As a digital nomad lifestyle becomes more popular, understanding the digital nomad taxes and main requirements for the visa is essential, especially for those, who dream about living abroad and working remotely. Depending on the country you want to live in, the main requirements, eligibility criteria, and tax rates will be different.
In this article, we’ll cover how tax residency works for digital nomads, what are the most popular digital nomad destinations, and the key considerations for digital nomads.
Key Takeaways
- Most countries define your tax residency based on the rule of days (how many days are you residing in their country) or the center of vital interest (where you have main economic and personal ties).
- The most popular digital nomad destinations include Albania, Cyprus, Romania, the Czech Republic, and Malta.
- Depending on the country you choose, digital nomad taxes and visa requirements will be different.
- Before applying for a digital nomad visa, learn about the country's tax residency (how it’s defined whether you’re a tax resident, or not), double taxation, and tax rates.
How Tax Residency Works for Digital Nomads
A digital nomad visa is a type of visa that allows its holder to reside in a foreign country while working for an employer located in another country. Nomad List states, there are over 65 million digital nomads in the world.
Like other employees and workers, digital nomads are also subject to paying taxes. These taxes are also known as digital nomad taxes. However, defining the tax residency can be a bit tricky, as there are some rules that need to be considered. Here are some of them:
- The Rule of Days: There are many countries that state that if you’ve spent more than 183 days there, you become a tax resident. These countries include Canada, Malta, the United Kingdom, and Australia. For some countries, the number of days may be different. For example, you become a tax resident in Cyprus, if you’ve spent at least 60 days there.
- Center of Vital Interest: Unlike the “Days rule”, determining someone’s tax residency depending on the center of vital interest may be a bit difficult. It looks at where you have main personal and economic ties, such as where your family is, where you work, or own property. The country that has the strongest ties, may consider you as a tax resident.
In 2024, there will be over 50 countries with digital nomad visas. However, the requirements and benefits of this visa are different for each of the countries. Some of them may require you to pay full tax, while others will have special rates or tax reductions. There are even a few countries that offer no taxes for digital nomads.
Taxation in Popular Digital Nomad Destinations
Expats are always wondering which is the best country for digital nomads. To find the answer, they usually concentrate on factors such as the quality of life, access to education and healthcare, cost of living, cultural and leisure activities, and of course tax benefits. The last point is considered the most important one. Let’s have a closer look at taxes for digital nomads in popular destinations.
Albania
Digital nomads who’ve decided to live in Albania and become tax residents there will be taxed on their worldwide income. However, Albania has signed double taxation treaties (DTTs) with 46 countries, which will reduce the risk of being taxed twice.
Digital nomads, whose income is under 14 million LEK (approximately €135k) annually, are exempt from income taxes. If the income is above the mentioned amount, they’ll need to pay 15% income tax. However, if they are working in industries like software production or development, the income tax will be reduced to 5%. The corporate tax rate is also 15%.
Albania also has an 8% withholding tax on dividends. Besides these digital nomad taxes, Albania requires digital nomads to make social contributions for around €450 per month.
Cyprus
Because of its favorable tax system, Cyprus is considered one of the best countries for digital nomads. After becoming a tax resident, you can benefit from the following:
- No tax on dividend income or capital gains from the sale of shares, bonds, or other financial instruments.
- A 50% tax exemption for foreign workers whose income is above €55,000 annually.
Cyprus has a progressive personal income tax rate, reaching up to 35%. As for the corporate income rate, it’s 12.5%. Social contributions are 15.6% but have a tendency to become 20.4% by 2039. The withholding tax on dividends is 2.5%.
Romania
Thanks to its low cost of living and low digital nomad taxes, Romania is becoming one of the key destinations in Europe. The country has a 10% personal tax rate, which is very low compared to many other European countries. However, the social contributions are one of the highest, 25%.
As for the corporate income tax, it’s 16%, decreasing to 1% for micro companies.
Dividends are taxed at 8%.
Czech Republic
The Czech Republic has a progressive personal income taxation system. As a digital nomad, you'll need to pay 15% on annual income up to 1.5 million CZK (~€59,000). If the annual income increases this rate, you’ll need to pay 23%. It’s important to mention that you can benefit from a lump sum cost deduction of 60%, which significantly reduces your taxable base.
The lump sum taxation is created for those, who have a low income. This regime has 3 categories:
1st category: For the revenue up to €42,000, your lump sum tax rate (personal income tax + social contributions) will be €260/month or €3,120/year.
2nd category: For the revenue up to €63,000, your lump sum tax rate (personal income tax + social contributions) will be €675/month or €8,100/year.
3rd category: For the revenue up to €84,000, your lump sum tax rate (personal income tax + social contributions) will be €1,095/month or €13,140/year.
The corporate tax rate is 21%. As for the dividend tax, it’s 15%.
The amount of social contributions is up to 29.2%.
Malta Digital Nomad Visa and Tax Implications
Malta is considered one of those countries that have favorable digital nomad visa taxes.
Launched in 2021, Malta’s nomad residence permit was designed for non-EU remote workers who want to move to Malta. The digital nomad visa in this country has a 1-year length and can be renewed if you still meet the requirements.
As an applicant, you can also include your dependents in the application. The application fee is €300. If you want to be eligible for Malta’s digital nomad visa, you should earn at least €2,700 per month.
The personal income tax rates are progressive, from 0% to 35%. The income rate is 15% for income over €9,100 and reaching up to 35% for income above €60,000. The corporate tax rate is 35%, but Malta suggests a 6/7th refund on dividends, which reduces the corporate tax to just 5%. As for the social contributions, for self-employed individuals, it’s 15%, with a maximum of €78 per week. If you establish your own company, each of you will need to pay 10% for social contributions, with a maximum €52–€104 per week.
Malta also has double taxation agreements with many countries, reducing the risk of being taxed twice. This means that nomads don’t have to pay income taxes in Malta as long as they pay back home.
As we’ve already mentioned before, the requirements for being granted a digital nomad visa are different for each of the countries. As for Malta, the main requirements include:
- To be a citizen of a 3rd country,
- Have an income of at least €2,700 per month,
- Be an employee of a company that’s established outside Malta.
The application process may be tough and overwhelming, that’s why it’s always advisable to consult with a professional agency, that can guide you through the whole process, making it hassle-free.
Key Tax Considerations for Digital Nomads
As a digital nomad, here are the key tax considerations that you’ll need to take into account:
- Tax Residency: Understand how tax residency is determined. Is it based on the 183-day rule, the center of vital interest, or something else?
- Double Taxation: There are many countries that have double taxation agreements (DTA), preventing you from being taxed twice. Learn about the country’s DTAs before applying for a digital nomad visa.
- Tax Rates: What are the mandatory taxes that need to be paid? How much are the tax rates? Is the income tax rate progressive, or not? Can you have a lump sum taxation and reduce the amount of taxed revenue?
How Mirabello Consultancy Can Help Digital Nomads
Mirabelo Consultancy offers support and guidance for those who want to obtain a digital nomad visa. Once you contact our experts, we’ll explain to you how to get a digital nomad visa, and what are the main digital nomad visa requirements.
First of all, we’ll help you choose the right country for you, providing personalized recommendations based on your needs. Secondly, we’ll go through the eligibility criteria and main requirements for obtaining visas, such as income thresholds, health insurance, proof of remote employment, and clean criminal records.
Afterward, we’ll give you step-by-step guidance on preparing necessary documents, such as proof of income, work contracts, and passport copies. During this process, our agents will also help you find an accommodation that matches your preferences. Once all of this is done, we’ll help you fill in your application and follow up with the authorities until your visa is approved.
FAQ
What is double taxation, and how can I avoid it?
Double taxation means that you've paid for the same tax twice (in 2 different countries). This typically happens when you have corporate profits or international income. To avoid this, use tax treaties, and foreign tax credits, or take advantage of exemptions for expatriates or dividend exclusions.
Can I qualify for tax exemptions if I live abroad?
Yes, you may qualify for tax exemptions if you live abroad. There are many countries that suggest tax relief for expats. Tax treaties between countries can also help reduce double taxation.
How does Malta’s tax regime benefit digital nomads?
Malta has a low income tax rate, which is very beneficial for digital nomads. Additionally, Malta only taxes the income that has been earned within its territory, meaning that foreign income isn’t taxed.
What happens if I become a tax resident in two countries?
If you become a tax resident in two countries, you may be required to pay taxes in both of the countries. To make the situation beneficial for the resident, many countries have tax treaties, which means that they decide which country has the right to make you a subject of taxation. The problem is usually resolved based on the factors such as the “Days rule” and the center of vital interest.
Conclusion
In this article, we’ve talked about how tax residency is determined, what are double taxation agreements, and local tax rates. Countries like Albania, Romania, and the Czech Republic come with beneficial digital nomad taxes, offering double taxation treaties (DTTs), tax rate reductions and lamp sum taxation. From carefully planning which country to reside in, to preparing documents for the visa application, Mirabello Consultancy’s agents are always ready to help you.
