties, and certain types of salary, if sourced from a high-added-value activity, may be taxed at a flat rate of 20% or exempt from taxation in Portugal, depending on the type of income.

Determining whether you are responsible for contributing to social security in Portugal is essential. Usually, if you are already contributing to another country’s social security under an agreement or as an independent, you may not be required to contribute in Portugal.

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Other countries that offer digital nomad visas

Argentina: The Argentinian government launched its take on a visa for digital nomads on 21 May 2022. The Argentinian digital nomad visa allows digital nomads to work remotely for either an international or Argentinian company.

Costa Rica: The Rentista Visa for digital nomads is an easily obtained visa and allows holders to remain in the country for two years, with the possibility to extend this further. The visa is designed for small investors who want to provide their services in Costa Rica. You will need to prove that you have around $2,500 per month as proof of a steady income.

Croatia: The Croatian authorities launched their visa for digital nomads in 2021 to encourage remote workers to live in Croatia while working.

Czech Republic: The Freelance Visa is for those looking to work on their own time schedule and live in the Republic. The visa is valid for up to one year, with the possibility of extension for a further two years. The Freelance Visa costs around €223, and you will need to demonstrate that you have an income of €5,767.

Germany: Nomadic workers can apply for a German Freelance Visa, which allows holders to work with different startups, businesses, or individuals on part-time contracts or a needs basis.

Iceland: The Icelandic version of digital nomad visas were launched by the country in October 2020 and is called the Icelandic Remote Worker Visa. This visa also serves as a temporary residence permit.

Mexico: If you want to live in Mexico while working as a digital nomad, then the Mexico Temporary Resident Visa is a safe bet. You can stay in the country for one year and then can extend the visa up to three more times.

Norway: Norway offers visas for digital nomads looking to live and work in Svalbard, one of the most expensive places to live in the world. The visa is valid for a lifetime, and you simply need to show that you have sufficient funds to support your stay there. Living in Svalbard can be pretty difficult because of the very low temperatures and the 24 hours of darkness that the archipelago experiences for about four months of the year, from November to February. However, living in Svalbard is an experience that digital nomads will remember for a lifetime.

Essential Tax Planning Tools and Resources for Digital Nomads

Planning for taxes as a digital nomad involves navigating multiple tax jurisdictions and understanding international tax laws. This can be complex, but you can effectively manage your tax obligations with the right approach and tools. Here are some essential tools and resources for digital nomads:

Tax Software

  • TurboTax: Offers international tax filing options and can handle multiple sources of income.
  • TaxAct: Provides tools for both US residents and non-residents, accommodating various international tax scenarios.

Accounting Software

  • QuickBooks: Ideal for tracking income, expenses, and financial reporting.
  • FreshBooks: Geared towards freelancers and small businesses, offering robust expense tracking and invoicing features.

Professional Tax Consultation

Engage with tax professionals who specialize in expatriate and digital nomad taxes. Firms like Taxes for Expats or Greenback Expat Tax Services provide tailored services for digital nomads.

Financial Advisors Specialized in Nomadic Lifestyles

Advisors who specialize in clients with international lifestyles can offer advice on structuring finances to minimize tax burdens while complying with all legal requirements.

Online Forums and Communities

Platforms like Nomad List, the Digital Nomad Forum, and expat groups on social media can be invaluable. They provide insights and firsthand accounts of dealing with taxes in various countries.

Government and Official Tax Authority Websites

Always refer to official resources for the most accurate and up-to-date information regarding laws and treaty details.

How Can Global Citizen Solutions Help You?

Global Citizen Solutions is a boutique migration consultancy firm with years of experience delivering bespoke residence and citizenship by investment solutions for international families. With offices worldwide and an experienced, hands-on team, we have helped hundreds of clients worldwide acquire citizenship, residence visas, or homes while diversifying their portfolios with robust investments. 

We guide you from start to finish, taking you beyond your citizenship or residency by investment application. 

Frequently Asked Questions About Digital Nomad Taxes

Do digital nomads have to pay US taxes?

American digital nomads must file a US Federal Tax Return if their income exceeds the minimum filing requirement, regardless of their location and whether they work remotely. The US has a citizenship-based tax system, which is unique compared to most other countries.

What is a tax residency?

Tax residency determines where you can pay taxes on your global income.

Most countries define tax residency based on the time you spend there in a year—typically around 183 days. Understanding your tax residency and foreign assets helps avoid multiple taxation and ensures compliance with local rules.

Can digital nomads avoid double taxation?

Digital nomads can avoid it by taking advantage of tax treaties between countries.

These agreements often allow you to offset taxes paid in one country against your tax liabilities in another or exempt foreign income from local taxes. It’s important to file for tax relief under these treaties proactively.

Are digital nomads required to pay taxes at home?

This depends on your country of origin. Some countries, like the United States, tax nationals on worldwide income regardless of where they live, while others tax only on income earned within their borders. Always check your home country’s tax rules regarding foreign income and residency.

What kind of expenses can digital nomads typically deduct from their taxes?

Digital nomads can often deduct expenses directly related to their work, including travel expenses, equipment purchases (like computers and phones), software subscriptions, and possibly a portion of housing costs if their home doubles as their office.

Specific deductions can vary by country, so consulting with a tax professional is wise.

What tools or services can help digital nomads manage their taxes?

There are several tools and services designed to help with expat and nomad taxes, including:

Tax software: Programs like TurboTax International or H&R Block Expat Tax Services offer tailored services for filing in multiple countries.

Professional accountants: Hiring a tax professional specializing in expat tax can provide personalized advice and ensure you are fully compliant while minimizing your liabilities.

Financial apps: Apps like Expensify or QuickBooks can help track expenses and income, making it easier to file accurate tax returns.