“Digital nomads” are entrepreneurs who work remotely outside their home country. They often change geographical locations, choosing the most convenient and economically beneficial places for freelancing and launching startups. Since remote workers can earn income in one country while being territorially located in another, the issue regarding the specifics of taxing digital nomads remains relevant. Let’s delve into it further.
What types of taxes are provided for freelancers
Taxes for Visa Digital Nomad holders
Digital nomads not only organize their professional activities independently but also contribute to the budget of the country that issued the nomad visa. The main expense item for the self-employed is personal income tax (PIT).
Additionally, entrepreneurs working remotely contribute to social insurance (if there is no agreement on mutual offsets for insurance between the country where the freelancer is a resident and the state that issued the Digital Nomad visa).
For entrepreneurs planning to implement startups, value-added tax (VAT) is also provided. This type of tax is levied on the sale of goods or services.
Where should a freelancer pay taxes: general rule
The legislation of most countries in the world provides for the territorial principle of taxation. It obliges remote workers to make fiscal contributions in the country where they are actually residing. In the digital nomad community, there is a belief that if you travel regularly and do not stay in one country for more than 183 days, then the freelancer bears no tax burden. However, such behavior tactics can lead to both administrative and criminal liability. Even if the nomad visa holder timely fulfills obligations to pay fees and charges aimed at replenishing the treasury, they may face the issue of double taxation.
Despite the fact that Russia has concluded more than 80 agreements that eliminate the principle of double taxation, some of them are currently suspended due to the deterioration of the international situation and the introduction of new sanctions. Russia has suspended agreements with 38 unfriendly states (such as the Czech Republic, Poland, Canada, the USA, the Netherlands, Denmark, Latvia, and others).
To rid oneself of the taxpayer status of the country whose citizen is a digital nomad, it is not enough to move to the state that issued the digital nomad visa. It is necessary to inform the tax authority about the change of residence. Only after receiving a document confirming deregistration from the tax office in the home country, the freelancer can avoid the recovery of additional fees and charges.
Income tax rates in different countries
In order to increase competitiveness, some countries do not impose income tax on remote workers. For example, a zero income tax rate is in effect in the UAE, Bermuda, Barbados, Argentina, Antigua and Barbuda, and Cape Verde. However, it is necessary to remember the principle of double taxation. In particular, there is an official agreement between Russia and the UAE on the absence of double taxation, but it does not apply to the entrepreneurial activities of nomads. If a digital nomad works remotely while being employed by a domestic company, they will pay PIT (from 13 to 15%) into the Russian budget until they change their tax resident status, which mainly occurs after permanent residence in a foreign country for at least 6 months.
In many EU countries, a progressive scale of taxation is provided for digital nomads. The amount of PIT depends directly on the amount of income received during the reporting period (year). European authorities may also provide tax payment benefits (for example, during a certain period, a digital nomad is exempt from the obligation to transfer PIT to the budget).
Let’s look at the income tax rates in some European countries.
Spain
The tax resident status of a nomad is acquired after permanent residence in the Kingdom for at least 183 days. The Spanish authorities have introduced the following income tax rates for digital nomads:
- 19% (annual income – less than 12,449 euros);
- 24% (annual income – from 12,450 to 20,199 euros);
- 30% (annual income – from 20,200 to 35,199 euros);
- 37% (annual income – from 35,200 to 59,999 euros);
- 45% (annual income – from 60,000 to 299,999 euros);
- 47% (annual income – over 300,000 euros).
Freelancers can optimize the amount of contributions to the Kingdom’s budget by using amendments to national legislation (the Beckham Law). This regime sets unified rates at 24% and 47% PIT (for annual income up to 600,000 and over 600,000 euros, respectively).
An entrepreneur in the status of a self-employed person pays VAT provided that their client is registered in a country that is a member of the EU. The amount of contributions to social insurance ranges from 225 to 530 euros (depending on the amount of profit, the specifics of entrepreneurial activity, and the age of the digital nomad).
Hungary
The obligation to pay income tax for the holder of the White Card arises after 6 months of permanent residence in the Hungarian state. Digital nomads pay PIT at a rate of 15%. Options for tax regimes and the amount of contributions to the social fund are described here.
Greece
The Greek authorities have also provided for a progressive scale of taxation for foreign guests working remotely. Greek legislation introduces the following PIT rates:
- 9% (annual income – less than 10,000 euros);
- 22% (annual income – from 10,001 to 20,000 euros);
- 28% (annual income – from 20,001 to 30,000 euros);
- 36% (annual income – from 30,001 to 40,000 euros);
- 44% (annual income – over 40,000 euros).
Self-employed individuals can take advantage of a special tax regime that allows them to reduce their personal income tax (PIT) base by 50% for up to 7 years while staying in Greece.
Expenses for social insurance for freelancers amount to 15.75% of earnings.
The VAT rate for startups is set at 24% (for certain categories of goods and services, such as elderly care, it is 13%).
Italy
Freelancers working remotely on the territory of the Italian Peninsula pay taxes to the Italian budget on general grounds. The amount of fiscal payments depends on the annual income. The tax system of the country provides for the following progressive scale:
- 23% (annual income – less than 28,000 euros);
- 35% (annual income – from 28,001 to 50,000 euros);
- 43% (annual income – over 50,000 euros).
Self-employed individuals as tax residents enjoy all social guarantees and can count on state pension benefits. Contributions to extrabudgetary funds amount to 24 – 27.5% of monthly earnings.
Netherlands
The question of granting tax resident status to a freelancer in the European state is resolved by analyzing a range of circumstances. In particular, they ascertain the citizenship of the digital nomad, their permanent residence, economic ties with the Dutch state where the self-employed person has bank accounts. For those working remotely, a progressive taxation scale has been introduced:
- 9% (annual income – less than 37,149 euros);
- 36% (annual income – from 37,150 to 73,031 euros);
- 49% (annual income – over 73,031 euros).
When determining the amount of PIT, existing benefits and deductions are applied.
The VAT rate for self-employed entrepreneurs varies from 0 to 21% (depending on the category of services provided). If the annual turnover of an individual entrepreneur did not exceed 20,000 euros, they are automatically exempt from paying value-added tax.
Digital nomads contribute 27.5% of earnings to social insurance, provided that the annual income does not exceed 37,149 euros. They also pay contributions for medical services – 5.43% of earnings.
Montenegro
The obligation to pay taxes for a digital nomad arises after permanent residence in the Balkan state for at least 6 months. The amount of PIT in Montenegro depends on the annual income. Local legislation provides the following tax scale:
- 0% (annual income – less than 8,400 euros);
- 9% (annual income – from 8,401 to 12,000 euros);
- 15% (annual income – over 12,001 euros).
Differentiated tax rates are applied in some regions (Budva – 10%, Bar – 13%, Cetinje and Podgorica – 15%).
The VAT rate for entrepreneurs is 21% (if the annual income does not exceed 30,000 euros, value-added tax is not levied).
In addition, freelancers pay contributions for pension provision and insurance covering the risk of disability, amounting to 20%.
Is it worth it for a freelancer to obtain tax resident status
Upon arrival in the country that issued the nomad visa, the digital nomad is recommended to register with the tax authority. Countries that have provided for the format of remote work for foreigners at the official level are interested in replenishing the budget through the entrepreneurial activities of freelancers. In the foreseeable future, the legislation of most countries will be adapted to ensure that nomads do not have the legal opportunity to evade taxes.
