Where do Digital Nomads pay taxes? Can Digital Nomads be tax-free? What are the best tax residencies for nomads? These are some of the most frequently asked questions. And that’s absolutely legitimate! Because taxes are one of the most important topics when it comes to escaping the 9-5 grind, leaving your home country, and building a life as a Digital Nomad.
In this guide, I’ll show you what options you have, what you need to look out for, and what lucrative options currently exist. All are completely legal, of course.
Digital Nomad Taxes: Do Nomads Pay Taxes At All?
First things first: Yes, Digital Nomads generally pay taxes. Just because you have decided to stop working in your home country does not mean you are exempt from paying taxes. However, how much tax you pay (some individuals can reduce their taxes to 0.00 USD) and where you pay it depends on a number of different factors. But we’ll get to this later.
The 3 Tax Systems
Now that we’ve uncovered that you most likely have to pay taxes, it makes sense to take a look at the three different tax systems that countries use.
Residential Tax System
If you call a country home, you’re expected to pay taxes there, even if you’re not originally from there. This is about contributing to the place where you live, work, and engage with the community. For Digital Nomads, getting a nomad visa means you’re a resident for tax purposes in that new country (please note: each nomad visa is different. Sometimes, the tax regulations are not specified in the visa. I know, it’s confusing!).
Citizenship-Based Tax System
Only the US and Eritrea taxes are based on citizenship, meaning Americans and Eritreans pay taxes on global income, no matter where they live. To escape this, one would have to give up their citizenship, a drastic step. For nomads, a second residency or citizenship through a nomad visa might offer a different tax scenario.
Territorial Tax System
In countries with territorial taxes, only local income is taxed. This setup is great for Digital Nomads working for international clients from these countries, as their foreign income remains untaxed. Only income earned within the country, like from a local employer, would be taxed. Thailand, Georgia, Malaysia, Costa Rica, and Panama, for example, use the territorial tax system.
Where do Digital Nomads Pay Taxes?
Now let’s dive deeper into the topic and find out where you pay tax as a Digital Nomad. This depends on a number of factors:
Citizenship
As stated above, your home country plays a big role. Some countries tax you based on your citizenship, no matter where you live. The United States is a famous example of this. So, if you’re an American Digital Nomad, you might still have to file taxes back home.
Physical Presence
The country you spend most of your time in can also ask for taxes. There’s this thing called the “183-day rule” in many places. It basically means if you’re in a country for more than 183 days in a year, that country might say, “Hey, you’re a resident for tax purposes!” Interesting fact: In Switzerland, you can already trigger the tax liability from a stay of 30 days under certain conditions.
Business Establishment
Choosing jurisdictions with favorable tax laws for business setup can be beneficial. Estonia is popular among freelancers for establishing EU businesses efficiently, while the US is known for its straightforward LLC formation process, especially in states like New Mexico that offer limited filing requirements and anonymity.
Local Laws and Digital Nomad Visas
Some places are rolling out the red carpet for Digital Nomads with special visas, which I will talk about later in this article (also check out my list of the most nomad-friendly countries here). These can come with tax perks or requirements, so it’s worth checking out if your destination offers something like this.
A Digital Nomad Tax Scenario: Marie From Germany
To simplify everything a little, let’s create a scenario that represents a typical EU nomad:
Marie, our imaginary character, has just started to become a Digital Nomad. She comes from Germany and is a freelance web designer. Since she is going full risk and is sure that she will be traveling full-time for the next few years, she deregisters from Germany. This means that she no longer has an address in Germany, no statutory health insurance, and no debts. Under very strict conditions, she is no longer liable for tax in Germany.
She sets up an LLC in the USA and uses it to invoice all the income she earns. She has clients in Germany, the UK, and Spain. The income flows to the LLC in the USA. As Marie is a German citizen, her income from the service-based work of the LLC is not taxable. The money is deposited in her US account.
We conclude that Marie has found a way to legally generate income while traveling and write correct invoices for her clients. But where will she pay taxes?
Now we come to the exciting part: where Marie pays taxes depends on various factors, as we have already learned. As Marie wants to pay as little tax as possible, she decides to trigger the tax liability in a country that has the territorial tax system: She loves Georgia. Only income earned in Georgia (for example, if Marie had clients from Georgia) has to be taxed. Remember, Marie has clients in Germany, the UK, and Spain).
As the 183-day rule applies in Georgia, Marie can, therefore, become liable to pay tax here if she spends at least 183 days a year in the country. And since her income was earned outside of Georgia, it is tax-free. Genius, right?! Good to know: From the moment Marie withdrew money from her US account with her credit card in Georgia, she legally imported the income into the country.
Please note: This scenario is extremely simplified. Please consult a tax professional for individual advice.
Check out Denationalize.me (Staatenlos) and Taxhackers.io (for non-US nomads) for getting hands-on support for opening an LLC and becoming tax-free as a Digital Nomad.
Digital Nomad Visas and Their Tax Perks
In recent years, several countries have rolled out Digital Nomad Visas, aiming to draw in folks who work remotely. These visas are pretty handy, letting you legally stay and get your work done in a new country, often for a year or even longer.
Now, the tax side of things with these visas can be a mixed bag, as it really depends on where you’re headed. Let’s dive into a few places offering Digital Nomad Visas and what you might expect tax-wise:
Spain
The Digital Nomad Visa Spain is considered the best in the world. This visa, renewable up to five years, requires a minimum monthly income of $2,340 (€2,160), with adjustments for dependents. Applicants need a stable job, company permission, and a year-old business, with up to 20% income from Spanish clients allowed. It also opens the path to Spanish residency and EU travel, with a special 24% tax rate on income up to $647,000 (€600,000), benefiting from Spain’s extensive double taxation treaties.
Costa Rica
According to tech.co, the Costa Rica Digital Nomad Visa is one of the most popular ones. It is renowned for its huge tax advantages. As a Digital Nomad there, if your employment is outside of Costa Rica, you’re not required to pay local income taxes. Additionally, this visa offers exemptions from import taxes for work-related equipment and remittance taxes, enhancing the benefits for remote workers based in Costa Rica.
Malta
Malta, a scenic Mediterranean island, offers a digital nomad visa for remote workers with a minimum income requirement of $2,900 (€2,700). The application fee is about $320 (€300). For the first year, digital nomads enjoy income tax exemption, followed by a low tax rate of 10%. While living costs aren’t the lowest, they are generally more affordable than in major European cities. English is widely spoken, easing communication for many.
Iceland
Iceland’s digital nomad visa, valid for six months, allows remote work amidst its stunning landscapes. Eligibility includes non-EU/EEA/EFTA citizenship, visa-free travel agreement with Iceland, not holding another long-term Iceland visa in the past year, remote work proof, and a minimum monthly income of approximately $7,763 (€7,200). Necessary documents include a valid passport, completed application form, visa fee proof, recent passport-sized photo, health insurance, employer letter, income proof, and a clean criminal record. Family members require additional documentation and fees.
Argentina
The visa demands a minimum monthly income of $2,690 (€2,500) and a rental agreement, among other requirements. Although it primarily supports those working for foreign entities, it doesn’t permit employment with Argentine companies. Expected to last one to three years, this visa aims to aid economic recovery post-pandemic. Argentina, with its low living costs, welcoming locals, stable internet, natural beauty, and vibrant culture, is an ideal destination for Digital Nomads.
Croatia
The Croatia Digital Nomad Visa, essentially a temporary residence permit for freelancers or entrepreneurs working remotely, is valid for up to a year and non-renewable within six months of expiry. Originating from a 2021 initiative to boost the economy, it’s available to non-EU/EEA nationals proving a stable monthly income. Benefits include tax exemptions and the opportunity for longer stays, with a path to citizenship after five years. Requirements include proof of income, health insurance, and a clean criminal record, among others.
Romania
The Romanian Digital Nomad Visa has existed since 2021. This visa targets those working for or owning companies outside Romania and allows remote work. The application is known for its simplicity, with a processing time of about 10-14 days. It requires proof of a $3,900 (€3,590) monthly income, is valid for a year with an extension option, and is open to non-EU citizens.
Abu Dhabi
Abu Dhabi offers a “Remote Work Visa” for Digital Nomads and remote workers, allowing them to reside in the UAE’s capital without a local sponsor. This visa, costing $287 (€265), requires proof of a minimum monthly income of $3,500 (€3,220) and is valid for one year. It’s open to all nationalities. Holders get an Emirates ID and access to public services similar to those of local residents.
Uruguay
Since December 2023, Uruguay has offered a Digital Nomad Visa for remote workers. This visa facilitates working from Uruguay, which is known for its safety and scenic beauty. The application process is online, leading to an emailed visa for a set period. Required documents include a valid passport, passport photo, financial affidavit, clean criminal record from the last five years, and a vaccination certificate from Uruguay.
Norway
Norway offers different kinds of Digital Nomad visas. One of them is tailored for life in Svalbard. This region is described as the true Arctic and is popular with tourists who want to see the Northern Lights or experience expeditions and other types of cold adventures. Nomads in Norway should be aware of local tax obligations and the need to obtain a VAT number. Despite this, the application process for Norway’s new Digital Nomad Visa is notably simpler compared to many other visa types.
Andorra
Andorra’s Digital Nomad Visa requires government approval. Applicants must prove they have a remote work setup, financial means, a local residence, and a commitment to stay in Andorra for at least 90 days annually. Benefits include no mandatory company setup or social security payments, with a simpler entry process compared to other residencies. Professional assistance is advised for application documentation.
Aruba
Aruba introduced a short-stay visa, allowing remote workers to enjoy its beaches while working for up to three months. This visa scheme is open to all nationalities, with US citizens able to enter visa-free for the same duration. There’s no fee for the visa, but applications must be made at a local or Dutch embassy. Additionally, Digital Nomads can enjoy tax exemptions in Aruba and have the option to bring their families and pets.
Mexico
Mexico, favored by Digital Nomads for its rich Latin American culture, offers a Temporary Resident Visa instead of a dedicated Digital Nomad visa. This visa, with costs ranging from $150 to $350 (€140 to €320), permits stays from six months up to four years, requiring a monthly income of $2,600 (€2,400). Initially valid for one year, it’s renewable for three more. Applicants from any country must apply at a Mexican embassy or consulate, and while you can’t work for local companies, remote work is acceptable.
Curacao
The island introduced the ‘@Home in Curaçao Visa’ to boost tourism. It caters to remote workers, Digital Nomads, and investors with stays up to six months, extendable for another six. This visa, costing around $300 (€275), requires applicants to prove financial self-sufficiency and is open to all nationalities. Applications can be made online, and the visa includes family benefits, promoting a balanced work-leisure lifestyle on the island.
Panama
Panama, known for its development, climate, and lifestyle, introduced a Digital Nomad visa in May 2021 to boost tourism among remote workers. The visa costs $300 (€275), requires a minimum annual income of $36,000 (€33,100), and is valid for nine months with an option to extend. Open to all nationalities, the application must be made through a lawyer in Panama. The country’s tax-friendly policies allow for income earned abroad to be untaxed, and a stay of nine months or longer can qualify for tax residency.
