Key takeaways
- Digital nomads face difficulties in determining their tax residency, which can lead to double taxation if they’re considered residents in multiple countries. Understanding local tax laws and international agreements is essential.
- Digital nomads may be taxed on crypto earnings through income tax, capital gains tax, and self-employment tax, depending on the type of income and country. Tax rates vary significantly by jurisdiction.
- Double taxation is a concern for digital nomads, but Double Taxation Agreements (DTAs) can help reduce the risk by clarifying which country has the primary right to tax specific income.
- Accurate tracking of crypto transactions, including dates, amounts, and wallet addresses, is crucial for compliance with tax reporting requirements and to claim tax credits under DTAs.
The number of digital nomads has steadily grown, thanks to the rise of cryptocurrencies and technology-enabled remote working. According to research conducted by digital nomad housing platform Flatio, most digital nomads are Americans.
Yet another report revealed the digital nomad lifestyle has exploded in popularity among Americans, with a 42% jump in 2021 to 15.5 million individuals. The momentum continued into 2022, reaching 16.9 million, marking a staggering 131% increase compared to pre-pandemic figures. Digital Nomad Outlook 2025 suggests that 43% of American digital nomads will live abroad for at least six months.
The term “digital nomads” refers to individuals who leverage technology to work beyond the boundaries of the nation of which they are residents. Typically, they secure residency permits based on income earned outside their country of origin. This flexibility allows for frequent travel, flexible working time and the opportunity to explore diverse cultures.
Still, being a digital nomad may also require them to deal with the complexity of paying crypto taxes in several countries.
This article will explore key tax considerations for digital nomads, including residency-based taxation, capital gains taxes (CGT) on crypto trading, types of taxes digital nomads pay and how they can save on taxes legally.
Unique tax challenges digital nomads face
Understanding tax residency, double taxation and international crypto regulations is essential for digital nomads to ensure financial stability and avoid penalties. As cryptocurrencies are decentralized, it becomes harder for anyone to define clear tax boundaries across countries. As digital nomads might work from several locations in a tax year, this may create unique challenges:
Tax residency
Determining tax residency is a significant issue digital nomads face. Traditional tax rules, which often depend on how long they stay in a country, don’t easily apply to people constantly moving nomads. This can lead to disagreements with tax authorities in different countries, and, in some cases, they may end up paying taxes twice or more.
Double taxation
When an individual or business invests in a foreign country, the issue of which country should tax the investor’s earnings may arise. Countries enter bilateral (two-party) agreements to handle concerns about their citizens’ passive and active income. But these agreements are designed for regular jobs and businesses, not crypto earnings. Even when the authorities try to keep up, the fast-changing technology keeps the taxpayers uncertain about their dues.
International crypto regulations
Digital nomads must stay updated on tax laws in their home country and the places they visit. For instance, if an American citizen is staying in Portugal, they must be well-versed with US laws and the EU’s Markets in Crypto-assets Regulation (MiCA).
In many countries, crypto regulation is still evolving, and there might be uncertainties regarding taxation, particularly if decentralized platforms and NFTs are involved.
Did you know? According to research, three out of four GenZers and Millennials say the freedom to live and work anywhere is what the American Dream is about these days.
Fundamental tax terms digital nomads need to know
When negotiating tax issues, digital nomads need to be well aware of a few terms often used in tax matters:
Citizenship and residency
Citizenship refers to one’s legal status in a country, determining their rights, privileges and duties. The nature of the relationship with the state is more permanent and encompassing.
Residency, however, relates to one’s status of living in a specific place. Residency status gives one certain rights and responsibilities, such as eligibility to be hired for a contract.
Tax residency
Tax residence status determines whether a government considers one a taxable resident. The length of stay in a nation usually influences an individual’s tax residency status.
Requirements to become a tax resident differ in various countries. In the US, one must stay for 31 days a year and 183 days during the last three years to obtain the status of a tax resident. In an EU state, one must stay at least 183 days a year to become a tax resident. But there are exceptions. For example, in Cyprus, an individual can qualify as a tax resident if they are not taxed in any other country.
Domicile
Domicile is a concept used in taxation to establish the permanent residence of an individual. It differs from tax residency, which depends on one’s physical presence. Domicile is generally difficult to change.
Understanding domicile is critical for digital nomads as their domicile can influence their tax liabilities in many countries, even if they do not match the residency criteria there. Countries like the UK and Australia give weightage to domicile.
UK residents and domiciliaries face CGT on all global cryptocurrency profits, regardless of where the transactions occur. This includes profits from sales, swaps, or using crypto as payment. Non-domiciles have the option of remittance, meaning they only pay UK tax on crypto gains brought back into the country.
In Australia, residents are taxed on worldwide crypto profits under CGT rules. However, temporary residents and non-residents are only liable for tax on crypto profits generated within Australia, not on foreign crypto holdings. The tax implications for non-residents can depend on factors such as where the cryptocurrency is traded or stored.
Did you know? Your domicile plays a significant role in legal matters. For instance, it determines your tax obligations, can dissolve your marriage and dictates how your assets are distributed after your passing.
Taxes digital nomads have to pay on crypto earnings
Digital nomads might be subjected to different taxes based on the type of income they are making:
Income tax
Crypto earnings, including service payments, are normally subject to income tax. For example, if a freelancer earns one Bitcoin (BTC) at $20,000, the sum is taxable. One’s total income and the applicable tax brackets in the nation determine the tax rate.
Capital gains tax
Profits from selling or trading cryptocurrency are typically subject to capital gains tax. For example, if one purchases Ether (ETH) for $4,000 and then sells it for $6,000, the $2,000 profit is taxable. The tax rate varies by country and may differ for short-term (less than a year) versus long-term (more than a year) gains.
Self-employment tax
Self-employment taxes may apply if a digital nomad earns cryptocurrency through freelance work. For example, the US levies a 15.3% self-employment tax on earnings before applying income tax.
Corporate tax
Governments generally tax businesses on their profits. This tax, typically a percentage of the company’s taxable income, is called corporate income tax.
Independent contractors and sole proprietors generally do not pay corporate income tax. Instead, they are required to pay personal income tax on their earnings. However, if a digital nomad operates a business, such as a limited company or an LLC, the company’s profits may be subject to corporate income tax.
Social Security contributions
Governments often levy taxes on personal income to fund public services like healthcare and retirement programs. The tax obligations of remote workers can be complex and vary depending on their country of residence, employment location and international agreements.
For instance, some countries require remote workers to contribute to their home country’s Social Security system, while others may exempt them if they already pay into a similar system elsewhere.
Value-added tax (VAT) / Goods and services tax (GST)
In some jurisdictions, using cryptocurrency to pay for goods and services may result in the authorities imposing VAT or GST. For example, paying for a laptop using Bitcoin may result in paying VAT or GST based on the transaction amount.
In Dubai, the VAT exemption for the transfer and conversion of virtual assets, which came into effect on Nov. 15, 2024, with retroactive applicability to Jan. 1, 2018, eliminated the 5% VAT on most crypto-related transactions.
Did you know? In the US, cryptocurrency held less than a year before sale is subject to short-term capital gains tax, which has a higher tax rate than long-term capital gains tax.
An insight into the tax systems for digital nomads
There are several types of tax systems prevalent in the world:
Territorial tax system
In a territorial tax system, individuals are only taxed on income earned within the country. Foreign profits, such as those derived from remote employment or investments abroad, are typically exempt. This system benefits digital nomads who earn primarily abroad, as they can legally avoid local taxes in such countries. Singapore is an example of a country following a territorial tax system.
Worldwide tax system
A global tax system requires individuals to record and pay taxes on their worldwide income, regardless of its source. Countries like Australia and Canada follow this system, taxing residents on both domestic and international incomes.
Citizenship-based taxation system
This system requires you to pay taxes based on citizenship, regardless of income source or tax residence. The US follows this tax system. The US taxes the income of its non-resident citizens, which means that Americans living overseas must still file federal tax returns every year.
Here’s a summary of these tax systems:
How cryptocurrency is taxed internationally
Crypto taxation varies worldwide due to different regulations and tax systems. Countries classify crypto earnings as capital gains or income depending on the activity.
Profits from trading are subject to capital gains tax, while income from staking, crypto mining or airdrops is taxed as regular income. Tax rates vary by country, income level and how long the crypto is held.
Different approaches regarding crypto tax
Some countries are crypto-friendly. For example, Portugal doesn’t tax personal crypto earnings, including trading or capital gains, though mining may be taxed.
The UAE offers zero personal income tax, making it appealing for crypto enthusiasts.
On the other hand, countries like the US enforce strict rules, with high tax rates and meticulous reporting requirements. Germany takes a mixed approach, taxing short-term gains but exempting long-term holdings.
Global tax agreements
International efforts, like the Organization for Economic Co-operation and Development (OECD)’s Crypto-Asset Reporting Framework (CARF), aim to standardize the reporting of crypto transactions to tax authorities, reducing evasion and boosting transparency.
The EU’s MiCA regulation aligns rules across member states, simplifying compliance and increasing scrutiny. These frameworks help investors navigate cross-border taxes but require staying updated on evolving rules.
Understanding global tax systems and agreements helps digital nomads manage obligations, avoid penalties and minimize taxes with careful planning.
Double taxation and how to avoid it
Double taxation occurs when two distinct jurisdictions tax the same individual’s income. This can be a major worry for digital nomads, particularly if their income sources are spread across nations. It becomes an even larger problem for anyone earning in crypto as regulations are still evolving in many countries. Without proper planning, nomads may have overlapping tax obligations in both their home nation and the country where they are temporarily residing.
Double taxation agreements (DTAs) are key in addressing this issue. These agreements between the two countries prevent double-taxing individuals and businesses on the same income. DTAs are especially important for digital nomads since they specify which country has the primary right to tax specific income, such as cryptocurrency revenues.
The allocation of tax rights by DTAs depends on residence and source of income. For example, if a digital nomad is a tax resident in Country X but earns cryptocurrency from a platform based in Country Y, the treaty may state that only one of these nations has primary taxing rights. You can claim any taxes paid in the secondary nation as a tax credit in the primary country.
Countries like the US, the UK and Germany have extensive DTAs, benefiting nomads navigating global tax systems.
How digital nomads can avoid double taxation
Understanding how various tax systems work together to avoid double taxes helps digital nomads avoid paying twice and assures compliance with local legislation.
When visiting countries applying territorial taxation, digital nomads must carefully monitor their travel patterns to prevent accidentally becoming tax residents and paying double taxes.
Here are a few tips to avoid double taxes:
- Identify your tax residency status.
- Understand the DTA provisions for the relevant countries.
- Keep precise records of your cryptocurrency transactions.
- Claim foreign tax credits when applicable.
- Consult with a tax expert to ensure compliance.
Record-keeping and reporting requirements of digital nomads
Accurate record-keeping is vital for digital nomads earning cryptocurrency. Keeping transaction records makes it easier to track income and compute tax liabilities.
Key data includes transaction dates, amounts, wallet addresses and market value of cryptocurrencies at the time of the transaction. They would also require proof of residency and income sources to establish tax obligations and claim benefits under double taxation agreements.
Major tax agencies require precise reporting on cryptocurrency revenue:
- In the US, the IRS requires all cryptocurrency transactions, including exchanges, sales and payments, to be reported on Form 8949 and Schedule D.
- The UK’s HMRC requires cryptocurrency revenues to be disclosed as capital gains or income, depending on the activity, with supporting paperwork.
- The EU’s MiCA framework prioritizes transparency in reporting for compliance.
- The Australian Taxation Office (ATO) imposes rigorous standards, demanding full cryptocurrency acquisition and disposal logs.
The authorities could impose substantial penalties on the non-compliant digital nomads based on the error level or willful evasion. Punitive measures might include legal action and fines, with interest accruing on unpaid taxes.
Tax planning strategies for digital nomads
Effective planning can help digital nomads minimize tax liabilities and optimize earnings. By strategically managing crypto income, nomads can reduce tax burdens while staying compliant. Here are a few tax planning strategies digital nomads could choose:
Structuring crypto income
Timing trades wisely can significantly impact tax liabilities. For instance, delaying trades until the next fiscal year may push gains into a lower tax bracket. In some jurisdictions, utilizing tax-free thresholds, such as the annual capital gains allowance in the UK, can help offset liabilities. Spreading out income or realizing losses strategically can further reduce taxable gains.
Choosing a tax-friendly base
Selecting a tax-friendly jurisdiction could help digital nomads reduce taxes. Countries like Portugal, the UAE and Malta offer favorable tax treatment for crypto earnings, including exemptions on capital gains or low flat-rate taxes.
Still, they must meet residency criteria to benefit from these tax regimes. Evaluating local laws, relevant double taxation agreements and residency rules ensures compliance for digital nomads and maximizes their benefits.
Working with crypto tax professionals
Navigating complex tax laws requires expert guidance. Engaging professionals specializing in international crypto taxation ensures compliance with a maze of laws, including the IRS’s crypto-specific rules, the HMRC’s capital gains laws and MiCA’s EU standards. Professionals can help with record-keeping, reporting and identifying legal deductions or credits.
Incorporating these strategies into financial planning allows digital nomads to legally reduce tax burdens while focusing on their global lifestyles. With a proactive approach and expert guidance, crypto earnings can remain lucrative and compliant.
Written by: Dilip Kumar Patairya