What Taxes Do Digital Nomads Have to Pay?
Yes, you still need to pay taxes as a digital nomad. Here’s what you need to know, plus how to pay your digital nomad taxes.
Becoming a digital nomad means focusing on big picture things, like where you’ll travel to, what kind of housing you want, and how you’ll work on the road. But there’s one major factor that’s easy to overlook: taxes.
Yup, being a digital nomad doesn’t mean that you’re exempt from paying taxes. As a digital nomad, you may be responsible for paying taxes to your home country, no matter where you’re currently residing. And, depending on where you visit and how long you stay, you may need to pay taxes to the country where you’re currently living and working.
Every country’s tax system is different but there are a few things to keep in mind.
Your home country may still tax you, even if you’re not living there.
No matter where you travel or how long you stay away from home, you’re still considered a citizen of some country. If you’re an American, you’re expected to pay U.S. taxes regardless of where you’re living. You can save on taxes in certain ways, like through the foreign earned income exclusion, which allows you to exclude up to $100,000 of your income if it’s earned abroad and if you’ve spent enough time outside of the U.S. That said, you’ll still likely need to file an annual tax return.
Other countries may not tax you when you live abroad, but you’ll need to meet certain requirements to be considered a non-resident of your home country.
Countries you visit may tax you as well.
Many countries tax visitors on their income if they stay long enough or earn income in that country. In general, taxes can be divided into two main categories: Residency-based taxes, which come into play when you’ve stayed a certain amount of time in a host country, and territory-based taxes, which are a factor when you earn income in the host country.
Many residency-based taxes start to be a factor when you stay in a host country for six months or more. However, each country is different.
When it comes to territory-based taxes, you’ll be taxed on income that comes from working within local clients or providing local services. Time isn’t a factor in this case, but income source is.
You can get credit for taxes you pay abroad.
If you’re an American and you’ve paid taxes to a host country, there’s something called the Foreign Tax Credit that can give you credit for those taxes you’ve paid outside the U.S.
Some digital nomads don’t have to pay taxes.
This isn’t overly common but, if you don’t stay long enough in a host country to be considered a resident, your income is from countries outside your host country, and your home country doesn’t tax citizens who live abroad, you might not have to pay taxes. That’s a lot of ifs, though.
Tax law can be complicated and it’s a good idea to do your research on a country’s tax laws before you go. You may need to pay taxes when you visit, or may decide to alter how long you stay to avoid residency-based taxes. Either way, figuring it out in advance can go a long way toward avoiding a future headache.
Read also: What Does It Cost to Be a Digital Nomad?
NOMADX is a real estate technology platform developed to meet the needs of the rapidly growing global community of location-independent remote workers, or “Digital Nomads”.
As Digital Nomads ourselves, we know what the market is looking for: trusted, affordable accommodations in highly-attractive locations worldwide at 50% less than AirBNB. We also offer educational masterclasses to help master the lifestyle as well as community events to help foster new friendships.
Please join our community of Digital Nomads and remote workers from around the world:
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ABOUT THE AUTHOR
Dave Williams is the CEO and Co-founder of NOMADX with his base in Lisbon, Portugal. Dave is a US pioneer in the digital marketing, advertising, and ad tech industries as a serial digital entrepreneur over the past 20+ years with multiple exits in the early formative stages of the search engine marketing, social media, and ad tech industries.