In which country does a digital nomad have to pay taxes?

From this article, you will learn:

• How life as a digital nomad and the associated work style affect the settlement of taxes?
• When an employee is subject to unlimited tax liability in Poland?

What does the term digital nomad mean? A "digital nomad" is a person who combines remote work with travelling. The "travelling specialist" lifestyle has become particularly popular after the pandemic – many so-called digital nomads travel with their computers, doing their work from anywhere in the world.

Where does the name "nomads" come from? It comes from the fact that these employees can be said to lead a nomadic lifestyle and, instead of coming to the same office every day, they take advantage of the opportunities offered by remote work. Even though they often change their place of residence, they do not change their job. Although the life of a digital nomad appears to be an endless adventure, it is also worth paying attention to the practical aspects of this lifestyle, in particular, tax issues and social and health insurance issues.

Unfortunately, legal regulations often do not keep pace with reality, which means that digital nomads should be prepared for numerous challenges. 

Nomadic lifestyle and tax issues. What should every travelling specialist remember?

When analysing the issue of the place of taxation of a digital nomad's work, particular attention should be paid to the following aspects:

• place of work, 
• form of cooperation,
• employee’s tax residence status,
• place of the employer’s registered office.

Digital nomad and the place of work

It is not possible to provide one universal solution regarding the place of taxation of income from the employment relationship of digital nomads, because in their case a lot depends on the legal regulations of the countries with which digital nomads are associated. Most often, you need to bear in mind the legislation of three countries:

• the employee's country of tax residence,
• the country from which the employee will actually carry out the assignment as part of remote work,
• the country where the employer’s registered office is located. 

Due to the large number of variables, each case should be considered individually, and the basis here is, in particular, the provisions of international agreements on the avoidance of double taxation that have been concluded between individual countries.

Employment contract or B2B?

The form of cooperation between the employee and the employer is also important. It should be noted here that the use of the nomenclature "employee" and "employer" is a bit of a simplification, because, in practice, the parties are rarely actually bound by an employment contract. More often, it is a contract of mandate or B2B cooperation. Depending on the form of cooperation, the scope of responsibility for tax settlements is distributed differently.

As part of B2B (a form very popular among digital nomads), cooperating parties are treated as equal business partners and each of them is responsible for their own tax settlements. In the case of an employment contract (a much less frequently used form of employment for this type of cases), the responsibility for settling taxes rests mainly with the employer – but not exclusively. 

Remote work abroad: how to settle tax when the digital nomad is a Polish tax resident?

A tax resident is a natural person who:

• has a centre of personal or economic interests in the territory of the Republic of Poland (centre of vital interests) or
• stays in the territory of the Republic of Poland for longer than 183 days in a tax year.

Meeting at least one of these conditions makes the taxpayer subject to unlimited tax liability in Poland. This means that all income of such a person will be taxed in Poland – regardless of the location of the sources of this income (e.g. the place of the employer's registered office). 

It is also worth mentioning here that if a nomad chooses Poland as the temporary destination of their stay and stays here for longer than 183 days, they may also be subject to unlimited tax liability in Poland. 

This does not mean, however, that for these people Poland is the only country where they are obliged to pay taxes. The provisions of bilateral international agreements on the avoidance of double taxation are of key importance here. In order to reduce the tax burden, it is necessary to verify whether one of the methods of avoiding double taxation provided for in the relevant agreement can be used. 

Life as a digital nomad – a short summary of the impact of remote work abroad on taxes

As can be seen in the above examples, regulations – both in Poland and in other countries – do not keep up with reality. This does not mean, however, that it is not possible to correctly settle taxes on the income of people who have chosen digital nomadism as their lifestyle. However, this requires analysing all the facts and regulations, both domestic and international. It is, therefore, worth entrusting this matter to experienced experts.