Do you want to optimize your taxes as a digital nomad? Then you should have a look at the best tax residency for digital nomads!
Need help optimizing your taxes? Contact me!
How to Pick the Best Tax Residency for Digital Nomads
If you want to pick the best tax residency for digital nomads, you need to take into account certain elements:
- Current tax residency: where is your current tax residency? Some countries are easy to leave behind while others will keep looking over your shoulder.
- Citizenship: your citizenship will determine to which countries you’ll have easy access and where you can get a residency permit (e.g. European citizens can move anywhere in Europe). Linked to this you can also think about the fact if you might be able to acquire citizenship from your new country of tax residency to get more flexibility.
- Lifestyle: where do you want to spend your time and maybe build some connections?
- Professional status: do you work as an employee or do you have your own business? Employees and business owner are taxed in a different way so you want to make sure you understand how the rules will apply to your status.
- Criteria tax residency: how can you become a tax resident of the country? Do you need to spend a lot of time there or not?
- Tax rates: obviously, you also want to look at the tax rates. This can be personal income taxes but also corporate taxes. Furthermore, don’t forget about social contributions.
- Tax system: will you have to pay tax on your worldwide income or only on part of your income (territorial taxation)? Maybe the country offers some specific tax incentives for digital nomads or expats.
- Double tax treaties: does the country have a lot of double taxation treaties and how does this effect you?
- Compliance requirements: what do you need to do to ensure you remain compliant so you don’t get into trouble?
- Cost of doing business: what is the cost of setting all of this up and doing your recurrent compliance?
- Political & legal stability: obviously you want to choose a country that offers you some stability so you don’t have to worry that they change the rules throughout the game.
Top Tax-Friendly Countries for Digital Nomads
As already mentioned, you have to take a lot of elements into account to determine your best tax residency as a digital nomad. Nevertheless, I wanted to share a list of some of the most popular options amongst different continents.
Bulgaria
Bulgaria offers a flat tax of 10% both for individuals and corporations.
Accordingly, it offers some of the lowest tax rates in Europe.
Therefore, it’s a great and easy option for European digital nomads. Yet, even if you don’t have a European passport you might be able to soon benefit from the low taxes in Bulgaria as they are launching the Bulgarian digital nomad visa. LINK
Check out this article if you want to learn more about tax residency in Bulgaria.
Cyprus
Cyprus has a corporate tax of 12,5% and you can get tax residency by only living there for 60 days.
The combination of the low corporate tax and the flexible criteria for tax residency make it a popular destination for digital nomads.
Learn more about tax residency in Cyprus here.
Paraguay
Many digital nomads have Paraguay on their radar because it applies a territorial tax regime.
Yet, even if you would have to pay tax on your income, the statutory rate is only 10%.
Furthermore, it is rather easy to get a residency permit and qualify for tax residency in Paraguay.
You can read this guide on tax residency in Paraguay if you’re interested.
Thailand
Thailand is another country that applies some sort of a territorial tax regime.
In Thailand you only have to pay taxes on the money you bring into the country. Given the low cost of living, this means low taxes in most cases.
With the launch of the Destination Thailand Visa (DTV) it’s now also easier for digital nomads to legally reside in Thailand long-term.
If you consider setting up tax residency in Thailand I suggest to check out my article on tax residency in Thailand.
Turkey
Turkey is a hidden gem from a tax point of view. Tax rates for freelancers start from as low as 3% and even top earners would only pay 8% in income tax.
In order to benefit from this regime you will need to meet certain conditions. However, it’s definitely worth considering tax residency in Turkey if you’re serious about lowering your taxes.
How Tax Residency Works for Digital Nomads
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 they take into account will depend on the regulation of the country itself.
Nevertheless, there are two basic ways most countries will determine your tax status in the country:
- Days test: if you spend a certain amount of days in the country, you qualify as a tax resident. Most countries have the threshold at 183 days.
- Center of vital interests: they’ll look if you have any personal and/or economic connections to the country. Some examples: do you have a home there, where is your business located, where do you bank and invest, where does your partner and children live, etc.
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.
My Tax Strategy for Choosing Residency as a Nomad
Yet, this also means that 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.
If you’d like tailored guidance to find the best option for your situation, you can reach out so you we can put together a plan for your personal situation.
The Case for Digital Nomad Visas
As a digital nomad you can sometimes also optimize your taxes by making use of digital nomad visas.
The reason for this is that there are some digital nomad visas out there which come with tax benefits specifically linked to the visa.
The tax rule for digital nomads in Malta is a good example of this. You’ll get an exemption from taxes for the first twelve months. After that you pay a flat rate of 10% on your professional income.
Furthermore, there are a bunch of countries which actually offer a fully tax free digital nomad visa.
So, you can get the digital nomad visa, make sure you qualify as a tax resident and enjoy your tax free life.
FAQ about Tax Residency for Digital Nomads
Let’s now have a look at some Frequently Asked Questions regarding the best tax residency for digital nomads.
Which Country has the Best Tax for Digital Nomads?
There is no one country which has the best tax for digital nomads.
Which country is best for you will depend on your personal and professional situation. As a digital nomad, you probably want to look for a country with low taxes and flexible tax residency criteria.
Which is the Best Residency for Digital Nomads?
The best residency for digital nomads is one which is easy to get and which doesn’t require you to be present the whole time in order to keep it active.
Some digital nomad visas will require you to spend a certain amount of time in the country in order to renew your visa. This is obviously a hassle if you still want to travel a lot while keeping your residency permit.
Which Country is the Best for Tax Residency?
The best country for tax residency is a country that combines flexible tax residency requirements with low taxes.
By setting up tax residency in a country with no or a low minimum stay requirement, you keep a lot of freedom to travel.
What are the Best EU Countries for Digital Nomad?
What the best EU countries for digital nomads are will depend on what you are looking for.
Many people fall in love with countries in the south of Europe because of the lifestyle. However, these countries don’t tend to be so interesting from a tax perspective.
Therefore, it depends on what you want to focus and what gets priority. Luckily, if you work remotely, you’re not bound to one country and you can always spend time in multiple countries. In this way you can try to combine both.
Which EU Country has the Easiest Residency?
There are many EU countries that offer digital nomad visas. If you work remotely, that’s probably your best shot in obtaining a residency permit in Europe.
If you have a passport from an EU/EEA-country or Switzerland, you have the freedom to move any of these countries. Therefore, obtaining a residency permit is more of a formality as you don’t need to apply for any visa.