Tax planning for digital nomads and remote workers: A guide to keeping your money

Let’s be honest. The dream of working from a beach in Bali or a cafe in Lisbon is incredible. The reality of figuring out your taxes from that same beach? Not so much. For digital nomads and remote workers, tax planning can feel like navigating a labyrinth without a map. One wrong turn and you could face double taxation, penalties, or a mountain of paperwork.

But here’s the deal: it doesn’t have to be that way. With a bit of foresight, you can transform tax season from a nightmare into a manageable—dare we say, empowering—part of your financial life. Let’s dive into the world of tax residency, foreign income, and smart strategies for the location-independent professional.

The cornerstone of nomadic taxes: Tax residency

Forget about where you were born for a second. The most important concept you need to grasp is tax residency. This is the country that has the primary right to tax your worldwide income. It’s your fiscal “home base,” and it’s determined by a complex mix of factors that vary by country.

Countries generally use one of two main systems to claim you as a resident:

• The 183-Day Rule (Physical Presence Test): This is the most common one. If you spend 183 days or more in a country during a tax year, you’re typically considered a tax resident there. It sounds simple, but tracking those days across multiple time zones is crucial.
• The Ties Test (Substantial Presence Test): Some countries, like the US, use a more nuanced approach. They look at your “ties”—do you have a home there? A family? A bank account? A driver’s license? It’s a points-based system where you can be a resident without hitting the 183-day mark.

And here’s the kicker: you can be a tax resident in more than one country at the same time. This is the dreaded double taxation scenario, where two countries want a slice of your income pie. Thankfully, many countries have Double Taxation Agreements (DTAs) to prevent this, but you have to be proactive.

Common tax setups for the remote worker

Your tax situation isn’t just about where you are; it’s about your employment structure. This is where things get… interesting.

The US citizen or green card holder

If you’re American, you live under the unique and heavy shadow of citizenship-based taxation. The US is one of the only countries that taxes its citizens on their global income, no matter where in the world they live. You can’t just run away from the IRS.

That said, there are lifelines. The Foreign Earned Income Exclusion (FEIE) allows you to exclude a certain amount of your foreign-earned income from US tax (over $120,000 for 2023). Alternatively, the Foreign Tax Credit (FTC) gives you a dollar-for-dollar credit for taxes you’ve paid to another country. These are powerful tools, but the paperwork—Form 2555, anyone?—is no joke.

The freelancer or business owner

This is where you have the most control. If you’re a freelancer or run your own company, you can structure your business for tax efficiency. Many nomads set up a legal entity—like an LLC in the US or a Ltd in the UK—in their home country or a jurisdiction with favorable tax laws.

You invoice clients through this entity, pay yourself a salary or dividends, and handle your taxes through the corporate structure. It adds a layer of complexity, sure, but it can also offer significant liability protection and tax advantages.

The employee of a distributed company

More and more companies are embracing a “remote-first” culture. But this creates a tax and legal nexus for the employer in the countries where their employees reside. To manage this, many companies use a Global Employment Organization (GEO) or an Employer of Record (EOR).

In this setup, the EOR is your legal employer in your country of residence. They handle your payroll, benefits, and local tax withholdings. For you, this is the simplest option—it’s like having a traditional job where taxes are handled for you. The burden is on your company to get it right.

Proactive strategies to keep more of your income

Okay, enough with the problems. Let’s talk solutions. You’re not powerless here. In fact, with some planning, you can legally optimize your tax situation.

• Track Everything, Meticulously: I mean everything. Travel dates, receipts for business expenses, income in different currencies. Use an app, a spreadsheet, a bullet journal—whatever works. This data is your first line of defense.
• Establish a Tax Home: This is a tricky but vital concept for claiming the FEIE. The IRS wants to see that you have a “tax home” in a foreign country, which generally means you have a regular place of business abroad and your abode is not in the US. Maintaining economic and personal ties in a specific foreign location can strengthen your case.
• Consider Territorial Tax Countries: Some countries, like Panama, Malaysia, and Georgia, only tax the income you earn within their borders. Your foreign-sourced income is tax-free. For a nomad with international clients, this can be a game-changer.
• Don’t Forget State Taxes: If you’re from the US, your state might still claim you as a resident even if the federal government recognizes you as abroad. States like California and New York are notoriously strict about relinquishing tax residency. You may need to formally establish domicile in a no-income-tax state like Florida or Texas before you leave.

Common pitfalls to avoid at all costs

Now for the scary part. The road is littered with traps for the unwary. Here are a few to steer clear of.

The Pitfall	Why It’s a Problem
Assuming “No Income Tax” Means No Taxes	Countries like the UAE may have no income tax, but you may still owe taxes in your home country (hello, US citizens). You also can’t ignore VAT, sales tax, or potential corporate taxes.
Working Illegally on a Tourist Visa	This is a massive risk. If you’re doing any work—even answering emails—you’re likely violating the terms of your tourist visa. The tax implications are the least of your worries if you get deported or banned.
Ignoring Local Tax Thresholds	You might become a tax resident in a new country sooner than you think. Some countries have a 90-day or even 30-day threshold. Ignorance is not a defense in the eyes of the tax authority.
Mishandling Digital Nomad Visas	These new visas are amazing, but they come with specific tax conditions. Some, like Portugal’s D8 visa, may offer a flat tax rate, while others might make you a full tax resident. Read the fine print.

Getting professional help: It’s worth it

Look, you’re an expert at what you do—whether that’s coding, marketing, or design. You can’t also be an expert in the tax codes of three different countries. A qualified, cross-border accountant who specializes in expat or nomad taxes is not an expense; it’s an investment.

They can help you navigate DTAs, structure your business, file complicated forms, and sleep better at night. The cost of a mistake far outweighs their fee.

So, as you pack your bags and charge your laptop, remember that your freedom is built on a foundation of details. Tax planning is the unglamorous work that makes the glamorous work possible. It’s the anchor that lets the ship sail, not the chain that holds it back. Mastering it is, honestly, the ultimate badge of the successful digital nomad.