Digital Nomad Taxes: 2025 Guide to Global Tax Compliance

Do digital nomads have to pay taxes in foreign countries? 

Yes, digital nomads may need to pay taxes in the countries they live or work in.

Most countries determine tax residency using rules such as the 183-day rule. This rule states that where an individual stays 183 days or more in a 12-month period may be considered their country of tax residence and they can be taxed on worldwide income.

Some countries offer favorable terms specifically for digital nomads or remote workers, such as only taxing them on locally-sourced income.

Regardless, digital nomads should remain aware of tax treaties and tie-breaker rules in double taxation agreements (DTAs) to understand their tax liabilities.

Understanding the Three Global Tax Systems

Before explaining how taxes work for digital nomads, it is essential to understand the different tax systems countries operate on. There are generally three types of tax systems: Residential Tax System, Citizenship-Based Tax System, and Territorial Tax System:

Residential tax system

In a residential tax system, a country taxes people based on their residency status, not their citizenship. If you are considered a tax resident of a country, you must pay taxes on your worldwide income, regardless of where you earn it.

For example, several European countries, like the UK and Germany, follow this system. If you live there long enough, you’ll be considered a tax resident and taxed on global income.

Citizenship-based tax system

In a country where citizenship-based taxation is the main tax system, its citizens are taxed on their worldwide income, regardless of where they live. Even if you reside in a different country, you must file taxes in your home country and pay taxes on all income earned worldwide.

For instance, the United States is one of the few countries that have this system. U.S. citizens must report their income to the IRS, even if they live and work abroad.

Territorial tax system

In a territorial tax system, a country only taxes income earned within its borders. Income earned outside of the country is generally not taxed.

Countries like Hong Kong and Panama use a territorial tax system. If you earn income abroad, you usually don’t have to pay taxes on that income in these countries.

Types of Personal Taxes for Digital Nomads

It’s important for digital nomads to understand the different types of personal taxes that may apply to them based on their specific living arrangements, work structure, and tax residency status. These tax obligations can vary depending on the country of residence, the nations in which they perform work, and their home country’s worldwide income taxation policies.

Here are the main types of personal taxes that digital nomads should consider:

1. Income tax

Many countries tax residents on their worldwide income, which includes salaries, freelance earnings, passive income, and investment returns.

However, in territorial tax systems, non-residents may only be taxed on income earned within that country’s borders.

This distinction is crucial for digital nomads who generate income while temporarily residing in or working from another country.

2. Social Security tax

Social Security taxes are used to fund public benefits such as retirement, disability, and survivor benefits.

In the U.S., these taxes are part of payroll obligations shared by employees and employers.

Digital nomads working remotely for U.S. companies or as freelancers are still subject to these taxes unless exempted by a totalization agreement with their host country.

3. Self-employment tax

For self-employed digital nomads, tax obligations often include self-employment tax, which in the U.S. covers Social Security and Medicare contributions.

Even when working abroad, these taxes typically apply if you’re earning more than $400 annually.

In some countries, digital nomads may also be required to contribute to national health insurance schemes or local social security systems.

4. Capital gains tax

Capital gains taxes apply to profits from selling assets such as stocks, bonds, property, or cryptocurrency. Depending on whether these assets are held short-term or long-term, the applicable tax rates may differ.

Many digital nomads are increasingly dealing with cryptocurrencies, which may be subject to gains tax in several jurisdictions unless they choose to live and work in a crypto tax haven like Malta or Portugal.

5. Value-Added Tax (VAT)

VAT or Goods and Services Tax (GST) is applied to the purchase of goods and services in many countries.

If you operate a remote business as a digital nomad, you may be obligated to charge VAT on sales and remit it to local tax authorities.

Understanding your permanent establishment risk is important when selling goods or services while based abroad.

Tax Residency and the 183 Days Rule

Tax residency determines where you are legally required to pay taxes on your income. While each country has its own set of tax residency criteria, one of the most widely used benchmarks is the 183-day rule.

Under the 183-day rule, if you spend 183 days or more in a country within a 12-month period, you are generally considered a tax resident of that country. This often means you’re required to report and pay taxes on your worldwide income, even if you’re not a citizen.

Countries like Spain, Germany, Portugal, and Mexico apply this rule to establish tax residency for individuals living within their borders for extended periods. For digital nomads, this rule is particularly important when planning long-term stays in a foreign country, as it may trigger tax obligations.

If you live in a country for more than half the year, you’ll likely be considered a resident for tax purposes, and may need to file a local tax return and comply with that country’s tax laws.

Tax Treaties and Double Tax Agreements (DTAs) 

Tax treaties and Double Taxation Agreements (DTAs) are formal arrangements between two countries designed to prevent individuals and businesses from being taxed twice on the same income.

Tax treaties allocate taxing rights between countries and outline how different types of income, such as wages, dividends, pensions, and royalties, should be taxed. Most of these agreements are based on the OECD Model Tax Convention and they aim to create transparency, fairness, and predictability in international tax matters while encouraging cross-border mobility and investment.

Double Tax Agreements (DTAs) are a type of tax treaty that specifically defines which country has the primary right to tax certain income, based on factors such as tax residency and source of income. DTAs may reduce or eliminate taxes on specific income streams and often include tie-breaker rules to resolve dual residency conflicts.

For digital nomads, utilizing DTAs can be an effective way to reduce or avoid double taxation. It’s important to determine eligibility and file the appropriate documentation with tax authorities, such as Form 1116 for claiming foreign tax credits or making use of exclusions under the treaty.

• Foreign Earned Income Exclusion (FEIE): Excludes foreign income from U.S. tax if you pass the Physical Presence Test (330 days abroad) or the Bona Fide Residence Test (full calendar year abroad).
• Foreign Tax Credit (FTC): Offsets U.S. tax liability using foreign tax payments.
• Foreign housing exclusion/deduction: Deduct foreign housing expenses like rent.

5 Ways to Avoid Digital Nomad Taxes

It is possible to legally minimize or avoid paying digital nomad taxes by using smart planning, complying with international tax rules, and choosing favorable jurisdictions.

Here are five effective tax strategies for digital nomads to reduce global tax liabilities:

1. Choose tax-friendly countries

Relocate to countries with territorial taxation, low personal income tax rates or even tax haven countries.

Nations like Thailand, and Panama offer favorable tax systems and may only tax income earned within their borders. These countries are popular among digital nomads seeking a balance of lifestyle and tax efficiency.

2. Leverage Double Taxation Agreements (DTAs)

Utilize tax treaties between countries to avoid being taxed twice on the same income.

For example, a U.S. citizen working in Mexico may benefit from a DTA that assigns taxing rights to just one jurisdiction. DTAs can also reduce or eliminate taxes on dividends, pensions, or royalties.

3. Use the Foreign Earned Income Exclusion (FEIE)

U.S. citizens can take advantage of the Foreign Earned Income Exclusion, which allows you to exclude up to $120,000 of foreign-earned income from U.S. taxation.

To qualify, you must meet either the Physical Presence Test (330 days abroad) or the Bona Fide Residence Test (full calendar year).

4. Limit time in each country

Avoid triggering tax residency by spending fewer than 183 days in any one country during a 12-month period.

Strategic travel planning can help you remain a non-resident for tax purposes and avoid being subject to that country’s worldwide income taxation.

5. Maintain thorough records

Keep detailed documentation of your income, travel dates, foreign bank accounts, and business expenses.

Accurate record keeping supports your eligibility for tax benefits like the FEIE and helps ensure compliance with local and international tax laws.

Tax Evasion vs. Tax Optimization

Understanding the difference between tax optimization and tax evasion is critical for digital nomads navigating global tax laws. Both relate to how individuals manage their tax liabilities, but they differ significantly in legality and risk.

Tax evasion

This action is illegal and involves deliberately misrepresenting or concealing income or financial information to avoid paying taxes.

Common examples include:

• Failing to report all sources of income
• Claiming false deductions or business expenses
• Hiding assets in undisclosed offshore bank accounts

Engaging in tax evasion can result in severe penalties, including hefty fines, audits, and even criminal prosecution.

Tax optimization

This, on the other hand, is a legal and strategic approach to reducing tax liability by leveraging allowable deductions, exclusions, and credits.

Examples include:

• Claiming the Foreign Earned Income Exclusion (FEIE) or the Foreign Tax Credit (FTC).
• Taking advantage of Double Taxation Agreements (DTAs) to avoid being taxed twice on the same income.
• Structuring income through territorial taxation systems where only local income is taxed.

According to insights from the Global Digital Nomad Report, digital nomads are increasingly seen as contributors to local economies, particularly in developing nations and emerging markets. Tax optimization strategies, when legally implemented, allow remote workers to retain more of their income while also supporting economic diversification and innovation in their host countries.
Digital nomads who engage in proactive tax planning can significantly reduce their global tax burden while remaining fully compliant with international tax regulations.

U.S. Tax Responsibilities for Digital Nomads

U.S. citizens and green card holders must file a federal tax return every year, regardless of where they live. The U.S. operates under a citizenship-based taxation system, meaning that income earned anywhere in the world is subject to U.S. taxes if it exceeds the minimum filing threshold. This applies even if you qualify as a tax resident in another country.

To comply with these obligations, digital nomads must submit several key IRS forms:

• Form 1040: The standard individual income tax return required by all U.S. citizens and resident aliens.
• Form 2555: Used to claim the Foreign Earned Income Exclusion (FEIE), which allows qualifying taxpayers to exclude up to $120,000 (in 2024) of foreign-earned income from U.S. taxation.
• Form 1116: Lets taxpayers claim the Foreign Tax Credit (FTC) to reduce U.S. tax liability if they’ve already paid taxes to a foreign government.
• Schedule C and Schedule SE: Used to report income and expenses from self-employment and calculate self-employment taxes (including Social Security and Medicare contributions).
• FBAR (FinCEN Form 114): Must be filed if the aggregate value of all foreign financial accounts exceeds $10,000 at any time during the calendar year.
• Form 8938: Required to report specified foreign financial assets exceeding certain thresholds, under FATCA (Foreign Account Tax Compliance Act).

U.S. digital nomads also need to account for state-level tax obligations. Some states, such as California and New York, are known for aggressively asserting residency ties based on factors like property ownership, voter registration, driver’s licenses, or a history of filing state returns. Failing to sever these ties may result in continued liability for state income taxes, even while living abroad.

15 Best Countries for Digital Nomads

1. Spain

Spain’s Digital Nomad Visa is designed for non-EU nationals who want to live and work remotely from Spain while employed by foreign companies. The visa targets remote professionals, entrepreneurs, and freelancers, allowing them to contribute economically without impacting the local job market.

Key tax benefits include a reduced income tax rate during the first four years of residency. If you spend more than 183 days per year in Spain, you’ll be considered a tax resident and taxed on your worldwide income. Non-residents, however, are only taxed on Spanish-sourced income.

Eligibility requirements:

• Proof of remote work with a foreign company (no more than 20% of income from Spanish clients).
• Stable monthly income of €2,672 or €33,152 annually.
• Be a non-EU/EEA citizen.
• Proof of residential address in Spain.
• Valid health insurance.
• Clean criminal record.

The residence permit is issued for one year and can be renewed annually for up to five years, after which applicants may qualify for long-term residency.

2. Portugal

Portugal’s Digital Nomad Visa (also known as the D8 Visa) is available to non-EU/EEA/Swiss citizens who wish to work remotely from Portugal while employed by a foreign company or serving overseas clients. Portugal appeals to nomads with its affordable lifestyle, mild climate, and vibrant expat community.

If you remain in Portugal for more than 183 days in a 12-month period, you become a tax resident and are taxed on global income. If you stay under that threshold, you’re taxed only on Portuguese-source income.

To qualify:

• Proof of remote employment or freelance work for a company outside of Portugal.
• Consistent monthly income of €3,480 (or equivalent to Portuguese minimum wage).
• Be a non-EU/EEA citizen.
• Proof of accommodation in Portugal.
• Proof of private health insurance.
• Clean criminal record.

The residence permit is valid for one year and is renewable in two-year increments, with eligibility for permanent residency or citizenship after five years.

3. Italy

Launched in April 2024, Italy’s Digital Nomad Visa is designed for high-skilled professionals—including remote workers, freelancers, and digital entrepreneurs—who wish to live in Italy while serving clients abroad.

From a tax perspective, non-residents staying fewer than 183 days are taxed only on Italian-sourced income, while tax residents are subject to worldwide income taxation

Requirements include:
Remote work or freelance services for foreign entities.

• Minimum annual income of €28,000.
• Stable remote work contract with a company outside Italy OR be a self-employed individual with a valid business plan.
• Proof of accommodation in Italy.
• Be a non-EU citizen.
• Valid private health insurance.
• Clean criminal record.

The residence permit is issued for one year and is renewable upon meeting income and accommodation requirements.

4. Croatia

Croatia’s Digital Nomad Visa offers non-EU remote workers the opportunity to live and work in one of Europe’s most scenic countries. It supports professionals working for foreign companies or clients abroad.

A key attraction is the income tax exemption for digital nomads during the first year of stay. This makes Croatia a favorable destination for remote professionals seeking tax-efficient living in Europe.

Application requirements:

• Proof that you’re working remotely for a company outside Croatia or that you’re self-employed.
• Monthly income of at least €2,539.21 OR proof of €39,540 in savings for a 12-month stay or €59,310 for an 18-month visa.
• Be a non-EU/EEA/Swiss citizen.
• Proof of private or travel health insurance.
• Proof of accommodation in Croatia.

The residence permit is valid for one year, is non-renewable, and requires a six-month gap before reapplication.

5. Malta

The country introduced the Malta Digital Nomad Visa (also known as the Nomad Residence Permit) in 2021, offering non-EU digital nomads the chance to live and work in a sunny, English-speaking, Mediterranean country.

Malta operates under a territorial tax system, meaning foreign income not remitted to Malta is not taxed. This structure allows remote workers to retain more of their global earnings, especially if they’re not considered tax residents.

Eligibility criteria:

• Proof of remote employment or freelance work for non-Maltese companies.
• Minimum monthly income of €3,500 or €42,000 per year.
• Demonstrate ability to work remotely using telecommunications technology.
• Be a non-EU/EEA/Swiss citizen.
• Proof of rental or owned accommodation.
• Health insurance valid in Malta and the EU.

The residence permit is valid for one year and can be renewed annually, with eligibility for permanent residence after five years of continuous stay.

6. Estonia

Estonia, a global leader in digital innovation, offers a Digital Nomad Visa that allows remote workers and freelancers to legally reside in the country while working for foreign employers or clients. The program is ideal for professionals seeking to benefit from Estonia’s tech infrastructure and streamlined digital services.

For tax purposes, digital nomads staying in Estonia for less than 183 days within a 12-month period are not considered tax residents and are therefore not taxed on foreign income. If you exceed this threshold, Estonia taxes residents at a flat 20% rate on worldwide income.

Eligibility requirements:

• Proof of freelance work or remote employment with non-Estonian companies.
• Minimum monthly income of €4,500.
• Demonstrate ability to work remotely using telecommunications technology.
• Valid health insurance for the entire stay.
• Clean criminal record.

The residence permit is granted for one year and may be renewed for an additional year based on ongoing remote work eligibility.

7. Greece

Greece’s Digital Nomad Visa invites remote professionals to experience its sunny climate, ancient heritage, and low cost of living. It’s open to non-EU nationals working for companies or clients outside of Greece.

Digital nomads staying in Greece for fewer than 183 days annually are not taxed locally. Those who stay longer may be considered Greek tax residents and could benefit from a 50% income tax reduction for up to seven years under the special expat regime.

To qualify, you’ll need:

• Proof of remote employment or self-employment with a non-Greek company.
• Minimum monthly income of €3,500 or if you have a spouse accompanying you, it increases to €4,200.
• Be a non-EU citizen.
• Valid health insurance covering your entire stay.
• Clean criminal record from your home country.

The residence permit is valid for one year and can be renewed every two years, with a maximum total stay of up to five years.

8. Czech Republic

The Czech Republic offers the Zivno Visa, tailored specifically for freelancers and self-employed individuals working in select trades. It’s a popular choice for digital nomads drawn to cities like Prague with its vibrant coworking scene and cultural offerings.

If you stay fewer than 183 days per year, you are not considered a tax resident and are taxed only on Czech-sourced income. Longer stays require tax residency registration, but the country offers a simplified tax scheme for freelancers.

Requirements include:

• Demonstrate that you work remotely for a foreign company with at least 50 employees or as a freelancer with a Czech trade license.
• Be a citizen of Australia, Canada, Japan, New Zealand, South Korea, Taiwan, the UK, or the USA.
• Work remotely in IT or STEM fields.
• Earn a minimum monthly salary of $2,730 USD or provide a bank statement proving funds equivalent to $7,500 USD.
• Valid health insurance.
• Proof of accommodation in the Czech Republic.

The residence permit is valid for one year and is renewable for an additional year, provided all trade license and financial requirements are met.

9. Mexico

Mexico’s Temporary Resident Visa is ideal for digital nomads seeking a vibrant, affordable lifestyle in places like Mexico City, Oaxaca, or Playa del Carmen. This visa allows non-Mexicans to reside in the country for more than 180 days while working remotely for foreign employers.

If you stay less than 183 days, you are typically not considered a Mexican tax resident and will only be taxed on Mexican-source income. Longer stays may trigger tax residency, although Mexico’s rates remain relatively moderate.

To apply, you’ll need:

• Proof of remote work as per a letter from employer or documentation of freelance income.
• Minimum monthly income of $2,600 for six months OR proof of $43,000 USD in savings for 12 months.
• Clean criminal record.
• Health insurance valid in Mexico.

The residence permit is issued for one year and can be renewed annually for up to four consecutive years.

10. Germany

Germany’s Freelancer Visa is well-suited for self-employed professionals in creative, academic, or technical fields who wish to live and work in cities like Berlin, Munich, or Hamburg.

If you remain in Germany for less than 183 days, you can typically avoid becoming a tax resident and will only be taxed on income generated within Germany. Tax residents, however, are subject to worldwide income taxation.

Application requirements:

• Proof of freelance or remote work (through contracts, invoices, or letters of intent from clients) in a recognized profession.
• Evidence of a stable income to support yourself, which may involve bank statements, a blocked account, or a profit/loss statement.
• A bank balance of at least €5,000 to cover initial living costs.
• Health insurance valid in Germany.
• For freelancers (Freiberufler): demonstrate professional qualifications through degrees, diplomas, or professional licenses.
• For self-employed (Selbstständiger): submit a business plan, showing how your business will benefit Germany.
• For those over 45: Provide proof of a retirement plan or sufficient assets for future retirement.

The residence permit is issued for six months to three years and is renewable based on your profession and financial stability.

11. Georgia

Georgia’s Remotely from Georgia program allows digital nomads to live and work in the country for up to one year. It’s especially attractive due to its territorial tax system, low cost of living, and visa-free access for many nationalities.

Digital nomads who stay fewer than 183 days in a calendar year are not subject to local taxes. If they exceed that threshold, they may register as individual entrepreneurs and pay as little as 1% tax on turnover under Georgia’s small business regime.

Requirements:

• Proof of remote employment or self-employment.
• Monthly income of $2,000 USD or more.
• Health insurance.
• Consent to a 12-day quarantine (if required).

The digital nomad stay is granted for up to 365 days under the visa-free entry or remote work program, with reapplication allowed after exit.

12. Hungary

Hungary offers the White Card, a digital nomad visa introduced in 2022 for non-EU remote workers. It allows foreigners to live and work in Hungary for up to one year, with the possibility of renewal for another year.

If you stay less than 183 days, you are considered a non-resident and taxed only on Hungarian-sourced income. Residents are taxed on worldwide income at progressive rates up to 15%.

To qualify:

• Proof of foreign remote work or freelance income.
• Monthly income of at least €2,000 USD.
• Valid travel health insurance.
• Proof of accommodation in Hungary.

The White Card is valid for one year and is renewable once for an additional year, based on continued foreign income and residency compliance.

13. United Arab Emirates (Dubai)

Dubai’s Virtual Working Program is a remote work visa that permits foreign professionals to live in Dubai while working for overseas companies. With 0% income tax, the UAE is a popular tax-free destination for digital nomads.

Although you won’t pay income tax in Dubai, keep in mind your home country’s worldwide income tax rules (especially for U.S. citizens).

Requirements:

• Proof of employment with a one-year contract OR proof of self-employment.
• Minimum monthly income of $3,500.
• Health insurance covering UAE.
• Passport valid for at least 6 months.

The Virtual Working Program is valid for one year and can be renewed annually, provided income and employment criteria are still met.

14. Costa Rica

Costa Rica launched its Digital Nomad Visa in 2022 to attract remote workers for up to 12 months, extendable by another year. The country offers a favorable tax environment where foreign-sourced income is not taxed.

However, if you do become a tax resident by exceeding 183 days, other income may become taxable, so planning your stay is essential.

To apply:

• Minimum monthly income of $3,000 (or $4,000 if applying with dependents).
• Proof of health insurance.
• Certified bank statements.
• Application fee.

The digital nomad visa is valid for one year and may be extended for a second year if minimum income requirements continue to be met.

15. Barbados

Barbados’ Welcome Stamp was one of the first digital nomad visas introduced during the pandemic. It allows remote workers to live and work from the island for up to 12 months.

Barbados uses a residency-based taxation system, but income earned from foreign sources while living on the island under this visa is not taxed locally.

Eligibility criteria:

• Proof of employment with a foreign company or self-employment.
• Minimum annual income of $50,000.
• Valid passport.
• Comprehensive health insurance.

The Welcome Stamp is valid for 12 months and may be renewed at the government’s discretion upon reapplication.

How Can Global Citizen Solutions Help You?

Global Citizen Solutions is a boutique migration consultancy firm with years of experience delivering bespoke residence and citizenship by investment solutions for international families. With offices worldwide and an experienced, hands-on team, we have helped hundreds of clients worldwide acquire citizenship, residence visas, or homes while diversifying their portfolios with robust investments. 

We guide you from start to finish, taking you beyond your citizenship or residency by investment application. 

Frequently Asked Questions About Digital Nomad Taxes

What is the difference between residency and tax residency?

Residency refers to the country where you live, while tax residency determines where you are legally obligated to pay income taxes.

Tax residency is usually based on how much time you spend in a country (such as the 183-day rule) or where you have strong personal and economic ties.

What determines tax residency?

Time spent in a country (usually 183+ days), economic ties, or family location.

Do digital nomads have to pay U.S. taxes?

Yes, U.S. citizens and green card holders are required to file federal tax returns and report worldwide income, even if they live and work abroad. However, they may qualify for benefits like the Foreign Earned Income Exclusion (FEIE) or the Foreign Tax Credit (FTC).

Do digital nomads have to pay state taxes?

Digital nomads from the U.S. may still be subject to state income tax depending on whether they retain ties to a specific state, such as property ownership, voter registration, or a driver’s license. States like California and New York are particularly strict in asserting tax residency.

Do digital nomads have to pay self-employment taxes?

Yes, self-employed U.S. digital nomads must pay self-employment tax, which includes Social Security and Medicare contributions. This applies if net earnings exceed $400 per year, regardless of where the work is performed.

What is a Physical Presence test?

The Physical Presence Test is used to qualify for the Foreign Earned Income Exclusion (FEIE). To pass, you must spend at least 330 full days in a foreign country during a consecutive 12-month period.

What is a bona fide resident?

A bona fide resident is someone who has established permanent residency in a foreign country for at least one full tax year. This status can help qualify for the FEIE, but you must also show substantial ties to the country, such as maintaining a home and integrating into the local community.

Do digital nomads pay U.S. taxes?

Yes, U.S. citizens must file taxes on worldwide income, but may qualify for FEIE or FTC to reduce liability.

Can digital nomads avoid double taxation?

Yes, through double taxation agreements, FEIE, and the Foreign Tax Credit.

What expenses can digital nomads deduct when filing taxes?

Travel, tech, accommodation, and insurance expenses often qualify.