In this article, you will find out where you have to pay taxes as a digital nomad, and if you have to pay taxes at all.
The basic criteria on where you have to pay your taxes depend mainly on the following criteria:
Your permanent residency.
The place where you have registered with authorities.
How much time you spend in a certain country.
Where your center of personal and economic interest is located.
Where your spouse or children live.
As you see, these criteria can be combined in many different ways, so the answer is not directly obvious. So we will quickly go through each one to see which implications they have on the decision where you will have to pay taxes.
If you are a citizen of the United States of America or Eritrea, you are always taxed based on your citizenship, so just moving to another country does not free you from paying taxes in your country. However, there are some exceptions like the US Foreign Income Exclusion that will not tax income below a certain threshold. Everything you earn above this limit, will be taxed in your country of citizenship, but double taxation treaties may apply.
Your permanent residency
Permanent residency here does not refer to the place where you actually reside, but where you have received a permanent residence permit. Some countries make you a tax resident at the same moment they hand you your new residence permit, even if you do not live continuously in that country, so you might want to chose wisely in which country you apply for permanent residency.
The place where you have registered with authorities
Some countries have laws that force you to register with the town or city where you rent an apartment or buy a home. In some cases this registration is also implying that you become a resident and taxpayer of this country. For example if you buy a home in Mexico, even if you do not live in it a single day, might make you a Mexican taxpayer just by registering the property in your name with the local authorities.
In some countries you are a tax resident until you de-register with local authorities, even if you do not spend a single day in the country.
How much time you spend in a certain country
This one is the most popular category, and also the one that leads to most misunderstandings regarding this topic.
The most well-known rule among digital nomads is the so-called 183 days rule.
This rule states that you become a resident of a certain country if you stay for 183 or more days in a (calendar) year in any given country. The number of 183 comes from the mathematical logic, that in a normal year of 365 days you can only spend 183 days in one country, not in two countries because 183 x 2 = 366. There are some exceptions where you may actually spend 183 days in two countries in a year, involving leap years, the international date line, time zones, etc. but these rare occasions are out of the scope of this introductory article.
The misunderstanding with this rule is, that it does not work in reverse, meaning that while staying 183 days or more definitely makes you a tax resident of that country, staying less than 183 days does not guarantee that you are not a tax resident. This usually correlates with the next two topics, the center of your personal and economic interest is located and where your spouse and children spend their time.
The center of your personal and economic interest
This is the place where you have the most ties to, being it that you have bought a house there, rented an apartment for a full year, are a member of the local golf club, visit a baseball match every Saturday, have a contract as an employee, etc.
So even if you de-register with the authorities but keep living in a country, your tax residency will stay in this country.
Where your spouse and children live
If you are married and have children, usually the place where your family members live also becomes your place to pay taxes. So if you leave your spouse and children behind and travel the world, the country where they live may still list you as one of their tax residents and will ask for your tax return and your hard earned money. Keeping your spouse and children in Belgium and moving to Dubai (no matter if for real or on paper) will usually not be enough to relinquish the high taxes of Belgium.
When in doubt…
If you checked all the criteria and you have more than one country on your list that might be the place where you pay taxes, it is time to study double taxation treaties, that usually have many rules in which case you will have to pay taxes in each country. If there is still a tie, the country where hold citizenship in wins, if it is on that list. If not it is up to the governments of these countries to sort this out.
Can I pay no tax at all?
There are two main ways to pay no tax at all.
The first one is to simply trigger none of the above mentioned conditions in any country. However, this only works for a small list of nationalities. Some countries, e.g. Germany and Austria, do not require their citizens to prove that they are tax resident in another country. When they de-register from their local authorities, leave the country, stay less than 183 days and neither have their center of personal or economic interests nor spouses and children there, they are no tax residents of that countries any more and their government does not care if and where they pay taxes somewhere else. Other countries, e.g. Spain, require their citizens to first submit proof that they are a tax resident of another country before they are released from their Spanish tax residency.
The second one is to acquire permanent residency or citizenship of a country with no taxes or a territorial taxation regime and, in the latter case, structure your income in a way that you do not earn local income in that country.
If you still have doubts where you have to pay your taxes or a looking for ways to change your current situation, book your personal consultation today, and you will receive your individual solution.