Digital Nomads, their Employers and Tax

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.

Increasingly, countries are offering visas targeted at digital nomads – people who travel much of the year and take their work with them. Investopedia published a well-researched article in July 2021 that lists many of these countries, and their criteria for obtaining a visa.

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.

Depending on the country, your liability could range from a small amount to tax on 100% of your yearly income, no matter where it was earned. Yikes. If you then also have to pay tax to your official country of residence, you may not be left with much.

Use case: Croatia

Croatia – which has stunning holiday locations on the Adriatic coast – has a visa waiver scheme targeted at digital nomads. If you meet their financial criteria and your application is successful, you and your immediate family members may stay in country for up to one year. This period can’t be extended, although you can re-apply after six months.

However, visitors to Croatia are deemed to be resident taxpayers when one of the following conditions is met:

• 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.

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.

The same applies to businesses

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

Most countries have rules about how many days all your employees combined can be there before your business is considered to have 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.

Workationers are already travel savvy – they, and their employers, also need to be tax savvy.

You can find tax residency rules in the Country Tax Lookup in the footer.