Working from anywhere, exploring the world, and running your own business in the process - for many, that is the very definition of freedom. As a digital nomad, you can work independently of location. However, as soon as you set up a company, issue invoices, or run a foreign company, legal and tax frameworks apply that you should know and comply with.
If you act without preparation, you risk back taxes, double taxation, or legal problems. In this article, you will learn what you should pay particular attention to when setting up a company as a digital nomad.
The term “digital nomad” describes people who work mainly online and regularly move between different countries. Legally, however, this category does not exist. For authorities and tax offices, it is not lifestyle or social media presence that matters, but objective criteria such as:
• Where do you have your residence?
• Where do you spend most of your time?
• From where do you actually manage your business?
These factors determine where you are liable to tax and which national law applies to your business activities.
Under German law, you are generally subject to unlimited income tax liability if you have a residence or your habitual abode in Germany (§ 1(1) EStG).
This is not only about your formal registration status, but about the actual circumstances:
• A residence exists if you maintain a dwelling and keep it under circumstances indicating that it is used (§ 8 AO). What is decisive is always that you hold the dwelling under circumstances showing it is retained and actually used; possession of a key is merely an indication, not a sole criterion.
• A habitual abode generally exists if you stay in Germany for more than six months (§ 9 AO), whereby short interruptions are not harmful.
Even with longer stays abroad, tax liability in Germany can therefore still exist.
In this context, the so-called 183-day rule is often mentioned. However, it is not a general test for tax residence. It mainly plays a role in double taxation agreements - for example in the taxation of employment income - and is tied to further conditions there.
Note: The six-month threshold in §9 AO (habitual abode), which is relevant under German law, is to be distinguished from the
“183-day rule” found in double taxation agreements under international tax law. Both rules pursue different purposes and do not automatically lead to the same results.
In practice, tax liability usually arises in at least one state. The widespread idea that you can remain permanently tax-free by frequently changing location generally does not stand up to legal scrutiny.
However, a distinction must be made:
Tax liability does not automatically mean that tax actually has to be paid. Whether tax is due and in what amount depends, among other things, on the level of income, allowances, deductions and the respective national tax rates.
Tax liability can arise in particular if:
• a residence in Germany is maintained,
• the place of effective management of a company is in Germany, or
• longer stays in another state establish a tax liability there.
Especially with foreign companies, the so-called place of effective management is decisive. It is determined by where the key business decisions are actually made (§ 10 AO) - not by the company’s formal registered office. With remote structures, this place is often where the acting person lives or is staying.
So if, for example, an Estonian OÜ (Estonian private limited company) is founded but in fact managed from Germany, the company may become subject to tax in Germany - regardless of its formal seat abroad.
Many digital nomads opt to set up a company abroad, for example in Estonia or Ireland. Estonia’s E-Residency is particularly well known, enabling you to incorporate and manage a company entirely digitally.
Possible advantages:
• professional corporate structure
• international ability to do business
• digital administrative processes
• simplified access to payment service providers
However, it is important to note:
E-Residency does not create a separate tax status. What matters is where you are personally tax resident and where the place of effective management of your company is located.
If you mostly live in Germany or work from here, registering a trade/business in Germany can be the legally secure route. Even with existing foreign companies, German tax liability can arise if:
• the place of effective management is in Germany,
• key business decisions are made here, or
• the operational activity is carried out predominantly from Germany.
Depending on the structure, this can either lead to unlimited tax liability of the company in Germany or to the establishment of a domestic permanent establishment. A permanent establishment can also arise without a classic office, for example through the place of management or through fixed facilities that are actually used for business activities.
Depending on the legal form or structure, the place of management alone can already lead to unlimited tax liability of the company, regardless of whether a permanent establishment is additionally created. Both connecting factors must be examined separately for tax purposes.
For internationally active businesses, it can happen that several states assert taxing rights at the same time. To avoid double taxation, many countries have concluded so-called double taxation agreements (DTAs).
These regulate, among other things:
• which state has the right to tax,
• how income is allocated,
• how double taxation is avoided.
Applying a DTA is complex and always depends on the specific individual case. Particularly with changing places of stay and international activity, individual tax advice is therefore strongly recommended.
Anyone setting up a company as a digital nomad should take the following points into account in particular:
• A residence in Germany often results in unlimited tax liability.
• Longer stays in other countries can create additional tax liabilities there.
• The place of effective management is decisive for the company’s taxation.
• Without proper documentation of stays, activities and decision-making processes, back payments, interest or fines may be imposed.
In practice, comprehensible documentation is therefore advisable, for example via calendars, travel documents, rental agreements, flight bookings or other evidence, in order to be able to prove the actual circumstances.
Many problems arise not from bad intent, but from a lack of knowledge of the legal framework.
Numerous states offer special visa programmes for digital nomads, including, for example, Estonia, Croatia, Portugal or Spain. These visas make it easier to stay and often permit remote work for foreign clients or employers.
However, it is important to note:
Immigration permission and tax residence are two separate legal assessments and are not automatically linked. In addition, local employment in the host state is expressly excluded or restricted under many digital nomad visas. Here too, it always depends on the specific design of the relevant visa.
In addition to income tax and corporate structure, digital nomads should also keep other legal areas in mind, in particular:
• Value added tax (VAT): For cross-border services - especially digital services - the place of supply may, depending on the circumstances, be where the customer is located. For B2C services within the EU, this can result in registration obligations or the use of the so-called One-Stop Shop (OSS) scheme.
• Social security: Depending on status (e.g. employee, self-employed, managing director) and place of work, social security obligations may arise in the state of residence, the state of activity, or on the basis of intergovernmental agreements.
These areas are highly individual and should always be reviewed as part of cross-border activity.
Setting up a company as a digital nomad offers many opportunities - but it also comes with legal and tax risks. What matters is not lifestyle or a love of travel, but objective factors:
• Where do you live?
• Where do you spend most of your time?
• From where do you actually manage your business?
Foreign companies and E-Residency can be useful tools, but they do not automatically eliminate tax obligations. Anyone who wants to work in a legally compliant way in the long term should have their structure professionally planned at an early stage.
1. Is my residence arranged in a legally secure way?
2. In which country am I tax resident?
3. Where is the place of effective management of my company?
4. Is a foreign company really sensible for my business model?
5. Which double taxation agreements affect me?
6. Do I document my stays and activities sufficiently?
7. Have I obtained individual tax and legal advice?
