Do digital nomads have to pay income taxes anywhere? The short but utterly frustrating answer is “It depends”. Each country has their own rules on how to levy taxes on individuals.
Your home country may not let you off the (tax) hook
You may not have a traditional home country anymore but you are still a citizen somewhere.
If you are a US citizen, then US taxes will follow you everywhere you go. There are ways to save on taxes, like the foreign earned income exclusion, and you may not have to pay any taxes but you likely still have to file a tax return.
The only other country that taxes their citizens, no matter where they live and work, is Eritrea. For everyone else, their passport issuing country is more flexible when it comes to personal income taxes. Those countries don’t tax you when you live abroad but you may have to meet certain requirements to be considered a non-resident of your home country.
Countries that you visit may tax digital nomads
Many countries tax foreigners on their income, depending on how long you stay in the country or where your income is earned.
- Residency-based – Staying long enough in a country to trigger income tax there
- Territory-based – Earning income in their “territory” triggers income tax in that country
Staying longer in a foreign country
Countries with a residence-based tax system tax their residents on their worldwide income. It doesn’t matter whether you are a citizen or not, as long as you reside in that country.
Now, when are you considered a “resident” of a foreign country? For many countries, if you stay around half a year or longer, you are considered a resident. But the exact number and how the days are counted differ from country to country. You should research every country you plan to stay in for a while to find out if and when they might start taxing you there.
Making money within a foreign country
In countries with a territorial income tax you have to pay taxes but only on the income that is sourced from within the borders of that country, no matter how long or short you stay there.
For example, working on a local project or with a local client, or teaching or providing other services locally. Be aware of that when you receive payments in those countries.
… and combinations of residency and territory
Some countries have a combination of residence- and territory-based tax system. They tax their country residents on their worldwide income and non-residents on only the income sourced from that country.
Popular nomad destinations are not tax-free
Here are some examples for popular nomad destinations. Please note that these examples are simplified – tax law is complicated in most countries, and I am not a tax expert for any of those places. But I wanted to give you a general overview of what to expect. You should speak to your tax advisor if you plan to stay somewhere for a longer period of time.
Thailand
You are a “resident” if you are staying in Thailand for more than 180 days total in any tax (calendar) year. A resident of Thailand has to pay tax on income from sources in Thailand as well as on the portion of income from foreign sources that is brought into Thailand.
Even if you stay less than 180 days and are a “non-resident” you still are required to pay tax, but only on income from sources in Thailand.
The good news is that the first 150,000 Thai baht are tax-exempt.
Spain
Spain considers you a tax resident if you spent more than 183 days in Spain within a single calendar year, regardless of whether you are formally registered, and/or self-employed or otherwise employed in Spain, meaning your primary professional activities are conducted there.
As a resident of Spain you have to pay taxes there on your worldwide income. As a non-resident, you are still required to pay taxes on your income sourced from Spain. Certain deductions and allowances apply. Also, tax rates vary between Spanish regions. Overall, the tax system in Spain is complicated.
Colombia
Just like in Thailand and Spain, residents of Colombia are taxed on worldwide income, while non-residents are only taxed on their income from Colombia. You are considered a tax resident if you spend more than 183 days in a year in Colombia.
Some digital nomads may not have to pay taxes
As you can see, if you have to pay tax or not as a digital nomad really depends on a couple of factors:
- Your citizenship
- How long you stay in a foreign country
- What country or countries your income is coming from
If you never stay long enough in a country to be considered tax resident there, and all your income is coming from countries where you are not living, and your home country doesn’t tax its citizens abroad – if all that applies, you may actually not have to pay taxes anywhere.
If you are a US citizen, in most cases you have to file a US tax return, even if you don’t have to pay US taxes.
Research the countries where you are planning to stay and work for a while. A good expat tax-preparer can help you with that. Also know that the US has tax treaties with many countries. The goal of those treaties is that you are not taxed twice on the same income.
Getting credit for taxes paid abroad
As a US citizen, you can get credit for taxes that you paid in other countries (Foreign Tax Credit). You can for example take a tax credit for the foreign taxes that you paid, instead of excluding the foreign income altogether. Which option is better for you depends on the specific circumstances and tax rates.
If you have to pay taxes in more than one country, you should find a tax adviser to help you navigate.
Who would even know about your income?
You might think how would a foreign country even know about you making money there? Well, it depends on how sophisticated the tax, banking, and visa systems are there.
The longer you stay somewhere and are working there with a work or business visa and maybe an employment contract, the harder it will be to “fly under the radar”. Do your research and talk to a tax person in that country to assess your situation, risk, and options.
Disclaimer: This is my read on where digital nomads pay tax but I am not a tax professional. Please talk to a tax advisor to understand your specific tax situation.
And yes, I know how difficult it is to find a tax advisor who understands the digital nomad life. I can recommend a good one for US digital nomads: the Online Taxman. If you find a good one for your country, please help your fellow nomads and share in the comments. Thank you!
