Tax & Residency Guide

Tax compliance is one of the most complex aspects of digital nomad life. With the ability to work from anywhere, determining where you owe taxes becomes challenging. Many nomads incorrectly assume they're exempt from taxation simply because they're mobile, when in reality, tax obligations depend on residency status, citizenship, income source, and time spent in each country.

Understanding Tax Residency

Tax residency determines which country has the right to tax your global income. Most countries use one or more of these tests: the 183-day rule (physical presence), permanent home test (where you maintain accommodation), or habitual abode test (your strongest personal and economic connections). Some countries like the United States tax based on citizenship (FATCA), meaning Americans pay taxes on worldwide income regardless of residency.

Double Taxation Treaties

Tax treaties prevent you from paying income tax twice on the same earnings. These agreements define which country has primary taxing rights and outline relief mechanisms. For example, if you're a UK citizen living in Portugal, the UK-Portugal tax treaty determines whether your remote work income is taxed in the UK, Portugal, or both. The OECD Model Tax Convention provides the framework most treaties follow.

US Tax Obligations (FEIE and FTC)

US citizens and green card holders must file US tax returns regardless of residency. The Foreign Earned Income Exclusion (FEIE) allows Americans abroad to exclude up to $126,500 (2024) in earned income from US taxation, provided they meet either the Physical Presence Test (330 days outside USA in 12-month period) or Bona Fide Residence Test. For incomes above the exclusion limit, the Foreign Tax Credit (FTC) provides dollar-for-dollar credits for taxes paid to foreign governments.

Tax-Friendly Nomad Destinations

Several countries offer tax advantages specifically to attract digital nomads. Portugal's Non-Habitual Resident (NHR) scheme provides 10 years of tax exemptions or reductions on foreign-sourced income. Estonia offers e-residency with territorial taxation (only tax Estonian-source income). The UAE and many Caribbean nations impose zero income tax. Understanding these programs' requirements, limitations, and reputational risks is essential before committing to a tax strategy.