For years digital nomads had the unfortunate reputation for being tax-dodging techies living movie-worthy lives in low-cost tropical locales. Today there is a legal way to pay little to no local income tax. Many of the new digital nomad visas now offer this amazing tax benefit. Imagine, being able to stay in a country of your choice for a year and not having to pay local taxes!
Today’s digital nomads are a diverse group of remote workers who choose the lifestyle because they love to travel. With the rise of remote work during the pandemic, the digital nomad lifestyle became available to a larger portion of the workforce.
Several countries are now offering digital nomad visas with tax incentives to lure these remote workers in the hopes of boosting local economies. With these new digital nomad visa programs, remote workers can now reap the benefits of reduced taxes while they explore the world.
This article will explain how these digital nomad visa tax incentives work and which countries offer them.
Disclaimer: The information in this article is provided for general information purposes only. It is not meant to represent legal, financial, medical, or other professional advice. Deskless Nomad makes no representations, warranties, or guarantees, whether express or implied, that the content in the publication is accurate, complete, or up to date. Please see the full Deskless Nomad Disclaimer.
How do digital nomad visa tax incentives work?
Digital nomad visas are visas that allow digital nomads and remote workers to legally work while staying in a country longer than a typical tourist visa. Most digital nomad visas are for 1 to 2 years. There are many pros and cons to digital nomad visas. The ability to stay in one country longer and have reduced taxes are the two biggest advantages.
Several countries offer long tourist visas but these do not come with tax benefits.
While on a digital nomad visa you continue to work for your employer based in your home country or as a self-employed person. You must earn your income outside of the host country.
Most digital nomad visas do not permit you to do work for any individuals or companies located in the host country. There are a few exceptions which I discuss in my article on the pros and cons of digital nomad visas.
After 183 days you become a tax resident in your new host country and you are no longer a tax resident in your home country. With a few exceptions, your income is now subject only to the rules of the digital nomad visa. If you are American see the next section.
If the digital nomad visa program has the benefit of no taxes then you pay no taxes to the host country. Instead of no taxes, some countries offer a greatly reduced tax rate for their digital nomad visa holders.
How do digital nomad visa tax incentives work for Americans?
If you are an American, you will still need to file income taxes with the IRS no matter where you live or travel in the world. Luckily, you may not actually owe any taxes on your earned income due to special deductions.
Combining a tax-free digital nomad visa with tax deductions like the foreign earned income exclusion and foreign housing exclusion can provide HUGE tax savings.
Digital nomad taxes for Americans can be complicated. It is important to understand how they work in order to get the greatest benefit. To learn more see our tax guide for digital nomads and consult a tax professional.
How do you take advantage of digital nomad visa tax benefits?
You must have a remote job
You must have a remote job where you can perform your duties remotely online. If you do not currently have a remote job, you can ask your current boss to go remote. Or you can find a new remote job that allows you to work from anywhere. You can also start a freelance business.
Get a digital nomad visa
Apply for and obtain a digital nomad visa in a country with a tax incentive. Each country has its own eligibility requirements for applicants so make sure to review these carefully. Check out Deskless Nomad’s digital nomad visa index for details on the available digital nomad visas.
Meet the physical presence test
If you are an American, you must stay outside of the US for at least 330 days within a 12-month consecutive period. Days spent traveling to or from the US in an airplane don’t count.
Earn income while physically outside of the United States (if you are American)
You must earn income while physically outside of the United States. It doesn’t matter who pays you, where the payer is located, or where that money is deposited, it is considered foreign earned income if you are physically located outside of the US.
Use the foreign earned income exclusion
According to the foreign earned income exclusion, you do not have to pay US federal taxes on the first $112,000 (for 2022) of your foreign-earned income as long as you meet the physical presence test and are out of the US for those 330 days mentioned above.
Follow the tax rules of the digital nomad visa
For American citizens and green card holders, the first $112,000 of income you earned while in another country is only subject to the tax rules of the digital nomad visa. If your digital nomad visa has the benefit of no income tax then you do not pay tax to your host country on any of your earned income.
If you are not American you will need to look at your own country’s tax laws. Most often, if you become a tax resident in your host country then you do not owe taxes to your home country.
If you are self-employed you may still owe self-employment taxes
If you are American and self-employed, unfortunately, you do not get to exclude your income from self-employment taxes. You still need to pay self-employment taxes (Social Security + Medicare) on your income per usual. Read more about self-employment taxes for digital nomads.
Use the foreign housing exclusion for income above the foreign earned income exclusion
You may owe US federal tax on any foreign earned income above the $112,000 threshold. But you may still be able to exclude some of it by using the foreign housing exclusion (max of $15,680 for 2022) for housing expenses like rent.
Don’t forget about state taxes
You may still owe state taxes depending on which state you last lived in prior to leaving the United States and if you retain any financial or personal ties there (house, driver’s license, registered to vote, bank account, etc).
Which countries have tax-free digital nomad visas?
One of the most enticing aspects of digital nomad visas is the tax benefits. But not all digital nomad visas treat taxes the same. Some countries still collect income taxes from digital nomads but at a greatly reduced rate.
Beware that there are several digital nomad visas that don’t specify how or if digital nomads will be required to pay local income taxes. You will definitely want to consult a tax specialist before applying to those programs to avoid any unpleasant surprises.
Also note that some digital nomad visas will require proof that you are filing taxes in your home country, even if you don’t owe taxes to your country.
Many people wonder which country is the best for digital nomad taxes. The best country for digital nomad taxes will depend on which of the countries listed below is one where you actually want to live.
These are the countries that offer tax-free digital nomad visas:
- Antigua and Barbuda
- Bahamas (No income tax for residents either)
- Bermuda (No income tax for residents either)
- Cabo Verde
- Cayman Islands (No income tax for residents either)
- Costa Rica
- Iceland (stay up to 183 days and pay no local tax)
- Indonesia (Bali)
- UAE (Dubai) (No income tax for residents either)
Which countries offer digital nomad visas with reduced taxes?
There are several countries offering digital nomad visas with reduced tax rates when you work remotely. In these schemes, you may not have to pay taxes on a portion of your income. Or you may be subject to lower tax rates when you work remotely than would be typical for residents of that country. Alternatively, you may only need to pay tax on money earned in that country but not on your worldwide income.
These are the digital nomad visa programs with reduced taxes:
- Cyprus (50% of income excluded from local income taxes)
- Estonia (stay up to 183 days and pay no local income tax)
- Georgia (if you are an entrepreneur, only 1% of business gross revenue is taxed)
- Greece (50% of income excluded from local income tax and social security payments)
- Italy (70% of income excluded from local income taxes, 90% of income excluded from local income taxes if you reside in one of the sparsely populated central or southern regions)
- Malta (tax exemption for worldwide income but income earned from Malta sources is subject to local income tax; no tax on capital gains)
- Panama (only income from Panamanian sources is subject to local income tax)
- Portugal (no tax on overseas income; 20% tax rate on income earned in Portugal as opposed to progressive residential tax rate)
- Spain (15% income tax rate as opposed to progressive residential tax rate)
As you can see, the tax benefits of digital nomad visa programs are very enticing. You can save a lot of money on your taxes by working remotely and choosing a digital nomad visa with tax incentives. But you shouldn’t choose a digital nomad or remote work visa just for the tax breaks. Make sure you choose a country where you want to live and/or one that you could use as a base to explore a region.
Are you ready to live the digital nomad lifestyle and take advantage of the amazing tax benefits of digital nomad visas? Tax breaks are just one of the many benefits of the digital nomad lifestyle. Take the next step and start browsing the available digital nomad visas around the world in Deskless Nomad’s Complete Index of Digital Nomad Visas Around the World.