Choosing a Country With Low Tax Rates as a Digital Nomad: Key Considerations
Moving to a new country might only cut it for you if you consider the important factors, such as the cost of living. If you move to a new country based on the income tax rates only these factors can come as unprecedented cost bleeds and slash through your savings as well as earnings.
Here are some of the critical factors to consider before moving to a low-tax country as a digital nomad.
🔵 Overall Tax Burden
One of the biggest mistakes you can make as a digital nomad while looking for a country with low taxes is focusing only on the income tax. As an individual, you have to pay social contributions from your income. So, navigating taxes as a digital nomad comes with multiple considerations.
While the income taxes in a country might be lower, it can have multiple other taxes for personal assets and public services, that can significantly increase your overall tax burden. For instance, Bulgaria is a popular choice among digital nomads. However, it comes with a progressive income tax, which might be trouble.
Further, if you are planning to set up a company, dont focus only on the corporate tax. As a business owner, you will draw money as a dividend, which means you will be paying dividends or withholding taxes as well. Hence always look at the bigger picture.
🔵 Tax Resident Criteria
Every country has specific criteria for tax residency that can strongly influence the overall savings you can make by moving there as a digital nomad. For instance, Albania is a country with low taxes but it requires the people to have spent more than 183 days in one calendar year in the country (consecutively or intermittently). This is mandatory irrespective of the citizenship or major residency interests of the person seeking tax benefits.
Now, such restrictions can become an issue for the digital nomads who are not looking for such a long stay in a country. Hence, we recommend checking the specific tax residency criteria and regulations for a country before moving there.
🔵 Lifestyle Preferences
Digital nomads have a distinct lifestyle that allows them to enjoy exploring new places without compromising work and vice versa. Moving to a new country with stay restrictions or high costs of living can become a disruption for them.
For instance, if you are a beach person who loves to enjoy evening sunsets or sunrises while exploring marine life, moving to a landlocked country just to save taxes might not cut it for you.
Similarly, if you are a person who finds solace in places with cold climates, all the low-tax countries in the Middle East or with coastal climates are a big no-no!
Top 10 Low-Tax Countries for Digital Nomads
We are sharing a list of the best countries for digital nomads when it comes to tax relief. However, as mentioned above, the final choice must be made after careful consideration of all the other factors.
1. Albania 🇦🇱
Albania is becoming increasingly popular among the digital nomads owing to its good internet infrastructure and low cost of living. You need to stay in the country for more than 183 days for tax residency.
Income Tax
The general personal income tax rate in Albania for self-employed individuals is 15% and 0% for small businesses with an annual turnover below €120,000. The 0% corporate interest rate is applicable for 15 consecutive years from the beginning of business.
If you are drawing out dividends from your business, you have to pay a dividend tax of 8%, and all your capital gains are taxed at 15%.
2. Cyprus 🇨🇾
Cyprus is another low-tax country that you can move to as a digital nomad that has an amazing climate and is not a part of the Schengen Area. So, if you are a digital nomad with a Schengen balance restriction, Cyprus is a good option for you.
Income Tax
You don’t have to pay any tax till the 183rd day of your stay, after which you become a tax resident of Cyprus and are to pay a tax on your income. The tax rates are different for different income slabs and till €19,500, you don’t have to pay any taxes.
Apart from the income tax, you have to pay social security contributions (8.3%), 19% standard value-added tax, and 0.4% as immovable property transfer levy. The corporate tax is just 12.5%, which makes Cyprus a strategic location to start a company.
3. United Arab Emirates (UAE) 🇦🇪
The UAE generally tops when it comes to the list of countries with low taxes as there are absolutely no income taxes here. However, the cost of living can vary greatly across different zones and cities. Rentals, lifestyle, activities, and entertainment can be really costly and put a strain on your wallet, especially if you are a freelancer.
Income Tax
The income tax is 0%. However, the tax residency rules vary depending on the period of your stay, which ranges from 90 to 183 days, consecutively in a calendar year. Also, you don’t have to pay any taxes for wealth, capital gains, luxury, inheritance, interest, or dividends if you are a UAE tax resident.
4. Malta 🇲🇹
Malta is a beautiful island in the Mediterranean that offers splendid views, fresh seafood, and a friendly community, of tourists, residents, and digital nomads. The country has also recently changed its tax regulations for digital nomads to make it even more friendly for them.
Income Tax
Earlier, the Nomad Residence Permit holders in Malta had to pay income tax at progressive rates, with the top rate of 35%. Now, the rate is 10% on income generated from “authorized work”. You have to spend 6 months in the country to become a tax resident.
The social contribution amounts to 15% for self-employed nomads, and if you are an employee, the rate is 10% for both you and your employer. The Corporate Tax is fixed at 35%, out of which 30% gets refunded by the Government. Hence, the effective corporate tax rate is 5%.
5. Paraguay 🇵🇾
Paraguay is often mentioned as the Holy Grail for digital nomads. To take benefit of its tax rules, you have to get your tax residency permit. Ideally, this rule requires you to stay for at least 120 days in the country, it is not applicable in general as you can also apply for a permit from your home country.
Income Tax
The general income tax rate is 10%. Interestingly, registering yourself as a freelancer or director of a business makes your social contributions optional. Further, you have to pay the standard VAT of 10% only if your goods and services are being offered in the territory of Paraguay. If your clients and customers are based abroad, you don’t have to pay any VAT.
6. Bermuda 🇧🇲
If you are looking for a scenic location with a luxurious lifestyle, Bermuda is an excellent option. While the cost of living in the country is high, you don’t have to pay any taxes at all. Further, every time you enter the country, you are given a $200 customs allowance. Many digital monads with decent earnings are making Bermuda their home.
Income Tax
0% income tax and other taxes.
7. Romania 🇷🇴
With great internet infrastructure, diversity in landscapes, and scenic locations, Romania is another Balkan country that offers exciting tax options for digital nomads. The country allows you to become a tax resident in three ways – by staying for 183 days consecutively, by having a permanent (rented or self-owned) residence, and by having the center of your vital interests in the country.
Income Tax
You have to pay a flat personal tax of 10%. The social insurance contributions and health insurance contributions vary as per the income. Dividends incur a tax rate of 8%, and the standard corporate tax rate is 16%.
8. Brunei 🇧🇳
While Brunei is a dry country, meaning you are not allowed to have alcohol, the cost of living is moderate, and local foods and services are quite affordable. Most of the recreational activities and entertainment revolve around nature and the country is peaceful and offers high-quality healthcare services.
Income Tax
There is no income tax but the tax residency is only available to the residents of the country.
9. The Czech Republic 🇨🇿
The Czech Republic is a member of the EU and Schengen Area. So, if you are a resident of any Schengen country, you can go there without too many documentation formalities. If you spend more than three months in the country, you have to register yourself with the local authorities.
The Czech Republic has an amazing lifestyle, especially in the capital city of Prague, which offers a bustling nightlife and is famous for its party culture. This is also one of the major reasons the Czech Republic is becoming popular among digital nomads across the world.
Income Tax
To become a tax resident, you have to spend 183 or more days in the country, consecutively in a calendar year.
There are two tax brackets:
- 15% for the first amount of €82.000 (indexed yearly)
- 23% for any income above that threshold
Investment income incurs a flat tax rate of 15%. Social contributions account for 29.2%, for self-employed persons and sickness insurance accounts for 2.1%. There are many variations in social contributions and lump sum returns, that can be found on the official website of the government.
Apart from this, the corporate tax is flat 21%.
10. Georgia 🇬🇪
Georgia is a scenic Caucasian country that offers numerous microclimate zones, amazing old architecture, lovely landscapes, and low taxes for digital nomads. The country offers everything – beaches to deserts, and mountains to plains. Also, it is the birthplace of wine, and there are specific wine-tasting districts that offer a unique lifestyle.
Income Tax
To become a tax resident, you have to spend 183 or more days in a 12-month period. So, the income tax rate is flat 20%, which you might think is high; right?
Now, if you are a Georgian tax resident you have to pay this tax on the income you make from Georgian sources only. So, any income from foreign clients, customers, and investments is tax-free in Georgia.
Further, there are no social security contributions, and the pension scheme contributions are mandatory only for employees. The corporate income has a 15% flat tax rate.
