Which countries offer special visas for digital nomads, who can obtain them, and for whom it will be most advantageous?
The digital nomad visa is a specific migration tool relevant to remote workers/independent contractors.
The phenomenon of digital nomads emerged in the second half of the 20th century but gained widespread popularity with the rapid growth of computer technologies.
Legal systems of individual states began responding to the challenges of technological development, introducing specific legal institutions for digital nomads.
While initially the issue of digital nomads was mostly within the realm of migration law, increasingly, special tax and legal regimes are being applied to digital nomads.
The gradation of regimes ranges from those establishing special taxation rules (e.g., Spain) to those completely exempting digital nomads’ income from taxation (e.g., Croatia). However, this does not mean that digital nomads are entirely exempt from paying taxes.
Special rules address the taxation of income in the country of their long-term physical presence but do not exempt them from taxation in the country of their tax residency. But let’s go through this step by step.
Who Are Digital Nomads?
Digital nomads are individuals who work and/or provide services/perform tasks remotely using technological solutions.
Thus, we have a common situation where an employee/contractor is in one country, providing services to an employer/client in another country. Generally, digital nomads should not contract with residents of the country of their temporary stay (the country that issued them the relevant visa).
However, there are some exceptions to this rule. In Spain, for example, individuals who obtained a digital nomad visa are allowed to receive up to 20% of their income from a source originating in Spain.
Why then do countries “attract” digital nomads?
Firstly, these individuals have a high income level. Countries with a digital nomad visa institute specific requirements for the minimum income level of digital nomads (usually exceeding the average salary in the respective country).
Thus, the funds that digital nomads earn from remote work abroad are spent in the country of their actual residence.
Secondly, digital nomads are prospective highly qualified professionals.
Thirdly, digital nomads often contribute to the formation of local communities and IT hubs. Concentrating IT freelancers within a specific location leads to rapid development of digital and business infrastructure around them.
Fourthly, IT freelancers contribute to knowledge exchange. In one way or another, at least some digital nomads begin integrating into local “IT circles.”
Fifthly, if a country manages to “retain” a digital nomad, it means that it has bypassed the lengthy period of training and preparation for an IT specialist and acquired a already-formed highly qualified professional for local companies.
And there are many more direct benefits for countries that provide visas to digital nomads.
In Which Countries Are Visas Available for Digital Nomads?
These countries can be conventionally divided into those that have a) “classic” visas for digital nomads (such as Spain, Portugal, Hungary, Malta, Estonia, Croatia, etc.) and b) countries with adapted migration legislation for digital nomads (such as Bulgaria, the Netherlands, Norway, etc.).
However, the issue of taxing digital nomads is not as frequently addressed by countries on an official level. The situation arises where there is a special migration regime but no corresponding tax regime. In some countries, however, the issue of taxing digital nomads is regulated at the legislative level.
Why Do Digital Nomads Need Special Taxation Rules?
To find the answer, one must understand the specifics of digital nomadism. Digital nomads typically obtain relevant visas and reside in the respective country for 1-2 years (depending on the country and individual preferences).
Naturally, during this period, a digital nomad will likely acquire the status of a tax resident in the host country (despite the temporary nature of their stay). This can lead to a problem of double taxation, as they would be required to pay taxes both in the country of employment/business registration and in the country where they have spent a significant amount of time as a digital nomad.
In most countries, there is a “183-day test” for determining an individual’s tax residency status. If you stay in the country for this period or more, you are likely to be considered a tax resident. To avoid the issue of double taxation, some countries not only offer digital nomads the appropriate visas but also special tax regimes and/or tax incentives.
It’s crucial to note that, generally, special tax and legal regimes are aimed at addressing the issue of active income (salary, compensation under civil/commercial contracts) for digital nomads. Passive income (royalties, dividends, rental income, etc.), as a rule, is not covered by tax incentives and is subject to regular taxation.
Let’s look at a couple of countries that provide special tax rules for digital nomads.
Croatia
Croatia can be called a “tax haven” for digital nomads. This is because Article 9(1), Clause 26 of the Income Tax Act (Zakon o porezu na dohodak) directly states that income of a digital nomad in the form of wages/compensation from a non-resident employer/client is not subject to taxation in Croatia.
Croatia has established the most favorable tax and legal regime for digital nomads. However, to benefit from this tax advantage, one must not only be a de facto digital nomad but also obtain the corresponding status de jure. For example, a Ukrainian self-employed IT professional who obtains a digital nomad visa in Croatia can legally continue to pay taxes only in Ukraine (e.g., a flat tax rate of 5%).
Any other income earned by the digital nomad, not related to their professional activity, will be subject to taxation in the regular manner (including in Croatia, as the income of a tax resident of the country).
Portugal
In Portugal, digital nomads have the opportunity to take advantage of a special tax and legal regime – the Non-Habitual Residents (NHR) Regime. According to the rules of the NHR regime, income from self-employed individuals with a source outside Portugal is not subject to taxation in Portugal.
Both the income itself and the digital nomad must meet the legally established qualification requirements. The income should:
- Be subject to taxation in another country according to the double taxation avoidance agreement with Portugal.
- Not be considered income derived from the territory of Portugal under Portuguese legislation.
- According to the OECD Model Tax Convention, the income should not be subject to taxation in Portugal (applies if there is no double taxation avoidance agreement between Portugal and the specific country).
Importantly, the self-employed individual must earn income from a “high value-added activity,” which is determined based on a list of professions, including activities related to “information and communication technologies” (IT activities).
It’s interesting to note that the NHR regime applies to digital nomads for 10 years and is characterized by a higher degree of stability.
Spain
Spain is a relative “newcomer” to the map of digital nomad-friendly countries. The institution of digital nomads became operational in Spain only from January 1, 2023. Digital nomads in Spain have the option to choose a special tax regime under the rules of the so-called Beckham Law.
In Spain, digital nomads can opt for a fixed tax rate of 24% (applied to annual income up to 600,000 euros). For amounts exceeding this threshold, a tax rate of 47% applies. For Ukrainian individual entrepreneurs (FOP), this rate may sound quite substantial.
However, if a person wishes to legally reside in Spain for an extended period (acquiring tax resident status) and not conceal their income, there aren’t many alternatives. Comparatively, when considering the general rules for taxing individuals, the elevated rate of 47% applies to annual income of 300,000 euros and above.
In essence, a digital nomad who chooses the corresponding preferential tax regime enjoys a significant advantage compared to other taxpayers – they have a surplus of +300,000 euros of income subject to taxation at a fixed and unincreased rate.
For Whom Can Digital Nomad Status Be a Tax Optimization Tool?
In our opinion, digital nomad visas are an excellent migration institution and a tool for tax optimization (in cases where countries offer special tax regimes and/or tax incentives) specifically for true digital nomads. These are individuals who, as “lone rangers,” travel the world, attempting to avoid the risks of double taxation.
For the relocation of IT company professionals from Ukraine, digital nomad visas could be used as a sort of hybrid tax optimization tool, but only in cases where a permanent organized activity from an office is not a fundamental goal of the IT company.
In other words, if an IT company wants to open an office in the jurisdiction where IT specialists have relocated and subsequently obtained a digital nomad visa, gathering all digital nomads in one office may not be the most prudent idea. Foreign jurisdiction control authorities may interpret this as a violation of immigration laws and as the presence of hidden employment relationships.
It’s important to remember that, in the understanding of countries that have introduced this type of visa, a digital nomad is a freelancer who can continue cooperation with their employer/client remotely. Therefore, a digital nomad visa is more of a temporary “transitional” tool than a permanent solution for relocating part of the team to another jurisdiction.