When you’re a digital nomad, taxes are the last thing you need to worry about. When you are on the move, as a digital nomad, you will (unfortunately) still have to deal with taxes in different countries. You don’t want to find yourself in a tricky situation, so it’s best to get to know the ins and outs of taxation for remote workers of all inclinations.
Having to deal with different tax systems can be a real pain for any Digital Nomad. To truly enjoy your adventure and make your taxation situation feel as easy as possible, below is a short guide that will explain to you how you can best approach your tax situation as a Digital Nomad.
Digital Nomads General Tax Practice
As of 2020, there is no international tax law that stipulates how taxes work for digital nomads. The idea of the nomadic working lifestyle doesn’t exist in the ‘rules of the world’, yet. The only general rule of thumb that does exist, is that you are considered an obligatory tax resident in the country where you spend more than 183 days in a calendar year.
Once you’re in another country, it will be sufficient to register at the tax office of your new residence to get a new tax number. In order to do this, you will need to show economic activity in line with your activities in your new country. This could be affirmed by receiving a small salary in a newly opened account for your digital nomadic efforts, or by registering a new company, for instance.
If you do not take action to confirm your tax residency status, your former country of residence may retain you a tax resident. In that case, you can face issues with founding companies, opening bank accounts or getting any assets onto your name, since all of this requires you to file your latest tax return.
With all of this being said, we’ve summarized the most important factors of taxation for digital nomads below – to make it easy for you to do the best thing regardless of where on earth you might find yourself.
Best Tax Tips For Digital Nomads
As touched upon above, by avoiding some of your tax obligations in your home country – you are being wise indeed. To make things easy to understand, below are our top pointers on how to best handle taxation for digital nomads:
Avoid Paying Multiple Taxes
For digital nomads, firstly, it’s essential to know the difference between personal taxes and corporation taxes. It’s possible to pay personal tax in one country, and corporation tax in another under different rules.
Some digital nomads avoid tax altogether by becoming a non-resident in their home countries, and moving around to avoid become a resident of anywhere! Hence, the term, digital nomad. We have more information on this legal grey area in relative sections below.
Where some are comfortable dodging taxes that pay for public services, others are not. It’s really up to you. With that said, most nomads do pay at least some form of tax in their home countries, or in the country where they’re a temporary resident. Going this route also helps to avoid difficult questions from the tax officer upon return to one’s original country. If you’re interested in becoming a non-resident, read on!
Becoming a non-resident
To qualify as non-resident in your current country, most countries require that you be overseas for long periods – with a minimum of 183 days to 349 days in any given year. The first thing you want to do once you’re in another country, is notify the tax authorities, as making your status official will make it easier to return home to work in future.
Setting Up Your Own Company
Since we know that companies and employees are taxed separately, you can also reduce your tax bill by setting up your own company. By paying yourself a salary on your company name, and your earnings may be tax free if they fall below a certain threshold.
Become a tax ‘exile’
You can attempt to sidestep tax altogether by becoming legally resident in another country with a low-tax regime. The good news is, there are some countries in which you do not have to worry about taxation. For example, Tibet or on the border with China, India and Nepal are great options for digital nomads. If you really don’t want to pay taxes on your international freelancing income, it is best to stay in a country with zero taxes…
Further examples of such nomad-friendly countries include Panama with its territorial system of taxation and visa-free entry to more than 140 countries. Not to mention Portugal with its special tax regime for foreign nationals and non-habitual residents. For enthusiastic digital nomads who like to travel, it is best to obtain citizenship in a country that grants the right of visa-free entry to multiple countries.
The ideal is to belong to a residency scheme where you’re not taxed on money earned outside the country. Please read on to find our list of tax friendly countries for digital nomads for more ideas on where and how to handle your taxes in the most simplistic manner.
The Ultimate List of Tax-friendly Countries for Digital Nomads
There are currently around 20 countries with zero income tax – and we’ve conveniently listed them in this article. If you relocate to one of these territories and establish your tax residency there, you will enjoy the benefit of paying 0% tax at the end of the year.
Although there are other costs associated with moving to each of these countries, having the taxman off your nomadic shoulders certainly provides more freedom and space for revenue growth. That said, here follows our summary of the most popular tax-free countries for digital nomads – including their pros and cons, specifically in terms of the digital nomad lifestyle.
Charging no income tax on the earnings of its residents, the Bahamas is one of the most famous spots in the world for digital nomads. Heavily reliant on the tourism industry for earning revenue, the Bahamas offers digital nomads the chance to get a temporary residence permit of 1 year by paying only $1000. However, the cost of living is rather high, which may make up for what you don’t have to pay for in taxes in the Bahamas…
Kitts and Nevis
St. Kitts and Nevis is another country with no income tax. Famous for its economic citizenship program where you can get citizenship at a reasonably low fee or via investment in real estate – getting permanent residency here is also quite economical and simple. And did we mention there’s no income tax to be paid?
Turks and Caicos
Getting a temporary residence permit can be relatively cheap and easy to do here. Permanent residency laws here actually requires you to be of ‘independent means.’ So, for working nomads, Turks and Caicos might be a great tax-free temporary destination.
Vanuatu’s citizenship investment program is one of the best in the world, and with zero income-tax on offer to digital nomads, it can be the ideal place to be.
The process to get a resident permit in Bahrain is easier than investing in property, and taxes are a no-brainer. You can get a work visa via an employer, who would make you eligible for a residence permit.
St. Barths is known for its costly living that is fairly higher relative to other Caribbean islands. For the first five years of residency, you will be subject to 30% tax, but after that, you can enjoy a tax-free life on the island of St. Barthélemy.
Wallis and Futuna
The French territories of The Wallis and Futuna Islands make it relatively easy for EU citizens to move in and out as they wish and not have to worry about paying double taxation. The island is financially backed by France, and coupled with fishing, this allows them to be completely tax-free. Tourism isn’t well developed on the island; however, you can stay in beautiful beach locations for relatively low prices and enjoy working as a free nomad.
Bermuda is a famous tax-free haven known as a luxurious vacation destination. But don’t let that put you off just yet. Being tax-free, Bermuda earns its revenue from tourism and the insurance industry. For digital nomads, there are multiple ways to gain residency into Bermuda. Try the Global Work Permit, New Business work Permit, or Global Entrepreneur Work Permit.
Located on the French Riviera, Monaco is known for its luxurious casinos and Formula One track. But despite being tax-free, it is generally expensive. Living here will be costly in terms of acquiring the residency permit, and requires a minimum of €500,000 in real estate investment and a deposit of the same amount in Monegasque Bank.
The British Virgin Islands
The British Virgin Islands is an island nation located in the Caribbean known for its scenic beaches and vibrant lifestyle options. This digital nomadic hotspot does not tax its residents. However, permanent residency can be applied only after a residency of 20 years in the country!
The United Arab Emirates is a region in which Dubai and Abu Dhabi are the most well-known. The country is known to host a huge number of expats who are sponsored by their employers, and acquiring residency can be simply obtained by setting up a company there.
The Cayman Islands are another British overseas territory that enjoys tax-free status due to thriving tourism. The Cayman Islands is in fact known as a famous tax haven for establishing overseas companies to more effectively manage taxes.
Permanent residency is quite difficult to obtain, though, and visa rules are similar to those of Kuwait.
The Pitcairn Islands
The Pitcairn Islands is an official British overseas territory in the Pacific Ocean, with a population of only 50 people. Renowned as the most isolated sovereign state, its economy is based on fishing. Immigration here is very easy, but keep in mind there isn’t much to do here!
In Conclusion: Smart Taxation for Digital Nomads
While some of these tax-free options may seem enticing it is clear that most of these countries either have difficult regulations for residency or expensive investment programs to obtain citizenship. But, where there’s a will, there also a way.
If you’re a remote worker seeking a tax-free country to obtain citizenship in, some of the countries mentioned in this article may be a good option. It’s definitely worthwhile to weigh the pros and cons of residency in a tax-free country versus a low-tax country.
In the former, you still need to pay taxes, but you may have an easier time obtaining residency and be surrounded with like-minded digital nomads while you’re there.
If you have a stash of money somewhere (under your mattress) and you’re ready to buy property in another country of choice, then some of the above-mentioned countries may well be your ticket to living a tax-free nomadic life.