Taking into account the rapid transition of the economy to a digital dimension, which was accelerated by the pandemic and the restrictions it brought, the possibility of working remotely anywhere in the world is an interesting solution not only for workers but also for companies.
However, due to the characteristics of the job and the absence of a fixed location, the choice to be a digital nomad presents great challenges related to taxation. That being said, we tried to answer some essential questions for those who want to be a digital nomad and are concerned with the taxation of their work.
What is the tax residence of a digital nomad?
The tax residence is essential for any citizen to be able to determine in which country he is subject to tax for individuals. In Portugal, and in Madeira, tax residents in Portuguese territory, are considered to be people who, in the year to which the income relates:
a) have stayed more than 183 days, consecutive or interpolated, in any period of 12 months beginning or ending in the year in question;
b) having stayed here for less than 183 days, if they have in Portugal a house that can be considered as their habitual residence, that is, that they have their personal and economic relations here;
What benefits are there for those who want to have their tax residency in Madeira?
Although not the only one, the most interesting program is the Non-Habitual Resident Regime, which will apply to workers for a period of 10 years. In Madeira, labor income earned by tax residents is subject to progressive rates of up to 48%. Through the Non-Habitual Resident Regime (RRNH), income from work has a more favorable treatment, namely:
a) income from activities with high added value (many of which are carried out by digital nomads) are taxed at a fixed rate of 20%.
b) income from work that is obtained outside Portuguese territory will be exempt in Portugal if: the worker has already paid taxes in the country where he worked, whether or not there is a double taxation agreement;
To be able to apply for the RRNH, the worker has to fulfill two requirements:
a) be a tax resident in Portugal, according to the criteria defined by law;
b) not having been taxed in Portugal during the previous five years to be considered a tax resident here.
And from the point of view of Social Security?
In Portugal, income from work is taxed for social security at a joint rate of 34.75%, that is, 11% paid by the worker and 23.75% by the employer.
According to Regulation 883/2004, of 29 April 2004, of the European Community, a citizen who works in a European country is subject to the laws of that Member State. In the case of a citizen who works in two or more European countries, he is subject to the legislation of the country where he has his residence, provided that he carries out the main part of his activity there in that Member State.
If the citizen works in a European country and another non-European country, it is necessary to check whether there are agreements that determine the preference for a social security scheme between the countries concerned.