If you travel between countries for work, you might be wondering about digital nomad taxes.
Especially when you prefer long stays in some countries, you need to be aware of the tax obligations. Otherwise, you can have legal issues.
Please notice that you will also earn some rights when you pay your digital nomad taxes.
In this article, we will dive deeper into various topics such as
- tax free digital nomad visas,
- how to pay taxes as a digital nomad, and
- where to pay taxes as a digital nomad.
Do Digital Nomads Have to Pay US Taxes?
There are over 17 million digital nomads in the US. That makes 5% of population.
If you are one of them, you may need to learn about digital nomad taxes US.
Here is the fact:
- If you’re a digital nomad from the US, living in the US, you have to pay taxes.
- If you live in another country as a US citizen, you still have to pay taxes.
You have to file and pay taxes in the country where you live. You also have to learn about things like tax obligations, tax exemptions, and how to inform your employer.
Digital Nomad Taxes – Working Remotely While Traveling
As a digital nomad, you can go anywhere. It’s freeing. But, you must also take responsibility for your legal obligations.
US citizens must report income from other countries to the government, and nomad tax obligations in different countries vary. Know your nomad tax obligations.
Take a look at this. These are the things that get tax deductions:
- FEIE: Keeps income earned abroad outside the US. This means you can get a reduction in the taxes you pay.
- FTC: Reduces US tax liabilities for foreign taxes.
- Tax Treaties: Countries can agree to tax breaks.
You can consult a tax expert to deal with the challenges of digital nomadism.
Mapping Your Tax Requirements
You need to spare some time for the process of identifying and understanding the specific tax laws and regulations that apply to your unique situation as a digital nomad. There is no law book that applies to each and every digital nomad.
So, we recommend you to:
- Determine your tax residency: Which country are you considered a tax resident?
- Identify your income sources: Which locations are bringing you income?
- Understand applicable tax treaties: Are you aware of any tax treaties between your home country and the countries where you work?
- Identify any local tax obligations: Do you need to comply with any local tax laws or regulations in the countries where you are working or spending time?
Mapping your tax liabilities will pay back through
- Avoiding tax penalties or double taxation.
- Minimizing your tax liabilities and deductions.
- Taking control of your finances.
The clearer your map, the less you have to worry about taxes.
Considerations for International Travel
Tax rules and rates vary by country. So you should choose the country with the best tax rate for you.
You must report wages earned abroad to the US government and pay taxes. However, it is possible to exclude non-US earnings from taxes by meeting FEIE requirements.
To qualify for FEIE, you must meet the following requirements:
- Live in a country outside the US for more than 330 days. This does not include time spent outside the country.
- Change your address of residence for at least one year.
If you meet the requirements, you can apply for a tax deduction.
Alerting your Employer
Tell your employer where you are when you work remotely.
Why is this important?
- Knowing your work location helps your employer avoid fines by reporting taxes correctly.
- Laws and regulations about employment, taxation, and working as a nomad vary by country and state.
- Your employer must provide your benefits in line with the laws of your country of residence.
If you don’t give your employer the right location info and don’t take the right steps, you might be taxed twice.
But through cross-country digital nomad and taxes agreements, workers can avoid this.
The US, Canada, and Mexico have telecommuting agreements. This means that nomads working in these locations are subject to less taxation.
These agreements also clarify tax issues, making it easier to understand how much you will pay. This eliminates the risk of nomads evading paying taxes or acting illegally in tax matters.
Therefore, you should inform your employer about your place of residence and the country where you work, so that you are in compliance with the law.
Digital Nomad Taxes: 10 Things Americans Abroad Should Know
- As an American, you must declare foreign income and pay the digital nomad tax even if you do not earn income domestically.
- To qualify for the tax exemption, you must live outside the country for one year without changing your residential address.
- If you don’t file US taxes, you can face penalties as high as $10,000. You can even lose your passport if you don’t take the tax rules seriously.
- If you qualify for the FEIE in 2024, you can be exempted up to $126,500. To qualify, you need to pass the physical presence and residency tests.
- If you pay taxes in a country outside the US, you may be eligible for foreign tax credit. This means that you can claim the tax you paid in the foreign country as a reduction in your US tax.
- As a self-employed person abroad, you continue to pay US Social Security taxes, even if there are income tax exemptions. However, social security agreements between countries can avoid double payments.
- You must report foreign trusts and large gifts from foreigners to the US.
- You must report foreign bank accounts with a total balance of more than $10,000 to the US government.
- If your foreign assets are worth more than $300,000, you must file for FATCA (Foreign Account Tax Compliance Act).
- You should know all the taxes in countries such as the US, Portugal, Italy, Spain, Japan and Greece. Although this can be difficult to do, find out what taxes you owe before traveling to a new country.
How to File Taxes as a Digital Nomad Living Overseas
Digital nomad tax residency is required to file a tax return. After 193 days abroad, it is time to file taxes in your host country.
You need to make sure that you fill in the forms in proportion to the income you earned.
- Form 2555: You must fill out this form to exempt income you earned abroad.
- Form 1116: This form is used to claim foreign tax credits.
- FBAR (Foreign Bank Account Report): To file this form, you must have a non-U.S. bank account with a balance of more than $10,000.
The deadline for paying your taxes is critical. Failure to pay taxes on time can result in deportation.
- The deadline to pay taxes is usually April 15.
- US immigrants have the option to extend the deadline until June 17.
- In exigent circumstances, it is possible to extend the deadline until October 15.
Digital Nomad Tax Countries in Europe
As digital nomadism grows in popularity, you are looking for a place with favorable tax regulations.
- Portugal
- Italy
- Spain
- Japan
- Greece
You should know that as a US citizen working in the above countries, you will continue to pay taxes in your home country. Just because you live in another country doesn’t mean you are exempt from taxes.
So is everything complicated and difficult on the digital nomad side? No, it isn’t.
If you work as a digital nomad in European countries, you have the chance to benefit from some exemptions.
We will look at what it takes to live as a digital nomad in these countries and how to avoid double taxation.
No matter where you live, you will know what you need to do.
Portugal Digital Nomad Visa Taxes
As a US digital nomad in Portugal, you are subject to federal income tax on all money you earn in and outside the country.
So while you live and work in Portugal, you will remain responsible for your US taxes.
Portugal digital nomad visa taxes US citizens at 20% on their earnings.
If you are a digital nomad, you can take advantage of inter-country agreements to avoid the burden of taxes in both countries.
And don’t forget to check if the Portugal-US treaty is up to date.
In addition, take advantage of tax credits and exemptions from foreign income taxes to ease the tax burden in the US.
Italy Digital Nomad Visa Taxes
Italy is a destination for digital nomads with favorable living conditions, and Italy’s digital nomad visa is available.
In April 2024, it became the center of attention by officially launching the digital nomad application. This means that non-EU foreigners can also apply for a visa.
The digital nomad visa taxes do not exempt you from US taxes. However, the treaty between the two countries allows you to avoid the burden of double taxation.
Another important piece of information for US residents is that the annual income must be €28,000. You must prove that you have a stable income while living in Italy by participating in the health care system.
Also, the tax period in Italy is June and July. Your income and tax credits must be reported on your annual tax return.
Spain Digital Nomad Visa Taxes
As a US citizen, you must report your income in Spain. This means that you will pay taxes on your earnings outside of the US.
In Spain, you have to pay a flat tax of 24% to the government on your earnings Spain digital nomad visa taxes.
However, the tax rate increases to 47% if your income exceeds 600,000 euros.
You will also have to pay social security contributions in Spain.
Tax rates are slightly higher in Spain, but there are treaties with the USA. You can reduce your tax burden with a double tax treaty and get a tax credit to reduce your taxes in the US.
Japan Digital Nomad Visa Taxes
Japan became one of the countries to allow digital nomad visas in March 2024. However, as in other countries, US citizens are held responsible for taxes in their home country during their stay in Japan.
In addition, the digital nomad visa in Japan is for a maximum of 6 months, after which there is no chance of returning to a residence permit. If you are married and have children, you can stay in Japan with your family, but you must have health insurance for all family members.
Most importantly, you must work for a company based in Japan to be tax exempt in the country. This means that you will not have to pay taxes on your non-Japanese income while living in Japan.
However, since the obligations for Japan digital nomad visa taxes have just been determined, there may be different regulations. Therefore, it is important to check official sources.
Greece Digital Nomad Visa Taxes
Greece has attractive tax rates.
To live as a digital nomad in this country, you must prove you are one and declare income over €3500 a month.
Here’s something surprising:
Greece offers digital nomads a 50% tax deduction if they live there for two years. This deduction is only for income outside Greece. So, you still have to pay taxes in the US.
You can reduce this burden by taking advantage of double taxation between the two countries.
You can also keep your foreign income outside the US with the foreign earned income exclusion and reduce your tax liability with the foreign tax credit. If you need a definitive guide on the Greece digital nomad visa, click here.
Conclusion
If you are working remotely across borders, then a digital nomad visa tax map will be an essential tool for you.
In this article, we explored digital nomad tax obligations, exemptions, and strategies to help you simplify the process and understand the complexities of international tax regulations.
By staying up-to-date, you can learn the legal process as it must be and have the opportunity to benefit from valuable tax benefits.
Moreover, the insights we shared in this article highlight the significance of tracking your residency, accurately reporting your income, and ensuring compliance with both local and US tax laws.
Frequently Asked Questions
Do digital nomads have to pay taxes?
Digital nomads need to pay taxes in general. Although the rules vary by country, your worldwide income is taken into consideration while evaluating your tax status, including your income earned as a digital nomad. Remember that, usually, digital nomads may need to report their foreign financial assets to their home country’s tax authorities.
You may also be interested in our article about ‘How to Avoid Paying Taxes Legally‘ if you find this topic insightful.
Which country has the best tax for digital nomads?
There is not one answer to this question. Some foreign countries have various benefits in terms of taxes, many of which offer tax exemptions for foreign earned income.
Do digital nomads have to pay tax in Spain?
If you are a digital nomad in Spain, you need to pay tax. However, it would be better to check if you are eligible for the Beckham law Spain that offers a flat tax rate of 24% on foreign-earned income.
Do digital nomads in Bali pay tax?
Digital nomads in Bali do not have the requirement to pay taxes in general. But if you stay in Bali for more than 180 days, you may have the need to file a tax return.
Do digital nomads pay tax in Portugal?
Yes, in general. In addition, if you are eligible, you can benefit from the NHR (Non-Habitual Residence Regime), which offers a flat tax rate of 20% on specific types of income.
