Digital Nomad Tax Guide: Where Do You Owe Taxes?

The Fundamental Rule: Tax Residency

Your tax obligations are primarily determined by your tax residency, not where you physically perform work. Tax residency is a legal status that connects you to a specific country's tax system. Most countries use one or more of these criteria to determine residency:

• Physical presence: The "183-day rule" is the most common threshold. If you spend 183 or more days in a country during a tax year, you are typically considered a tax resident. However, some countries use different thresholds (e.g., Canada uses a more holistic approach).
• Center of vital interests: Where is your family? Where are your closest personal and economic ties? Where is your permanent home? These factors can make you a tax resident even if you spend fewer than 183 days in a country.
• Habitual abode: If you regularly return to a country and have a pattern of living there, you may be considered a resident regardless of the exact day count.
• Citizenship: The United States and Eritrea are the only countries that tax based on citizenship alone. US citizens owe US taxes on worldwide income regardless of where they live.

Common Digital Nomad Scenarios

Scenario 1: US Citizen Working from Portugal

Sarah is a US citizen working as a freelance developer from Lisbon. She has been in Portugal for 10 months.

US obligations: As a US citizen, Sarah must file a US tax return reporting her worldwide income, regardless of where she lives. She can use the Foreign Earned Income Exclusion (FEIE) to exclude up to $126,500 (2024) from US taxation, OR use the Foreign Tax Credit to offset US taxes with taxes paid to Portugal. She cannot use both on the same income.

Portuguese obligations: After spending more than 183 days in Portugal, Sarah is a Portuguese tax resident. She may qualify for the NHR (Non-Habitual Resident) regime, which offers a flat 20% rate on Portuguese-sourced employment income for 10 years. However, the NHR regime was reformed in 2024 and is now more restrictive.

Optimal strategy: If Portugal's tax is higher than the US rate (likely with NHR expired or income above FEIE threshold), use the Foreign Tax Credit on the US side to avoid double taxation. If Portugal's tax is lower, consider whether FEIE or FTC gives a better result.

Scenario 2: German Freelancer in Thailand

Max is a German graphic designer who moved to Chiang Mai 8 months ago. He deregistered from Germany (Abmeldung) and has no German address.

German obligations: By deregistering and spending fewer than 183 days in Germany, Max is likely no longer a German tax resident. However, if he still has significant economic ties (German clients providing most income, German bank accounts, investments), the Finanzamt could argue he retains "unlimited tax liability" (unbeschrankte Steuerpflicht). The Abmeldung helps but is not conclusive on its own.

Thai obligations: Thailand traditionally did not tax foreign-sourced income that was not remitted to Thailand in the same year it was earned. However, starting January 1, 2024, Thailand taxes all foreign income remitted to Thailand, regardless of when it was earned. If Max brings his freelance earnings into Thailand, they may be taxable.

Optimal strategy: Max should establish clear tax residency in one jurisdiction. If Thailand, he should understand the new remittance rules. He should also check the Germany-Thailand double taxation treaty. Many nomads in this situation establish residency in a low-tax country like Georgia (1% for small businesses) or Paraguay (10% territorial system).

Scenario 3: UK Contractor in Bali

Emma is a UK marketing consultant who left the UK 14 months ago. She works from Bali on a tourist visa.

UK obligations: If Emma left the UK and meets the Statutory Residence Test (SRT) criteria for non-residence — typically spending fewer than 16-45 days in the UK per tax year (depending on ties) — she is not a UK tax resident. However, UK-sourced income (from UK clients) may still be subject to UK tax.

Indonesian obligations: Working in Indonesia on a tourist visa is technically illegal. Indonesia requires a work visa (KITAS) for anyone earning income while in the country. Even on a tourist visa, if Emma spends more than 183 days in Indonesia, she could be considered a tax resident. Indonesian tax rates are progressive up to 35%.

Risk: This is a very common but risky arrangement. Many digital nomads work this way, but it creates legal exposure in the host country (immigration violations, potential tax liability) and potential issues in the home country (HMRC could argue continued residence based on ties).

Double Taxation Treaties (DTTs)

Double taxation treaties (also called tax treaties or DTAs) are bilateral agreements between countries to prevent the same income from being taxed twice. Key provisions include:

• Tie-breaker rules: When both countries claim you as a resident, the treaty determines which country has primary taxing rights. The hierarchy is typically: permanent home, center of vital interests, habitual abode, nationality.
• Income allocation: Treaties specify which country can tax which type of income. Employment income is generally taxed where the work is performed, while business profits are taxed where the business has a "permanent establishment."
• Tax credits: The country of residence must give credit for taxes paid to the source country, ensuring income is not taxed twice.
• Reduced withholding rates: Treaties often reduce withholding tax rates on dividends, interest, and royalties between the two countries.

The "Tax Nowhere" Myth

Some digital nomads believe they can avoid all taxes by never spending 183 days in any single country. This is legally and practically problematic:

• Many countries look beyond 183 days. Germany considers your "center of vital interests," the UK has the complex Statutory Residence Test, and Australia uses an extensive list of ties.
• Citizenship-based taxation. US and Eritrean citizens owe taxes regardless. Green card holders also remain US tax residents.
• Banking and business requirements. Operating without a tax residency makes it difficult to maintain bank accounts, sign contracts, and operate legitimately.
• OECD transparency. The Common Reporting Standard (CRS) means your financial information is shared between over 100 countries. Tax authorities are increasingly coordinated.

Practical Steps for Tax Compliance

Step 1: Determine Your Current Tax Residency

Before making any changes, understand where you are currently a tax resident. This is usually the country where you last lived and filed taxes. If you have not formally departed (deregistered, notified the tax authority), you are likely still a resident.

Step 2: Choose a Base

Select one country where you will establish tax residency. Consider: tax rates, quality of life, visa availability, banking access, double taxation treaties with countries where your clients are located, and social security agreements with your home country.

Step 3: Formally Depart Your Previous Country

Most countries require or strongly recommend formal departure procedures. In Germany, this is the Abmeldung. In the UK, you should complete form P85. In the US, you cannot "depart" for tax purposes without renouncing citizenship (which has its own tax consequences under the expatriation tax).

Step 4: Establish Residency in Your New Base

Register with the local tax authority, obtain a tax identification number, open a local bank account, and sign a rental agreement. These concrete ties demonstrate your connection to the new country.

Step 5: Maintain Records

Keep detailed records of your travel (passport stamps, flight tickets, accommodation receipts), your income sources, and your expenses. Track your days in each country using an app or spreadsheet. This documentation is crucial if any tax authority questions your residency.

Step 6: File Taxes in Your Country of Residence

File annual tax returns in your country of tax residency, reporting worldwide income. If you have income from multiple sources, check whether withholding tax was deducted and claim foreign tax credits as applicable.

Digital Nomad Visa Programs

Many countries now offer specific visas for digital nomads. These programs vary in their tax treatment:

• Portugal: D7 visa or Digital Nomad Visa. The NHR regime offered favorable tax treatment but was reformed in 2024.
• Estonia: Digital Nomad Visa. Note that this does not automatically make you an Estonian tax resident.
• Croatia: Digital Nomad Permit with a 0% income tax exemption on foreign income for up to 1 year.
• Greece: Digital nomad visa with 50% income tax reduction for 7 years.
• Spain: Beckham Law: 24% flat tax rate for 6 years for new residents.
• Italy: Regime forfettario for new residents: 5-15% flat tax on freelance income.

Always verify the tax implications before applying. A visa that allows you to live in a country does not necessarily mean the tax treatment is favorable.

Getting Professional Help

International tax is complex, and the stakes are high. Mistakes can result in penalties, back taxes, and interest. We strongly recommend working with a tax advisor who specializes in international taxation and understands the specific rules of both your home country and your chosen base.

Use our Freelance Tax Calculator to estimate your tax burden in different countries, and our Tax Residency Rules guide for detailed country-by-country rules.