Do digital nomads pay tax?
You probably started nomading because you want to explore the world and other cultures. Or maybe you wanted to visit a specific country but it didn’t stop there.
In any case, there could be many reasons why you started seeing the whole wide world as your home.
For some the reason is even to escape their high-tax (Western) country. In any case, the question ‘Do digital nomads pay tax?’ is a valid one.
If you don’t emerge yourself in the world of taxes or you don’t have some experience with it, you might not know the answer to it.
That is also the reason I decided to dedicate a article to the question: ‘Do digital nomads pay taxes’?
Tax Residency
In order to understand taxes for digital nomads it is essential to understand the concept of tax residency.
Tax residency refers to the country where you are a tax resident and pay your personal income taxes.
There are various ways how you can establish tax residency in a place. However, in general, countries apply two systems. Some countries apply one of these systems, some use both of them combined.
The first reason why some countries consider you a tax resident is because you spend a certain amount of days in the country. For most countries the amount is set at 183 days. This rule is called the days test.
The other way you can become a tax resident in some countries is by having your centre of vital interest in the country.
For this, you have to make an assessment of your economical and personal interest. Where do you work, bank and where is your family and personal life situated.
To conclude we should also make clear that citizenship (i.e. holding a passport of a country) is not linked with tax residency. There is one main exemption: people from the US need to keep filing taxes even if they move abroad (1).
In principle, the same goes for residency (i.e. being allowed to live in a country). However, in this last case, you should know that spending a lot of time in one country might make you a tax resident there under the application of the aforementioned rules.
Tax Residency as a Digital Nomad
The summary is that digital nomads most of the time actually don’t qualify as a tax resident of any country based on these rules.
This isn’t surprising, the rules aren’t made for digital nomads but for people who spend almost all year in one place.
Most digital nomads, on the contrary, spend only limited amount of time in each place. Therefore, their ties to one specific country are also rather weak.
Only if you keep (synthetic) ties to their country of origin (e.g. an address where they actually don’t spend any time), you will actually qualify as a tax resident there. Not deregistering yourself could be sufficient to keep on paying taxes, even if you don’t have any actual ties to the country.
However, this does at the same time imply that if you leave your country of origin as a tax resident you might not qualify as a tax resident anywhere else.
So, Do Digital Nomads Pay Tax?
It depends…
If you are a tax resident somewhere, you will be subject to the rules of that country. The applicable rules will determine if and how much taxes you will pay.
If you want to know which countries allow you to optimize your tax setup, you can also check this article on how digital nomad taxes work.
Nevertheless, you could also end up in the situation where you aren’t a tax resident anywhere.
Let’s say you only have ties to countries who apply the days-test. Most digital nomads will not spend that much time in one country. This might just mean that you aren’t a tax resident anywhere.
Conclusion: Do Digital Nomads Pay Tax?
‘Do digital nomads pay tax?’ is a question that doesn’t have a clear answer to it. A lot depends on your personal situation.
Do you want to get a better understanding of your personal tax situation and discover where you could optimize? Reach out to me!
