The 183-Day Rule and Beyond
The "183-day rule" is a common benchmark for tax residency, but it's often not the only factor. Here's how each country's rules work:
- Mexico: Residency can be triggered if you establish a home (*casa habitación*) AND your "center of vital interests" is in Mexico. This is true if >50% of your income is from Mexican sources OR your main professional activities are based there. This is subjective and riskier than a simple day count.
- Costa Rica: Residency is triggered by staying over 183 days in a tax year. However, Costa Rica has a **territorial tax system**, meaning it only taxes income earned from Costa Rican sources. Your foreign income is exempt, making this a low-risk country for tax residents. The Digital Nomad visa provides a formal tax exemption.
- Portugal: Residency can be triggered by staying over 183 days in any 12-month period, OR by having a "habitual abode" (e.g., a 12-month lease) available, which implies intent to stay, regardless of day count. This makes it possible to become a resident much faster than 183 days.
Foreign Earned Income Exclusion (FEIE)
The FEIE is the primary tool for U.S. nomads to reduce their U.S. tax bill. For 2025, you can exclude up to **$130,000** of foreign earned income. To qualify, you must first have a "tax home" in a foreign country and meet one of two tests:
- Physical Presence Test (PPT): You must be physically present in a foreign country (or countries) for at least **330 full days** during any 12-month period. This is a strict day count and ideal for multi-country travelers.
- Bona Fide Residence Test (BFRT): You must be a "bona fide resident" of a foreign country for an uninterrupted period that includes a full calendar year (Jan 1 - Dec 31). This is about intent and integration, suitable for nomads settling in one country on a residence visa.
Note: The FEIE doesn't eliminate U.S. self-employment tax (Social Security & Medicare) for freelancers.
Achieving Non-Resident Status
For Canadians, the goal is not annual mitigation but becoming a **non-resident for tax purposes**. This requires definitively severing residential ties with Canada. The CRA looks at:
- Significant Ties (Must Sever): A dwelling place in Canada, a spouse or common-law partner in Canada, and dependents in Canada. Retaining any of these makes non-residency very difficult to claim.
- Secondary Ties (Should Sever): Personal property (vehicles), social ties (club memberships), Canadian bank accounts and credit cards, provincial driver's licenses, and provincial health coverage.
- Departure Tax: When you become a non-resident, you are deemed to have sold certain assets (like stocks and mutual funds) at fair market value and must pay capital gains tax on them. This does not apply to Canadian real estate or RRSPs.
U.S. Foreign Account Reporting
Opening a foreign bank account triggers U.S. reporting obligations. These are informational returns, but penalties for failure to file are severe.
- FBAR (FinCEN Form 114): You must file if the total combined value of all your foreign financial accounts exceeds **$10,000 USD** at any point during the year. It's filed online, separate from your tax return.
- FATCA (Form 8938): You must file this with your tax return if your foreign financial assets exceed higher thresholds (starting at $200,000 for single filers abroad). It covers bank accounts plus other assets like foreign stocks or partnership interests.
Important: You may need to report the same account on both forms. Filing one does not satisfy the other.
The Audit-Proof Nomad
The burden of proof is on you. Keep meticulous records.
- For U.S. FEIE Claims:
- Physical Presence Test: A detailed travel log (spreadsheet or app), passport stamps, flight/train tickets, and accommodation receipts.
- Bona Fide Residence Test: Your foreign residence visa, a long-term lease, utility bills, and foreign tax filing documents.
- For Canadian Non-Residency Claims:
- Proof of severing ties: Closing statement from a home sale or a long-term rental contract for your Canadian property, confirmation of cancelled provincial health insurance, and closure of day-to-day Canadian bank accounts.
Official & Reputable Resources
Disclaimer: This tool is for informational and estimation purposes only and is not tax advice. Consult with a qualified cross-border tax professional.
