As remote work becomes more popular, digital nomads encounter complex tax requirements, no matter which foreign country they are in. Understanding the tax obligations that come with this freedom is critical. Digital nomads often have to deal with several tax jurisdictions, each with its own rules regarding income earned abroad.

In this guide, we cover everything you need to know about digital nomad taxes, such as how digital nomads are taxed, where to pay taxes, how to avoid digital nomad taxes, and what personal taxes digital nomads may be liable for. We will give you all the tools to avoid legal issues and maximize your earnings while working remotely.

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Yes, digital nomads must also pay taxes. They work independently, often for multiple clients or companies, and can earn income from various sources.

The amount of tax paid by digital nomads can vary significantly based on their home country, the countries they work in, the duration of their stays, and the nature of their work.

How are digital nomads taxed?

Tax residency

Tax residency determines where you are liable for paying taxes. Countries have different rules for establishing residency, often based on physical presence, permanent ties, or a combination. Digital nomads must understand the residency rules of each country they live or work in to determine their obligations.

Income source

The source of income can affect where taxes are owed. If you work remotely for a company based in one country while living in another, both countries may claim the right to tax your income. This can lead to additional taxation, where two countries tax you on your income.

Tax treaties

Many countries have tax treaties to prevent multiple taxation. These agreements outline how income is taxed when it crosses borders, often allowing tax credits or exemptions. Digital nomads should familiarize themselves with relevant tax treaties to ensure they are not overtaxed.

Compliance and reporting

Digital nomads must comply with tax laws in each country where they earn income or reside. This includes filing tax returns, keeping accurate records, and adhering to deadlines. Compliance is crucial to avoid penalties and legal issues.

Where do digital nomads pay taxes?

Whether you’re an experienced traveler or new to the nomadic way of working, understanding these three tax systems will help you stay compliant and make informed decisions about your tax responsibilities.

Home country

For digital nomads, understanding the tax obligations of their home country is crucial as it often forms the foundation of their overall tax strategy. Many countries, particularly the United States, require citizens and residents to report and pay taxes on their worldwide income, irrespective of where the income is earned. This means that even living and working abroad, your home country expects you to file a tax return and pay taxes on your total income. This is known as citizenship-based taxation.

Host country

Digital nomads must also consider their tax obligations in the countries where they physically reside and work. The tax laws and residency rules of each host country determine these obligations. Many countries use the “183-day rule” to determine tax residency. If you spend 183 days or more in a given country within a year, you may be considered a tax resident of that country. As a tax resident, you could be subject to local taxes on your worldwide income. This is known as residence-based taxation.

Source of funds

Even if you are not considered a tax resident, you may still be liable for taxes on income earned within the host country. This is known as source-based taxation. For example, if you work while physically present in the country, that income may be taxed locally. For example, a digital nomad working on a project temporarily in Thailand may owe Thai taxes on the income earned during their stay.

Read our Spain Digital Nomad Visa Guide

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Personal Taxes for Digital Nomads

It’s important for digital nomads to understand the different types of personal taxes that may apply to them based on their specific living and working arrangements. These taxes can differ based on their country of residence, the countries they work in, and their home country’s tax laws.

Here are the main types of personal taxes that digital nomads should consider:

Income Tax: Many countries tax their residents on worldwide income. This includes salaries, freelance earnings, investment income, and any other sources of income. However, some countries tax non-residents on income earned within their borders. This is common for digital nomads who may be taxed on income generated from work performed while in a specific country.

Self–Employment Tax: Self-employed digital nomads may be required to pay social security taxes to their home country or the country where they are working. In the US, this includes Social Security and Medicare taxes. In some countries, self-employed individuals must contribute to national health insurance schemes.

Capital Gains Tax: These are taxes on profits made from selling assets like stocks, bonds, or real estate. These can be taxed differently depending on whether the assets are held short-term or long-term. Many digital nomads deal with cryptocurrencies, which may be subject to gains tax in several jurisdictions.

Value–Added Tax (VAT): When purchasing goods and services, digital nomads may be subject to VAT or GST, which is added to the price of products and services in many countries. If running a business, digital nomads may need to charge VAT/GST on sales and remit it to the tax authorities.

How to Avoid Digital Nomad Taxes

It is possible to avoid digital nomad taxes legally, but one requires strategic planning and awareness of tax laws in different countries. 

Here are some effective methods to minimize tax liability:

Choose tax-friendly countries

Select countries with low or no income tax, such as Portugal or Thailand, which are popular among digital nomads for their favorable tax regimes and appealing lifestyles.

Utilize double taxation treaties

Take advantage of tax treaties between countries that prevent double taxation. For example, a U.S. citizen working in Mexico may benefit from a treaty that allows them to pay taxes only in one country.

Foreign Earned Income Exclusion

 U.S. citizens can rely on the Foreign Earned Income Exclusion (FEIE) to exclude a certain amount of foreign-earned income from U.S. taxes, provided they meet the residency requirements.

Limit days in each country

Plan your travels to keep your time spent in each country below the 183-day residency period to avoid becoming a tax resident.

Keep thorough records

Maintain detailed records of your income, expenses, and days spent in various countries to support your tax position and ensure compliance with local laws.

Digital Nomad Taxes for U.S. Citizens

The tax obligations of U.S. citizens might differ from those of the rest of the world, as the Internal Revenue Service (IRS) requires taxes to be paid regardless of where they live and work. 

Here are six key points related to digital nomad taxes for U.S. citizens:

1. Worldwide income reporting

U.S. citizens must report all worldwide income to the IRS, regardless of where they earn it. This includes income from freelance work, remote jobs, and any other sources.

2. Tax filing requirements

The tax filing deadline for individuals is typically April 15. However, expats can apply for an automatic extension to 15 June, and further extensions can be requested.

Therefore, U.S. citizens must file Form 1040 to report their income. Additional forms may be required for foreign bank accounts (FBAR) and foreign assets (Form 8938).

3. Foreign Earned Income Exclusion (FEIE)

 The FEIE  can be beneficial because it allows qualifying U.S. citizens to exclude a portion of their foreign-earned income from U.S. taxation. The exclusion amount for the 2024 tax year is up to $120,000.

Eligibility: To qualify, you must meet either the Bona Fide Residence Test or the Physical Presence Test, which generally requires living and working in a foreign country for at least 330 days within 12 months.

4. Foreign Tax Credit (FTC)

The FTC benefits U.S. citizens. For instance, if you pay taxes to a foreign government, you may be eligible for a tax credit that reduces your U.S. tax liability. The FTC allows you to claim a credit for taxes paid to another country, preventing double taxation.

5. Self-employment taxes

On the other hand, if you’re self-employed, you may owe self-employment taxes (Social Security and Medicare) on your earnings, regardless of where they are earned. This is usually calculated on Schedule SE when filing your taxes.

6. State tax considerations

What makes America stand out from other countries is the state tax requirements. Some U.S. states have specific rules about residency that may affect tax obligations. If you maintain residency in a state, you may still owe state taxes even while living abroad.

Best Countries for Digital Nomads

Spain

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It allows them to live in Spain while contributing to the local economy without entering the Spanish job market.

One of the Digital Nomad Visa’s attractive features is its favorable tax treatment, which offers a reduced tax rate for the first four years of residence.

As a resident (typically defined as spending more than 183 days per year in Spain), you are taxed on your worldwide income. In contrast, non-residents are only taxed on Spanish-sourced income.

The key eligibility requirements for Spain’s Digital Nomad Visa include:

  • Applicants must work for companies or clients outside of Spain, with no more than 20% of income coming from Spanish sources.
  • Applicants must prove a steady income of at least €2,000-€2,500  or around €28,000 annually.
  • Comprehensive private health insurance covering medical costs in Spain is mandatory.
  • A clean criminal record is required, verified through police clearance certificates from your home country.

The visa is initially valid for one year and can be extended for up to five years if the conditions are met continuously. After five years, holders of the visa can apply for long-term residency.

Portugal

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This visa is particularly appealing due to Portugal’s mild climate, relatively low cost of living, and vibrant expat community.

If you spend over 183 days in Portugal, you’ll be considered a tax resident and taxed on worldwide income. If under 183 days, only Portuguese income is taxed. However, you may not be liable to pay if you are already making Social Security contributions in another country.

To qualify for the D8 Visa, applicants must:

  • Applicants must show they work remotely for a company or clients outside Portugal or as freelancers with foreign clients.
  • Have a minimum monthly income of around €3,280.00 per month, but this amount increases if you apply with family members.
  • Applicants need to provide a rental agreement or proof of accommodation in Portugal.
  • Comprehensive health insurance covering medical expenses in Portugal is mandatory.
  • A clean criminal record verified by a background check from the applicant’s home country is required.

The D8 Visa initially allows a stay of one year, which can be renewed for successive two-year periods. After five years of legal residency, holders can apply for permanent residency or Portuguese citizenship.

Italy

italy flag passport requirementsThe Italy Digital Nomad Visa was launched in April 2024. It was created to attract remote workers, freelancers, and digital entrepreneurs to the country, contributing to Italy’s economy by encouraging long-term stays without taking jobs from local workers. The visa is particularly aimed at high-skilled professionals in various fields. It allows these individuals to live and work in Italy while conducting business for companies or clients abroad.

Digital nomads who stay less than 183 days a year can benefit from Italy’s non-resident tax status. This means they won’t be taxed on their worldwide income but on income sourced within Italy. If they stay longer and become residents, they will be subject to Italy’s progressive tax rates.

The requirements include: 

  • Applicants must be self-employed or work for a company based outside of Italy. Their work must allow them to operate remotely.
  • The visa is aimed at highly skilled professionals such as IT specialists, researchers, consultants, and freelancers.
  • Applicants must demonstrate a minimum monthly income of at least €2,066 or an annual income of around €24,789, ensuring they can support themselves while living in Italy.
  • Comprehensive private health insurance valid in Italy is required for the duration of the stay.
  • A clean criminal record from the applicant’s home country is required.
  • Proof of residence or accommodation in Italy is necessary

The visa is valid for one year with the possibility of renewal. 

Country

Minimum Monthly Income Requirement

Visa Duration

Tax Benefits

Portugal

€3,800 (for the D8 visa)

One year (renewable)

Digital nomads may be taxed on worldwide income, not just Portuguese income, based on residency status.

Spain

€2,000-2,500

One year (renewable)

Taxed only on income earned in Spain for non-residents

Italy

€2,07

One year (renewable)

Potential tax incentives for new residents in specific regions

Greece

€2,00

One year (renewable)

Foreign income is taxed at a flat rate for resident

Croatia

€2,40

One year (renewable)

Non-residents are taxed only on Croatian-sourced income

Mexico

$2,000 (for Temporary Resident Visa)

One year (renewable)

Non-residents are only taxed on Mexican income

Czech Republic

€1,80

One year (renewable)

Non-residents are taxed only on Czech-source income

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Essential Tax Planning Tools and Resources for Digital Nomads

Planning for taxes as a digital nomad involves navigating multiple tax jurisdictions and understanding international tax laws. This can be complex, but you can effectively manage your tax obligations with the right approach and tools. Here are some essential tools and resources for digital nomads:

Tax software

  • TurboTax: Offers international tax filing options and can handle multiple sources of income.
  • TaxAct: Provides tools for both US residents and non-residents, accommodating various international tax scenarios.

Accounting software

  • QuickBooks: Ideal for tracking income, expenses, and financial reporting.
  • FreshBooks: Geared towards freelancers and small businesses, offering robust expense tracking and invoicing features.

Professional tax consultation

Engage with tax professionals who specialize in expatriate and digital nomad taxes. Firms like Taxes for Expats or Greenback Expat Tax Services provide tailored services for digital nomads.

Financial advisors specialized in nomadic lifestyles

Advisors who specialize in clients with international lifestyles can offer advice on structuring finances to minimize tax burdens while complying with all legal requirements.

Online forums and communities

Platforms like Nomad List, the Digital Nomad Forum, and expat groups on social media can be invaluable. They provide insights and firsthand accounts of dealing with taxes in various countries.

Government and official tax authority websites

Always refer to official resources for the most accurate and up-to-date information regarding laws and treaty details.

How Can Global Citizen Solutions Help You?

Global Citizen Solutions is a boutique migration consultancy firm with years of experience delivering bespoke residence and citizenship by investment solutions for international families. With offices worldwide and an experienced, hands-on team, we have helped hundreds of clients worldwide acquire citizenship, residence visas, or homes while diversifying their portfolios with robust investments. 

We guide you from start to finish, taking you beyond your citizenship or residency by investment application. 

Frequently Asked Questions About Digital Nomad Taxes

Do digital nomads have to pay US taxes?

American digital nomads must file a US Federal Tax Return if their income exceeds the minimum filing requirement, regardless of their location and whether they work remotely. The US has a citizenship-based tax system, which is unique compared to most other countries.

What is a tax residency?

Tax residency determines where you can pay taxes on your global income.

Most countries define tax residency based on the time you spend there in a year—typically around 183 days. Understanding your tax residency and foreign assets helps avoid multiple taxation and ensures compliance with local rules.

Can digital nomads avoid double taxation?

Digital nomads can avoid it by taking advantage of tax treaties between countries.

These agreements often allow you to offset taxes paid in one country against your tax liabilities in another or exempt foreign income from local taxes. It’s important to file for tax relief under these treaties proactively.

Are digital nomads required to pay taxes at home?

This depends on your country of origin. Some countries, like the United States, tax nationals on worldwide income regardless of where they live, while others tax only on income earned within their borders. Always check your home country’s tax rules regarding foreign income and residency.

What kind of expenses can digital nomads typically deduct from their taxes?

Digital nomads can often deduct expenses directly related to their work, including travel expenses, equipment purchases (like computers and phones), software subscriptions, and possibly a portion of housing costs if their home doubles as their office.

Specific deductions can vary by country, so consulting with a tax professional is wise.

What tools or services can help digital nomads manage their taxes?

There are several tools and services designed to help with expat and nomad taxes, including:

Tax software: Programs like TurboTax International or H&R Block Expat Tax Services offer tailored services for filing in multiple countries.

Professional accountants: Hiring a tax professional specializing in expat tax can provide personalized advice and ensure you are fully compliant while minimizing your liabilities.

Financial apps: Apps like Expensify or QuickBooks can help track expenses and income, making it easier to file accurate tax returns.

Do digital nomads have to pay US taxes?

Yes, U.S. digital nomads must pay U.S. taxes on their worldwide income, regardless of where they live, but they may qualify for the Foreign Earned Income Exclusion (FEIE) or tax credits to reduce their tax burden.