Digital Nomad Tax

The Best Tax Residency For Digital Nomads

It’s probably the most common question regarding taxation of digital nomads: which is the best tax residency for digital nomads?

Furthermore, it’s also the topic that raises a lot of discussions amongst digital nomads. The reason for this is actually very simple: the best tax residency is different for everyone and depends on your personal circumstances. Therefore, let’s take a look at some elements that you should take into account to determine which tax residency might benefit you.

How to establish tax residency as a digital nomad?

First, it is important to note that tax residency is not just something you can pick like you’re choosing what to have for dinner. In order to set up your tax residency somewhere, you’ll actually need ties with that country. Which elements are taken into account to see if your ties are sufficiently close to the concerned country, depend on the regulation of the country itself.

Tax residency based upon the days test

There are a range of countries who simply determine whether or not you are tax resident in the country based upon how many days you spend within the country. The most common rule is the so called ‘183-days rule’. This means that if you spend 183 days or more during a year in the country, you are considered a tax resident. However, there are many variations on the days test and the interpretation of it so it should always be further looked into for each country separately.

Tax residency based upon the centre of vital interests

Another way countries determine if you are considered a tax resident is to look at the centre of your vital interests. This entails that they are looking where the centre of your personal and economic interests are located. Elements that could be taken into account are that you are member of certain (sports) organizations in the country or that you hold bank and investment accounts or a home there. However, just like with the days test, each country has its own rules and interpretation of this method for establishing tax residency.

Unlike the days test, tax residency based upon your centre of vital interests leaves a lot more room for discussions and interpretation. This could be a bad thing if you are sucked into a tax system where you don’t want to be part of. However, this also opens opportunities to establish tax residency somewhere by creating ties to that country although you might not spend most time of the year there.

Digital nomads versus the classic way of living

For people living the classic way, there will most of the time not be too much discussion on where they are tax resident. The reason is that they are mostly living and working in a fixed country and have all of their personal life organized within that country.  

Digital nomads, however, live at another rhythm. Even in between digital nomads, there are a lot of different ways of living. Some have a home base but travel a few months a year, other slowtravel and stay a few months at the same place, while other people again like to move fast from one place to another.

best tax residency for digital nomads map

How to establish the best tax residency for digital nomads?

As set out before, different countries use different parameters to determine whether or not you are considered a tax resident. So if you want to establish the best tax residency for digital nomads, you should use these rules to your advantage. Nevertheless, it will be difficult or even impossible to establish tax residency in a country that applies the days test if you’re not planning to spend the necessary time there.

For the aforementioned reason, the best tax residency for digital nomads might lay in a country following the center of your vital interests. However, it all depends on your personal circumstances. If you want to learn more, you could always schedule a tax strategy consultation for digital nomads.

Conclusion on the best tax residency for digital nomads

The best tax residency for digital nomads is different for everyone. Therefore, it is important to seek personalized advice to pick the best fit for your situation. From that you can work to make a plan to pick and setup the tax residency that suits you best.

In this article we discussed how to find out about the best tax residency for digital nomads. However, should you even have a tax residency somewhere? We’ll dive deeper into that topic in another article.

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