Digital Nomad Taxes: Everything you Need to Know in 2024

As remote work becomes more popular, digital nomads need to be more aware of their tax requirements, no matter which foreign country they are in. Understanding the tax obligations that come with this freedom is critical. Digital nomads will often need to deal with several tax jurisdictions, each with its own rules regarding income earned abroad.

In this guide, we cover everything you need to know about digital nomad taxes, from the types of tax systems to how to file your taxes while living overseas.

Here is more of what we will cover:

• Do digital nomads have to pay taxes in foreign countries?
• Digital Nomads and the Three Tax Systems
• Types of Personal Taxes for Digital Nomads
• Residency vs Tax residency
• Tax Residency and the ‘183 Days Rule’
• Tax Evasion vs. Tax Optimization
• Tax Treaties and Double Tax Agreements (DTAs)
• How to Avoid Digital Nomad Taxes
• Do Digital Nomads have to pay US taxes?
• Do digital nomads pay state taxes?
• Do digital nomads have to pay self-employment taxes?
• Tax Benefits for Digital Nomads
• What is a Physical Presence Test?
• What is a bona fide resident?
• What tax forms do digital nomads need to file—and when are they due?
• How to File Taxes as a Digital Nomad Living Overseas
• 11 Best Countries for Digital Nomads
• Tax-Friendly Countries for Digital Nomads

Do digital nomads have to pay taxes in foreign countries? 

Yes, digital nomads may have to pay taxes in foreign countries depending on the country’s tax laws and their length of stay. Many countries tax individuals based on residency, so if an expats spends a certain amount of time in a country, they could become a tax resident and be subject to local taxes. Some countries also have specific tax rules for digital nomads, offering tax incentives or exemptions.

The amount of tax paid by digital nomads can vary significantly based on their home country, the countries they work in, the duration of their stays, and the nature of their work.

However, expats should also be mindful of their home country’s tax laws, as some countries tax citizens on worldwide income, regardless of where they live. However, it is uncommon for digital nomads to pay taxes in multiple countries. 

Digital Nomads and the Three 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 citizenship-based tax system, a country taxes its citizens 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.

Main 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 and working arrangements. These taxes can differ based on their country of residence, the countries they work in, and their home country’s tax laws.

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

Income Tax

Many countries tax their residents on worldwide income. This includes salaries, freelance earnings, investment income, and any other sources of income. However, some countries tax non-residents on income earned within their borders. This is common for digital nomads who may be taxed on income generated from work performed while in a specific country.

Social Security Taxes

The government collects Social Security taxes to fund the Social Security program, which provides financial benefits to retirees, disabled individuals, and survivors of deceased workers. These taxes are part of payroll taxes, and both employees and employers in the U.S. contribute to them

Self-Employment Tax

Self-employed digital nomads may be required to pay social security taxes to their home country or the country where they are working. In the US, this includes Social Security and Medicare taxes. In some countries, self-employed individuals must contribute to national health insurance schemes.

Capital Gains Tax

These are taxes on profits from selling assets like stocks, bonds, or real estate. Depending on whether the assets are held short-term or long-term, these can be taxed differently. Many digital nomads deal with cryptocurrencies, which may be subject to gains tax in several jurisdictions.

Value-Added Tax (VAT)

When purchasing goods and services, digital nomads may be subject to VAT or GST, which is added to the price of products and services in many countries. If running a business, then you may need to charge VAT/GST on sales and remit it to the tax authorities.

Residency vs Tax Residency 

Residency and tax residency are often confused, but they are not the same thing.

Residency means the country where you live. This is usually determined by how much time you spend in a country each year, where your home is, or where you work or study.

Tax residency is about where you are required to pay taxes. Even if you live in one country, you might be a tax resident of another country if you spend a lot of time there, have a job there, or have strong ties to that country, like owning property or running a business. Different countries have different rules for determining tax residency, but often it depends on how many days you spend in the country in a year which often follow the 183 days rule. 

Tax Residency and the '183 Days Rule' 

As explained, tax residency determines where people must pay taxes on their worldwide income. Different countries have different rules for establishing tax residency, but a common rule is the ‘183 Days Rule.’

The 183 Days Rule states that if you spend 183 days or more in a country within a 12-month period, you are usually considered a tax resident of that country. This means you may be required to pay taxes there on your income, even if you’re not a citizen. Several countries use the rule to determine who qualifies for tax residency.

For example, if you live in a country for more than half the year, you’ll likely be treated as a resident for tax purposes, and you will need to report and pay taxes on your income to that country, regardless of where it was earned.

Tax Evasion vs. Tax Optimization

Tax evasion vs tax optimization both deal with how individuals or businesses handle their taxes, but they are very different in terms of legality and approach.

Tax evasion is illegal. It involves intentionally hiding income, falsifying information, or not paying taxes you owe. Examples include:

• Failing to report all of your income.
• Lying about your expenses or deductions.
• Hiding money in secret bank accounts.

Tax evasion can lead to severe consequences, including fines and criminal charges.

Tax 0ptimization is legally reducing your tax bill by taking advantage of the tax system’s rules and benefits. This could include:

• Claiming legitimate deductions or credits.
• Making investments in tax-efficient accounts (like retirement savings).
• Taking advantage of tax treaties or incentives offered by certain countries.

Tax Treaties and Double Tax Agreements (DTAs) 

Tax Treaties and Double Tax Agreements (DTAs) are agreements between two countries designed to prevent people or businesses from being taxed twice on the same income.

Tax Treaties are official agreements between two countries that help determine which country has the right to tax specific types of income. The goal is to avoid double taxation and encourage international trade and investment.

Double Tax Agreements (DTAs) are a type of tax treaty. They ensure that if you live or work in one country and earn income from another, you won’t pay tax twice on the same income. DTAs usually specify where you should pay taxes (e.g., where you live, where you earn the income) and may reduce or eliminate taxes on certain types of income, like pensions or dividends.

How to Avoid Digital Nomad Taxes: 5 Best Ways

It is possible to avoid digital nomad taxes legally, but one requires strategic planning and awareness of tax laws in different countries. 

Here are some effective methods to avoid paying tax legally:

1. Choose tax-friendly countries

Select countries with low or no income tax, such as Portugal or Thailand, which are popular among digital nomads for their favorable tax regimes and appealing lifestyles.

2. Utilize double taxation treaties

Take advantage of tax treaties between countries that prevent double taxation. For example, a U.S. citizen working in Mexico may benefit from a treaty that allows them to pay taxes only in one country.

3. Foreign Earned Income Exclusion

 U.S. citizens can rely on the Foreign Earned Income Exclusion (FEIE) to exclude a certain amount of foreign-earned income from U.S. taxes, provided they meet the residency requirements.

4. Limit days in each country

Plan your travels to keep your time spent in each country below the 183-day residency period to avoid becoming a tax resident.

5. Keep thorough records

Maintain detailed records of your income, expenses, and days spent in various countries to support your tax position and ensure compliance with local laws.

Do digital nomads have to pay US taxes? 

Yes, digital nomads from the U.S. still have to pay U.S. taxes, even if they live and work abroad. The U.S. taxes its citizens on their worldwide income, meaning income earned in any country is subject to U.S. tax.

Do digital nomads pay state taxes?

U.S. digital nomads might need to pay state taxes, depending on where they are considered a resident. If you live in a state or keep ties to one, like having a driver’s license or property there, you may have to pay taxes on your income, even if you work from another country.

Some states, like Florida, Texas, and Nevada, don’t have a state income tax, which can be helpful. However, other states, like California, may still tax all your income, even if you live abroad. New York taxes the income of its residents, even if it is earned while working remotely from another state or country.

It’s important to know your state’s tax regulations to understand if you owe state taxes or not. Here is a comparison table of the different state taxes in the United States: 

Do digital nomads gave to pay self-employment taxes?

Yes, digital nomads who work as self-employed individuals have to pay self-employment taxes, even if they live abroad. In the U.S., self-employment tax covers Social Security and Medicare, and it applies to U.S. citizens and residents who earn income from self-employment. This tax is typically 15.3% on net earnings, and digital nomads must pay it if their net earnings from self-employment are $400 or more in a year.

Even though digital nomads may be eligible for tax benefits like the Foreign Earned Income Exclusion (FEIE) or the Foreign Tax Credit (FTC), these benefits don’t reduce self-employment tax. The self-employment tax still applies regardless of where you live or work. However, some countries may have agreements with the U.S. to avoid double taxation or provide exemptions, so it’s important to check the local tax laws of your host country as well.

Tax Benefits for Digital Nomads

Digital nomads can benefit from several tax provisions that can help reduce their U.S. tax burden while living and working abroad. Here’s a breakdown of the key tax benefits:

1. Foreign Earned Income Exclusion (FEIE)

The Foreign Earned Income Exclusion (FEIE) allows U.S. citizens or resident aliens working abroad to exclude up to $120,000 (for 2024) of foreign income from U.S. taxation. To qualify, you must meet specific requirements:

• Physical Presence Test: You need to spend at least 330 full days in a 12-month period outside the U.S.
• Bona Fide Residence Test: You must be a resident of a foreign country for an uninterrupted period of time.

2. Foreign Tax Credit (FTC)

The Foreign Tax Credit (FTC) helps prevent double taxation. If you pay taxes to a foreign country, you can use the FTC to reduce the amount of tax you owe to the U.S. for the same income. This is especially useful if you’re paying a high tax rate in the foreign country where you’re living and working.

3. Foreign housing exclusion or deduction

If you’re living abroad, you might be able to exclude or deduct certain foreign housing costs, like rent and utilities, from your taxable income. The exclusion/deduction is subject to limits based on the location and cost of living. This is available to those who qualify for the FEIE and can significantly reduce your U.S. tax liability.

What is Physical Presence Test?

The Physical Presence Test is one of the requirements used to qualify for the Foreign Earned Income Exclusion (FEIE). It helps determine whether you can exclude your foreign-earned income from U.S. taxes while living abroad.

To pass the Physical Presence Test, you need to be physically present in a foreign country for at least 330 full days during a 12-month period. These 330 days do not have to be consecutive, but you must be outside the U.S. and its territories for that amount of time.

What is a bona fide resident? 

A bona fide resident of a foreign country is someone who lives there full-time and has made it their main home. To be considered a bona fide resident:

• You must stay in the foreign country for at least one full calendar year (January 1 to December 31).
• You need to show strong ties to the country, like renting or owning a home, paying local taxes, or being part of the local community.
• It’s not just about how many days you spend there but about proving that you’ve settled there as your primary place of living.

Being a bona fide resident can help you qualify for U.S. tax benefits like, Foreign Earned Income Exclusion and Foreign Tax Credit.

What tax forms do digital domads need to File—and when are they due? 

The regular filing deadline is April 15th, you can request an extension to file by October 15th. Even if you’re living abroad, it’s important to file these forms to stay compliant with U.S. tax laws.

1. Form 1040 (U.S. individual Income Tax Return)

• This is the main form for filing your U.S. income taxes. As a U.S. citizen or resident alien, you’re required to file this form even if living abroad.

2. Form 2555 (Foreign Earned Income Exclusion)

• If you qualify for the Foreign Earned Income Exclusion (FEIE), use this form to exclude up to $120,000 of your foreign-earned income, reducing your taxable income.

3. Form 1116 (Foreign Tax Credit)

• This form helps you claim a credit for foreign taxes paid on income, helping you avoid double taxation if you’ve paid taxes to a foreign country.

4. Schedule C (profit or loss from Business)

• For self-employed digital nomads, use this form to report income and expenses from your business. You will also pay self-employment taxes here.

5. Form 8949 (sales and other dispositions of capital assets)

• If you’ve sold or exchanged assets like stocks, bonds, or other capital assets, report it on this form.

6. Form 8938 (statement of specified foreign financial assets)

• You may need to file this form if you have foreign financial assets (e.g., bank accounts, investments) above certain thresholds.

7. FBAR (FinCEN Form 114)

• If you have foreign bank accounts with a total value exceeding $10,000 at any point during the year, file this form to report those accounts to the U.S. Department of Treasury.

How to File Taxes as a Digital Nomad Living Overseas

1. Know the filing deadline

• Tax return due date: April 15 (or the next business day if it falls on a weekend/holiday).
• Automatic extension for expats: U.S. citizens living abroad get an automatic extension until June 15, but interest on taxes owed starts accruing from April 15.
• Extended filing deadline: October 15 (requires filing Form 4868).

2. Determine your tax residency and obligations

• U.S. citizens and green card holders must file taxes on their worldwide income, no matter where they live.
• Determine if you qualify for tax benefits like the Foreign Earned Income Exclusion (FEIE) or the Foreign Tax Credit (FTC).

3. Track your foreign income

• Keep a record of all sources of income earned while living abroad, including freelancing, remote employment, or business profits.

4. Complete the right forms

• Form 1040: File your annual U.S. income tax return.
• Form 2555: Claim the FEIE if you qualify (up to $120,000 in 2023) and the Foreign Housing Exclusion/Deduction.
• Form 1116: Claim the FTC if you paid taxes to a foreign country.
• Schedule SE: Report self-employment income and calculate self-employment tax.
• FBAR (FinCEN Form 114): Report foreign bank accounts if the total exceeds $10,000 at any time during the year.
• Form 8938: Report specified foreign financial assets if the value exceeds certain thresholds.

5. Use the Physical Presence Test or Bona Fide Residency Test

• To qualify for FEIE, prove you spent 330 full days in a foreign country (Physical Presence Test) or demonstrate you are a bona fide foreign resident.

6. Pay your Self-Employment Taxes

• Digital nomads who are self-employed must pay Social Security and Medicare taxes on net earnings of $400 or more.

7. Submit your taxes electronically or by mail

• File your taxes online using the IRS e-file system or mail them to the appropriate IRS address.

11 Best Countries for Digital Nomads

1. Spain

Spain’s Digital Nomad Visa is for non-EU nationals who want to live and work remotely in Spain while working for foreign companies. It targets skilled professionals, entrepreneurs, and digital nomads, allowing them to contribute to the local economy without taking local jobs.

Key benefits include a reduced tax rate for the first four years. Residents (those staying over 183 days) are taxed worldwide, while non-residents are taxed only on Spanish income.

Eligibility requires:

• Proof of remote work for foreign companies (no more than 20% of income from Spain).
• A steady income of €2,000-€2,500 per month.
• Health insurance and a clean criminal record.

The residence permit is valid for one year and can be extended for up to five years, after which you can apply for long-term residency.

2. Portugal

3. Italy

The Italy Digital Nomad Visa, launched in April 2024, is designed for remote workers, freelancers, and digital entrepreneurs. It allows high-skilled professionals to live and work in Italy while serving clients or companies abroad.

Key tax benefits include non-resident status for those staying under 183 days, which is taxed only on Italian income. Residents are taxed on worldwide income.

To qualify:

• Applicants must work remotely for a foreign company or as freelancers.
• A minimum monthly income of €2,066 (or €24,789 annually) is required.
• Private health insurance and a clean criminal record are mandatory.
• Proof of accommodation in Italy is also required.

The residence permit is valid for one year and can be renewed.

4. Croatia

Croatia’s Digital Nomad Visa invites remote workers to enjoy the beauty of the Adriatic Coast and the country’s rich cultural history. The country’s economy benefits highly from the tourism and tech sectors, and the visa enables non-EU digital nomads to legally live and work in Croatia while conducting business for companies or clients abroad. Digital nomads are exempt from income tax for the first year of their stay in Croatia, making it a tax-friendly option for remote workers.

The requirements include:

• Proof of self-employment or employment with a foreign company.
• Minimum monthly income of €2,300 or savings of at least €27,000.
• Comprehensive health insurance.
• Proof of accommodation in Croatia.

The residence permit is non-renewable and valid for one year. Applicants must leave the country for at least six months before reapplying.

5. Malta

Malta’s digital nomad visa was launched in 2021. It offers remote workers the opportunity to live and work in one of Europe’s sunniest countries. With English as an official language, a strong healthcare system, and a rich cultural heritage, Malta is an attractive destination for digital nomads looking for a mix of work and leisure.

The program is tailored for non-EU remote workers who work for clients or companies outside Malta.  Malta does not tax income earned outside its borders, meaning digital nomads only pay tax on Maltese-sourced income, allowing them to keep more of their global earnings.

The requirements include:

• Proof of remote employment or self-employment.
• Minimum monthly income of €3,500 or €42,000 annually. 
• Health insurance is valid in Malta.
• Proof of accommodation (lease or ownership).

The residence permit is valid for a year and renewable, with eligibility for permanent residence after 5 years.

6. Estonia

Estonia is a renowned global leader in digital innovation. It launched its Digital Nomad Visa to attract remote workers and freelancers looking to experience the country’s advanced infrastructure and unique culture. This visa allows digital nomads to legally live in Estonia while working for employers or clients outside the country. It provides a legitimate pathway for remote professionals to enjoy its tech-forward environment and scenic Baltic charm.

Digital nomads staying less than 183 days in Estonia are not considered tax residents and, therefore, avoid Estonian taxes. If residency is established, income earned within Estonia becomes taxable under its flat 20% tax rate.

The requirements include:

• Proof of employment or freelance work with companies outside of Estonia.
• A minimum monthly income of €3,500 in the six months preceding the application.
• Health insurance that is valid for the duration of the stay.

The residence permit is also valid for one year and can be renewed for another year.

7. Greece

Greece’s Digital Nomad Visa is also designed to attract remote workers to its sunny Mediterranean shores. With its rich history, picturesque islands, and affordable cost of living, Greece is becoming a prime destination for digital nomads.

Digital nomads staying in Greece for less than 183 days annually are not subject to Greek income tax. Those who stay longer can benefit from a 50% tax reduction on their income for up to 7 years under Greece’s special tax regime for foreign workers.

This is what you need to qualify:

• Proof of remote work or self-employment for a company outside Greece.
• A minimum monthly income of €3,500.
• Health insurance that covers the duration of the stay.
• A clean criminal record from the applicant’s home country.

The residence permit is valid for one year and renewable for up to 3 years.

8. Czech Republic

The Czech Republic, with its stunning architecture and vibrant culture, offers the Zivno Visa tailored for freelancers and self-employed individuals. It’s ideal for those who want to live and work in cities like Prague, which is known for its digital nomad-friendly communities.

When it comes to taxes, digital nomads who stay less than 183 days are not subject to Czech taxes. Longer stays require registration as a tax resident, but freelancers can opt for a simplified tax system with lower rates.

The requirements include:

• Proof of self-employment or freelance work in fields eligible for a trade license (Zivno).
• A bank statement showing sufficient funds (approximately €5,500).
• Health insurance that is valid in the Czech Republic.
• A trade license application (Zivnostensky List).
• Proof of accommodation.

The residence permit is valid for one year and renewable for an additional year.

9. Mexico

Mexico offers a Temporary Resident Visa that caters to digital nomads looking to enjoy the country’s vibrant lifestyle. From its bustling cities like Mexico City to coastal gems like Playa del Carmen, Mexico combines affordability with culture and modern amenities. Similarly, digital nomads staying in Mexico for less than 183 days annually are exempt from Mexican income tax. Longer stays may require tax registration, but Mexico offers relatively low tax rates.

The requirements include:

• Proof of employment or freelance work for a foreign company.
• A minimum monthly income of $2,600 or savings of $43,000 over the last 12 months.
• Health insurance is recommended but not required.
• A clean criminal record.

The residence permit is valid for a year and renewable for up to 4 years.

10. Germany

Germany’s Freelancer Visa is designed for independent workers and remote professionals who wish to live in cities like Berlin, Munich, or Hamburg. It supports those working in creative, technical, or teaching professions while providing access to Germany’s excellent infrastructure. Germany taxes residents based on worldwide income. However, digital nomads can avoid this by staying in the country for less than 183 days.

To qualify you need:

• Proof of freelance or remote work in a recognized profession.
• A minimum bank balance of €5,000 to cover initial living expenses.
• Health insurance is valid in Germany.
• A business plan (for freelancers) demonstrating potential contributions to the German economy.

The residence permit is valid for six months to three years, depending on the applicant’s profession and financial stability, and is renewable upon expiration.

Tax-Friendly Countries for Digital Nomads

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

Do digital nomads have to pay US taxes?

Yes, U.S. digital nomads must file a federal tax return and pay U.S. taxes on their worldwide income, no matter where they live. They can use benefits like the Foreign Earned Income Exclusion (FEIE) or Foreign Tax Credit (FTC) to lower their tax liability.

What is a tax residency?

Tax residency determines where you can pay taxes on your global income.

Most countries define tax residency based on the time you spend there in a year—typically around 183 days. Understanding your tax residency and foreign assets helps avoid multiple taxation and ensures compliance with local rules.

Can digital nomads avoid double taxation?

Digital nomads can avoid it by taking advantage of tax treaties between countries.

These agreements often allow you to offset taxes paid in one country against your tax liabilities in another or exempt foreign income from local taxes. It’s important to file for tax relief under these treaties proactively.

Are digital nomads required to pay taxes at home?

This depends on your country of origin. Some countries, like the United States, tax nationals on worldwide income regardless of where they live, while others tax only on income earned within their borders. Always check your home country’s tax rules regarding foreign income and residency.

What kind of expenses can digital nomads typically deduct from their taxes?

Digital nomads can often deduct expenses directly related to their work, including travel expenses, equipment purchases (like computers and phones), software subscriptions, and possibly a portion of housing costs if their home doubles as their office.

Specific deductions can vary by country, so consulting with a tax professional is wise.

What tools or services can help digital nomads manage their taxes?

There are several tools and services designed to help with expat and nomad taxes, including:

Tax software: Programs like TurboTax International or H&R Block Expat Tax Services offer tailored services for filing in multiple countries.

Professional accountants: Hiring a tax professional specializing in expat tax can provide personalized advice and ensure you are fully compliant while minimizing your liabilities.

Financial apps: Apps like Expensify or QuickBooks can help track expenses and income, making it easier to file accurate tax returns.

Do digital nomads have to pay US taxes?

Yes, U.S. digital nomads must pay U.S. taxes on their worldwide income, regardless of where they live, but they may qualify for the Foreign Earned Income Exclusion (FEIE) or tax credits to reduce their tax burden.