Paying your taxes is one of the most important things you need to do right as a digital nomad. If you don’t, you might need to pay large fines, lose your passport, or even get jail time, depending on your country of origin. So make sure you have all the information available. Here are some of the most basic things you need to research - they can vary wildly between countries so don’t treat this as your only source of information.
Personal income
There are myriad ways you can be taxed as a digital nomad. Some countries base their taxation on the location of the nomad. If your income comes from your destination, it will be taxed, and if it comes from overseas, it won’t be taxed. Some countries base it on the type of visa you have. If you have a work visa, the income from your destination will be taxed with international income potentially being taxed as well. And some countries forgo these solutions entirely to just give a flat tax on any income you have as an individual regardless of where the income comes from.
Additionally, what can make a big difference in how you’re taxed are the locations of your clients or employers. Some countries will tax income at the company level before you even receive it. This can result in double taxation—once in the country of your client, and the second time in your destination.
If you are a corporate nomad or some of your income does not originate from commissions (meaning that you are officially an employee of a company) you have to disclose your chosen destination to your employer. This can mean that the company’s income is now liable to taxation in your destination according to its laws and can result in you either being fired or at least restricted from going to certain places in the world by your employer. Before you leave, make sure you discuss your chosen destinations with your employer to avoid this problem.
Lastly, some countries have double taxation agreements which can help you avoid double taxation. However, even then, this might only apply to international income. So make sure you always research the taxation rules for each new destination.
Business income
Businesses often run into a lot of trouble when their leadership or employees operate from abroad. As mentioned above, due to the “permanent establishment” in international law, your company might be taxed in countries where it does not do business but has some of its production taking place. Some countries consider digital nomads part of such production.
Similarly, running a company in a foreign country can be a difficult thing. You might be liable to pay the VAT tax, have extra paperwork due to your residency status, or encounter laws you might not be familiar with. Some countries are better at this than others. For example, Estonia began a new e-residency program, simplifying both running your business from a foreign country and setting up new businesses in Estonia as foreigners. And there are countries like Portugal that have simplified laws and tax codes for start-ups created by expats.
Taxes and places
It is important to not just choose the destination you’d like to visit but also the destination that has favorable taxation. It doesn’t matter if you just about scrape by or you have a successful business to run, your money is what keeps your digital nomad lifestyle going and it would be a shame to lose it due to poor taxation plans for international location-independent workers.
Look for countries whose laws allow for some form of remote work. Many EU countries like Portugal, Germany, and even the Czech Republic offer options to digital nomads that can drastically reduce both the amount of taxes paid and the complexity of taxation in general. And that’s doubly true if you are an EU citizen. So when you make the itinerary of places you’d like to visit, don’t just look at pictures but also research the tax laws that await you at your destination.
