Workcating, sitting with a laptop or phone on a white sandy beach, traveling to London or Chicago anytime you want… a life like this sounds like a dream but can be a reality for digital nomads. However, there is another side, the less-fun side, including tasks and decisions about taxes, choosing a country for startup registration, receiving and making payments, working in unusual time zones (depending on the clients), and managing the logistics of a life/work balance on the road etc. These are important aspects of a digital nomad’s life that they must solve if they’re to truly enjoy the digital nomad experience with all the benefits it has to bring.
Should digital nomad entrepreneurs think about taxes?
Let us concentrate today on the tax issue. The concept of not having a home or permanent residence simply does not fit with the tax laws that have long been in place before it became possible for a person to generate personal and business income anywhere across the Earth. The income combinations can include salary, dividends and capital gains, income from shares or assets sales, and more. It’s been less than a decade since freelancers, consultants in demand worldwide, and global entrepreneurs introduced this new style of nomadic digital living.
As hot and appealing as this lifestyle may be, the heat can become unbearable if you forget the basics, like your tax returns and general taxes. There is always at least one country (and often, not only one) that expects to see your income for those purposes. Moving through the system with a tourist visa does not suddenly exempt digital nomads from taxes, magically providing digital nomads work opportunities without tax residence. They can, but penalties and risks affecting things like opening bank accounts and registering real estate and property in your name, might spoil the fun sooner or later, and bad karma will bite if taxes aren’t paid.
What is a tax residence country?
Before we proceed to solutions used by nomads, let’s outline the term “tax residence”. Generally, you become a tax resident in the country where you spend more than 183 days in a calendar year. But just residing for longer periods will not automatically make you a tax resident of that country. Tax authorities also consider your center of vital interests (where your family and real estate are) or if you have a habitual abode (a place where you stay most frequently).
Being a tax resident is a key part of doing business in different jurisdictions. Choosing the right jurisdiction for you depends entirely on your goals. Suppose you intend not to pay taxes on your international income. In that case, you should consider countries like Portugal with special tax regimes for foreign nationals and non-habitual residents, having zero tax on income earned outside its territory. If you intend to travel a lot, it makes sense to consider countries like Panama, with its territorial system of taxation and visa-free entry to more than 140 countries.
What are your options in choosing a tax residence country?
There are four main ways digital nomads solve the residence riddle now (not taking into account the gray-area and bad-karma option of not paying any taxes).
Keeping tax residency back home + paying taxes only home + ignoring local taxes.
This option is risky as the host country still might consider you working illegally on a tourist visa and initiate penalties.
Keeping tax residency back home + paying taxes home + paying local taxes if required.
This way might be rather costly if there is no Double Taxation Agreement (DTA) between the home and host countries.
Obtaining tax residency in a low-tax country + paying local taxes.
This option includes notifying your home country to stop considering you as a tax resident, getting a new individual tax number, and showing how economic activity is consistent with your activities in the country of the new tax residency. The latter can be made by local entity registration/renting real estate/receiving salary etc.
Keeping tax residency back home + obtaining a Digital Nomad visa + paying taxes home.
The fourth and final option includes Digital Nomads visas. Technically, these visas work more like resident permits, not visas. With a Digital Nomad visa, individuals are not allowed to work for a company in the country they are living in. That’s why it is usually less restrictive than a traditional work visa and easier to qualify for. These visas often allow staying in a country for periods from six months up to two years, which helps a lot if you want to work in multiple countries for a year.
How to choose a Digital Nomad visa and what options are available
You should consider several criteria when choosing which Digital Nomad visa to apply for:
- application process and timing (varies from several days to several months);
- length of stay (+ possibilities of renewal);
- location, benefits, cost of living (like the ability to travel visa-free in EU);
- income requirements (local individual and family thresholds);
- tax obligations (some of the countries offering Digital Nomads visas expect that local taxes are paid as well);
- special requirements (like having clients in the desired country).
Visas for Digital Nomads are available in more than 20 countries worldwide, in America, Africa, the EU and the Middle East. Every Digital Nomad visa is different. For some, you may need to provide more documents and information than usual or match the proof of income and savings requirements. It is better to apply beforehand if you want to go in three to four months. For some countries, it may require work with a translator, lawyer or a visa professional.
Let’s review several of the most popular options of Digital Nomad visas and similar solutions. We’ll be looking at the following options:
- Estonia (Digital Nomad Visa)
- Malta (Nomad Residence Permit)
- Mexico (Temporary Resident Visa)
- Portugal (Portugal Visa)
ESTONIA (DIGITAL NOMAD VISA)
Estonia is very popular among the digital nomad community for its e-residency program. Estonia Digital Nomad visa also gives you access to the Schengen Area.
- Online Application: No (appointment with Estonian Embassy/Consulate required)
- Validity: up to one year
- Cost: €80 (for short stays) – €100 (for long stays)
- Required Monthly Income: €3,504 (+ income statement for previous six months)
- Eligibility: remote workers for companies outside Estonia or owners of a location-independent business
For more information about Estonia’s Digital Nomad visa, check here.
MALTA (NOMAD RESIDENCE PERMIT)
The Maltese government offers a Nomad Residence Permit, which legally allows working in the archipelago for up to a year.
- Online Application: Yes
- Validity: one year, renewable
- Cost: €300
- Required Monthly Income: €2,700
- Eligibility: non-EU nationals whose clients, customers, and businesses are based outside of Malta
For more information about Malta’s Nomad Residence Permit, check here.
MEXICO (TEMPORARY RESIDENT VISA)
It’s a popular digital nomad location because of its six-month-long tourist visa. If you want to stay longer, you can apply for a Temporary Resident Visa to stay in Mexico for more than six months and up to four years.
- Online Application: No (appointment with Mexican Embassy/Consulate required)
- Validity: six months to four years
- Cost: $48 fee for foreign passports + other consular fees
- Required Monthly Income: monthly tax-free income of over $1,620 or an average monthly balance of $27,000 USD
- Eligibility: remote workers for companies outside Mexico or owners of a location-independent business
For more information about Mexico’s Temporary Resident Visa, click here.
PORTUGAL (PORTUGAL VISA)
Portugal has a longer stay visa for independent workers, which can lead to permanent residency after five years if you can’t stand the thought of giving up the wine and surfing.
- Online Application: No (appointment with Portuguese Embassy/Consulate required)
- Validity: one year, renewable for two years, and another two years
- Cost: €83 visa fee + €72 resident permit fee
- Required Monthly Income: €600
- Eligibility: non-EU nationals who own a business abroad or have contracts for providing services.
For more information about Portugal’s visa, check here.
How to get help with your taxes as a digital nomad entrepreneur
Being a digital nomad entrepreneur is different to just working as a freelancer remotely. You have your assets or income in many forms: equity or option shares, dividends from holding assets, staking rewards and active income streams like salary, and consultation fees. It can be quite hard to understand which tax responsibilities you have for each form of income, especially if you travel the world and your country of residence changes.
Here at Legal Nodes, we help by giving you access to a virtual legal officer who understands the best practices of taxation of different assets and can help you make an audit of your situation. They'll assign different tax and legal providers who will provide you with advice on local regulations for every asset you want to sell and can also help you better understand your tax obligations. All of these services are available, streamlined via your virtual legal officer, all in one place.
Disclaimer: the information in this article is provided for informational purposes only. You should not construe any such information as legal, tax, investment, trading, financial, or other advice.
Daria knows the ins-and-outs of venture deals after working in the VC industry, and now she helps startup founders solve their complex legal issues, all via the Legal Nodes platform. When she's not out for a run or sailing on her favourite Platu25, you'll likely find her discussing the best ways to structure a deal with her clients.