Digital Nomads & Taxes: What Entrepreneurs Need to Know

Working from a beach in Bali or a café in Lisbon may sound like a dream. For digital nomads, it’s often a daily reality. But while Instagram shows laptops and lattes, the behind-the-scenes reality of taxes is far more complex.

Remote work across borders brings freedom—but also responsibilities. Digital entrepreneurs often face questions like: Where do I pay taxes? What happens if I live in multiple countries per year? And can I qualify for tax exemptions?

Let’s break down what entrepreneurs need to understand about taxes in 2025 as a digital nomads.

The Basics: What Makes Someone a Digital Nomad?

A digital nomad is someone who works remotely while living in different places, usually outside their home country. They're freelancers, solopreneurs, startup founders, or remote employees who don’t settle in one place long enough to establish permanent residence.

At first glance, it may seem like this lifestyle sidesteps tax systems. But in reality, living in different countries makes your tax situation more—not less—complicated.

Tax Residency: The Core of the Issue

The first thing digital nomads need to know is this: you’re taxed where you're considered a resident. But what makes you a tax resident?

Most countries define tax residency based on time spent within their borders. A common threshold is 183 days—if you stay longer, you're often classified as a resident for tax purposes.

However, that’s not always the case. Some countries use the center of economic interest or habitual abode as criteria. Even spending less than six months could trigger tax obligations if you earn income tied to that country.

Home Country Obligations Don’t Always End

Leaving your home country doesn’t always sever your tax ties. For example, U.S. citizens are taxed on worldwide income regardless of where they live. Other countries, like Canada or Australia, may require you to officially sever ties (e.g., selling property or canceling bank accounts) to stop being taxed as a resident.

Failing to properly exit your home country’s tax system could mean double taxation—paying taxes in more than one country on the same income.

To avoid this, many nomads seek out tax treaties or exemptions to stay compliant and keep more of their earnings.

Digital Nomad Visas: Residency Comes With Rules

Over 40 countries now offer digital nomad visas. These visas allow remote workers to live abroad legally for extended periods without taking local jobs.

However, these programs often come with minimum income thresholds, health insurance requirements, and clear tax guidelines. In some cases, visa holders are considered tax residents and must report income—even if they don’t earn money in that country.

Others, like Portugal’s digital nomad visa, allow temporary tax relief through special programs, but those benefits often expire after a set period. Reading the fine print matters.

Corporate Structure: Freelancer vs. Business Owner

How you operate your business matters. A solo freelancer and someone running an incorporated business face very different tax paths.

For freelancers, income is generally taxed as personal earnings. But if you register an LLC, S Corp, or offshore entity, you might qualify for corporate tax rates or deferral strategies—depending on your location and home country’s rules.

Incorporating in a low-tax jurisdiction might sound tempting, but it’s not a shortcut to tax freedom. Many countries now have Controlled Foreign Corporation (CFC) laws, which require you to report and pay taxes on foreign company income if you control that company.

The Role of Tax Treaties and Foreign Earned Income Exclusion

Thankfully, there are tools to help nomads avoid double taxation:

• Tax treaties between countries can prevent being taxed twice on the same income.

• Foreign Earned Income Exclusion (FEIE) allows U.S. citizens to exclude a portion of the foreign-earned income from U.S. taxes, provided certain physical presence or bona fide residency tests are met.

However, these tools don’t eliminate reporting requirements. You may still have to file in both countries, even if you don’t owe taxes.

Banking and Reporting Obligations

If you hold significant assets abroad or run a business overseas, you may be subject to international reporting rules. For example, U.S. citizens must file FBAR (Foreign Bank Account Report) and possibly FATCA disclosures if their accounts exceed certain limits.

Similarly, the EU and many other regions share financial data between tax authorities under automatic exchange agreements. It’s harder than ever to stay under the radar—and noncompliance can lead to steep penalties.

VAT and Sales Taxes: The Hidden Burden

Digital nomads who sell products or services online—especially across borders—may also have to register for VAT or GST in multiple countries. For instance, selling a digital product in the EU can trigger a VAT obligation, even if you don’t live there.

In 2025, many platforms (like app stores or marketplaces) handle this on your behalf. Still, entrepreneurs selling directly to consumers need to be aware of sales thresholds and registration requirements.

Hiring and Payroll: Location Matters

If you start building a team as a digital entrepreneur, payroll compliance becomes a factor. Hiring contractors across borders may not be enough to escape employment obligations. Countries increasingly scrutinize worker misclassification and remote hiring practices.

Moreover, if you hire full-time staff in a country where you reside temporarily, you could accidentally create a "permanent establishment", triggering local corporate tax and employment obligations.

Planning and Professional Support

Given the complexity of international tax laws, professional help is crucial. A tax advisor who understands nomadic lifestyles can help structure your business properly, avoid common mistakes, and reduce liability.

Good planning includes:

• Choosing the right visa

• Selecting a tax-efficient business structure

• Keeping clean records

• Planning your travel to avoid triggering unwanted residency

• Staying up-to-date with evolving tax laws

With the right guidance, digital nomads can work globally without getting buried in paperwork or tax surprises.

Final Thoughts: Freedom Comes With Responsibility

The digital nomad life may offer freedom and flexibility, but it comes with serious tax implications. In 2025, governments are more aware of mobile income earners and more aggressive in enforcing compliance.

Still, that doesn’t mean the lifestyle isn’t possible—it just means it requires more planning.

With the right structures, support, and awareness, entrepreneurs can thrive as digital nomads while staying fully compliant. The key is to treat taxes like a passport stamp: know where you’ve been, where you’re going, and what’s expected at the border.