Digital Nomads, their Employers and Tax

by J Laurence Sarno

Put “workation” into your search engine, and any number of businesses will pop up that offer accommodation in lovely locations that cater to remote workers. With ever more people working remotely, many are looking at telecommuting from a beautiful or exciting spot.

There has been a steady increase in countries offering visas to digital nomads, individuals who travel for the majority of the year and take their work with them. In July 2021 Investopedia had published an article that lists a variety of countries that are offering these visas and how to obtain one.

Some of these locations are very desirable, such as Antigua & Barbuda, the Bahamas and Curaçao.

However, having permission to be in a country is only half the story.

Immigration and tax rules are not the same

Let’s start with the case for individuals. Digital nomads must consider two sets of regulations when planning to spend considerable time in a country: immigration status (what their visa permits) and that country’s tax rules.

In addition to having immigration regulations, every country has rules about how long an individual can be in a country before they are considered a “tax resident”. Once you cross that threshold, you may be liable for tax on your income.

Furthermore, your tax liability could be anything from a small amount to tax on 100% of your yearly income, regardless of where you earned it. Yikes. If you then also have to pay tax to your official country of residence, you may not be left with much.

Example: Croatia

Croatia — which has stunning holiday locations on the Adriatic coast — has a visa waiver scheme for digital nomads. If you meet their financial criteria and your application is successful, you and your immediate family members may stay in the country for up to one year. You can’t extend this visa waiver, but you can re-apply after six months.

However, Croatia will consider you a resident taxpayer if you meet one of the following conditions:

• You have real estate in your ownership or at your disposal for an uninterrupted period of at least 183 days in one or two calendar years in Croatia, or
• You are physically present in Croatia for at least 183 days in one or two calendar years.

According to the Republic of Croatia Tax Administration, residents are taxed on their worldwide income on a scale from 20% to 30%. Non-residents are solely taxed on income sourced in Croatia. So,

• If you live and work remotely in Croatia, and
• Your income isn’t earned in Croatia, and
• You stay for less than 183 days,
• You won’t owe any Croatian tax.

So even though the Croatian immigration authorities have allowed you to stay for a year, if you stay for more than 183 days, you’ll owe tax on your worldwide income.

If you want to know the general tax residency rules for most countries, you can use our free Country Tax Lookup.

Your business could be tax liable, too

For individuals, the status you want to avoid is “tax resident”. For companies, it’s a “permanent establishment”.

In the majority of countries, there is a rule as to how many days all your employees combined can be there before your organisation is classified as a permanent establishment. Once you exceed that number, your company may be liable for tax or fines.

If you’re planning to let your employees work remotely from abroad, you need to consult an international tax specialist, to be sure your employees don’t go over the limit in any one country.

Digital nomads are already travel savvy — they, and their employers, also need to be tax savvy.

About Laurence

J Laurence Sarno is co-founder and CMO of Mia Bazo. He took seven deep-tech startups from pre-launch to merger, acquisition or IPO. Although he holds a degree from New York University, he learned his craft in the marketplace, with such clients as Arm, Cadence, GSMA, Nokia, Sun Microsystems and the Symbian Foundation. Laurence led his first socially responsible company in the late 1970s and is passionate about ESG (Environmental, Social, Governance).