Digital Nomads

Digital Nomads: Where Do You Actually Pay Tax?

You work from your laptop. This month it’s Bali, next month Lisbon, then a few weeks back home for a family visit. Your clients or employer might be in yet another country. So when it comes to tax, which country gets paid?

Many digital nomads believe the answer is “none”, as long as they never stay anywhere longer than six months. That is a myth. In reality, the answer is usually at least one country, and sometimes more than one.

This article explains, in plain language, which countries can ask you for tax, why, and how to avoid paying twice or getting caught out.

The short answer

As a digital nomad, up to three places can have a claim on your income:

1. Your home country: the country you came from, if it still sees you as living there.
2. The country you are working in: the place where you physically sit with your laptop.
3. A new country you’ve settled in: if you stay somewhere long enough, or build your life there, it can treat you as one of its taxpayers.

Your job is not to make all of them go away. It’s to work out which one has the main right to tax you, and to make sure the others don’t tax the same money again.

1. Your home country: the one most people forget

For most nomads, this is where the tax bill really sits.

Leaving your country and travelling does not automatically end your tax obligations there. Your home country will usually keep taxing you, on everything you earn anywhere in the world, if your life is still based there. For example, if:

• you still have a home there (even one you only use when you visit),
• your partner or children still live there,
• your bank accounts, clients, business or investments are mainly there,
• you plan to move back.

If you haven’t set up a real life somewhere else, your home country will very often say: “You never really left, so you still pay tax here.”

US citizens are a special case. The United States taxes its citizens wherever they live. You must file a US tax return every year, even if you never set foot in the US. There are reliefs that can reduce the bill, but only if you file.

2. The country you are working in

Many people are surprised by this one. In principle, income is earned where you do the work, and that is where your laptop is, not where your client or employer is.

So if you spend two months working in Spain, Spain could in principle tax what you earned during those two months, even if your employer is in Germany and you’re paid into a Dutch bank account.

In practice, there are agreements between countries (tax treaties) that often stop short-term visitors from being taxed by the country they are visiting. But these protections come with conditions, and the most important one is this: you usually have to be a tax resident of another country to benefit. If you claim you belong nowhere, you may lose that protection.

Where you work can also matter for your employer or your own company. Working regularly from one country can create tax and social security obligations for the business too.

3. A new country you settle in

If you stay in one place long enough, often around six months in a year, or you rent a long-term home, move your family or set up your business there, that country can treat you as a full taxpayer.

This is where the famous “six-month rule” comes from. But notice which way it works: staying more than six months can make you taxable somewhere. Staying less than six months everywhere does not make you tax-free. It simply means you haven’t picked up a new tax home, so your old one (your home country) usually keeps you.

A digital nomad visa does not change this. It gives you permission to stay. It is not a tax exemption, and it says nothing about what your home country can still claim.

“So do I pay tax twice?”

Usually not, if things are set up and declared properly.

When two countries both want to tax the same income, there are rules to sort it out. Normally one country is treated as your main tax home and taxes your total income. The other may tax only what you earned while working there. Your main tax home then gives you a credit for the tax you already paid abroad, so you don’t pay twice on the same money.

To decide which country is your main tax home, the questions are roughly, in this order:

1. Where do you have a permanent home?
2. Where are your closest personal and financial ties: family, work, money?
3. Where do you usually spend your time?
4. Which passport do you hold?

The system is designed to find one main country for you, never none.

Three everyday examples

Sophie, freelance designer. She keeps her flat back home, her clients are mostly there, and she travels for the year, never staying anywhere more than three months. She has no new home anywhere. Where she pays: almost certainly her home country, on her full income. Some of the countries she visits could also tax the work she did there.

Tom, employee working remotely. His company lets him work from abroad. He spends five months in Portugal while still on his home payroll. Where he pays: his home country, through payroll, as usual. But Portugal may also have a claim on the salary for the time he worked there, and his employer may have obligations in Portugal. He should check before he goes, not after.

Maria, settled nomad. She gives up her home, moves her life to Greece, rents a flat on a long lease and registers there, but still travels for work a few months a year. Where she pays: Greece becomes her main tax home, and she has properly left her old country. She keeps records of her trips in case any country she works from asks questions.

Why “nobody will notice” doesn’t work any more

When you open a bank or investment account, you’re asked which country you are tax resident in. Banks in more than 100 countries automatically share account information with that country’s tax office every year. Giving a vague or untrue answer doesn’t keep you invisible. It often creates more problems than it solves.

What to do

• Decide where your tax home is, deliberately. Don’t let it happen by accident.
• If you’re leaving your home country, leave properly. Find out what it takes to stop being a taxpayer there, and keep proof.
• Keep a simple travel diary of where you were and when, with boarding passes. It’s the first thing a tax office will ask for.
• Check before long stays. Before working somewhere for more than a few weeks, find out whether that country can tax you.
• Employees: talk to your employer first. Working abroad can create tax issues for them as well as for you.
• Declare everything to your main tax country and claim credit for tax paid elsewhere.
• Get advice before you go. Sorting things out after a tax letter arrives always costs more.

The bottom line

Being a digital nomad doesn’t mean you pay tax nowhere. It means you need to know where you pay. For most people, that is their home country, unless they have genuinely moved their life somewhere else. And the countries you work in may want a share too. With the right planning, you can pay in the right place, avoid paying twice, and enjoy the lifestyle without nasty surprises.

We assist taxpayers with these issues on a daily basis and can assist you too. Simply get in touch through our Contact page.

This article is general information only and not personal tax advice. Rules differ from country to country and change over time, so please get advice on your own situation.