Paying Taxes as a Digital Nomad

The digital revolution has reshaped the way we think about the world; frontiers seem to no longer exist for anybody who wish to scale up a business and conquering new markets.

This is particularly true for multinational digital businesses selling digital services worldwide without having a physical presence in the countries where they do business.

Not having a physical presence has important consequences tax-wise: the income “digitally” sourced in a given country goes untaxed because the given country cannot establish any physical or legal “nexus” between the business and its territory by applying the traditional tax residency criteria provided for by domestic and international tax law.

However, multinational enterprises are not the only taxpayers who are taking advantage of the digitalization era: an ever greater number of workers have now the possibility to travel the world on a permanent basis by working remotely.

This type of workers are commonly referred to as “digital nomads” since they travel around the world without establishing any fixed physical “nexus” with any of the countries they go through.

For this reason, most people think that since a digital nomad does not settle anywhere, in theory he /she does not pay taxes in any country.

This assumption is not entirely correct.

Indeed, countries determine individuals’ tax residency not only on the basis of the “famous” 183-day rule (i.e. a tax resident is only someone who stays in the country for at least 6 months per year) but also on the basis of other several, alternative criteria, like the taxpayer’s:

  1. main domicile or personal abode;

  2. center of economic interests;

  3. professional activity carried out in the country.

This means that in case the “183-day rule” does not apply – as it may be the case for a digital nomad – a country may still consider an individual as a tax resident on the basis of the taxpayer’s center of personal (e.g. family), financial (e.g. a bank account) and professional (e.g. performing independent contractor work on a regular basis) residency criteria.

In view of all these criteria applying together, an individual may be considered as a resident of one or more countries at the same time, which may give rise to double taxation issues.

Although countries’ domestic tax rules as well as double tax agreements usually help solve (even if sometimes only partially) double tax issues, it may be recommendable for someone who plans to travel on a permanent basis to arrange properly his/her tax residency status by making sure that he/she:

      1. does not qualify as a tax resident in his/her country of origin or the country of which he/she holds citizenship;

      2. has a clear understanding of his/her tax residency status in each of the countries visited (particularly in the eyes of the tax authorities);

      3. is aware that, in case one’s business is run through a company which constitutes a separate entity tax-wise, i) the company’s tax residency is determined differently from the individual’s and ii) is taxed separately and differently from the owner’s own income.

Want to stay updated on the legal aspects of digital nomads?
Subscribe to our newsletter.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.