In the age of globalisation and post-pandemic technological advancement, the transcendence of  traditional work boundaries means that majority of people have a friend or a friend-of-a-friend who has embraced the untethered world of ‘digital nomadism’. But, all the Instagram-able sunsets and beaches may not come easily as digital nomads (and their employers) need to jump through a number of legislative hoops to maintain their unique lifestyle.

There are 35 million digital nomads worldwide (thinkremote.com). These are individuals who leverage technology to perform their work duties from anywhere with an internet connection. This lifestyle allows them to explore new destinations, experience diverse cultures, and maintain a level of freedom that traditional office jobs might not provide.

Tax

85% of digital nomads are self-employed (statista.com) and with this comes the necessity to look after their own tax liability. 

The determination of tax liability often hinges on an individual’s residency status and many countries have specific criteria to define residency. This can often be based on factors such as the number of days spent within their borders. Being a digital nomad can blur the lines of residency, potentially leading to dual tax obligations.

To avoid being taxed twice on the same income, a number of countries have double taxation treaties in place. These agreements outline which country has the primary right to tax specific types of income. Digital nomads should be aware of these treaties and take advantage of them to mitigate double taxation.

Some countries also offer favourable tax regimes for remote workers and entrepreneurs. Researching and potentially establishing residency in locations with lower income tax rates or tax incentives can help optimise your tax burden. However, this should be approached with caution and in compliance with local laws.

Pensions

Your UK pension is also determined by residency status. Ed Gibson, Head of Financial Planning for Shaw Gibbs comments

“If you remain a UK resident, you are entitled to receive the same pension tax reliefs, and your National Insurance Contributions will continue counting towards the UK state pension. After the tax year in which you become non-resident you can only get tax relief on contributions up to £3,600pa unless you continue to have UK relevant earnings.

If you become UK resident again you can potentially get tax relief on contributions to a pension using the Annual Allowance of the previous three years despite not having been UK resident in those years.

Don’t forget, If you are working in the EU, you can count relevant social security contributions made in EU countries to meet the qualifying conditions for a UK state pension. “

Legal

Traveling from country to country as a digital nomad can complicate visa and immigration matters. Many countries have strict regulations that distinguish between tourists and individuals conducting business activities. Depending on the destination, you might need a work visa, business visa, or even a special digital nomad visa, which some countries have started offering.

There are 40 countries who offer nomad visas which mean you are able to live and work in the country in question without working for a local employer.

Some countries require work permits for foreign nationals who wish to conduct business activities within their borders. Digital nomads could inadvertently run afoul of these regulations if their work is deemed as local employment. Understanding the specific permissions required for your work activities is vital.

If you’re operating as a freelancer, consultant, or entrepreneur while on the road, you might need to register your business or obtain licenses in various jurisdictions. Failure to do so could result in legal complications and penalties.

Employing a digital nomad

The decision to commit to a digital nomad hire or, to honour an existing employee to flex their employment with you should not be taken lightly. Amongst other considerations, they may need a different contract and holiday allowances and their benefits would need to be reviewed so that they are fair to both the nomadic employee and the in-country employees. The contractual obligations of course do not take into consideration the extra management required to foster a sense of team cohesion with the remote and office based workers whilst also ensuring a productive work force.

It is advisable to consult an employment lawyer before making a decision.

Payroll

The digital nomad’s pay will ideally need to be handled by a global payroll specialist who can cover off the legislation in each country and organise the currency they will be paid in.

“Sourcing local expertise is an option and this is something we do via our international association DFK.”

Says Katie Preston, Head of Payroll at Shaw Gibbs

“However, we find that this is better suited to client’s who are setting up a new operation overseas rather than for dealing with untethered  employees. Some local payroll providers are also reluctant to set up a one person payroll for what could be a very short space of time as the cost of onboarding will likely outweigh any profit”

Tax

Your employee could be under the jurisdiction of that country’s tax law and you will therefore liable to remit taxes to the particular country your employee is living in. In some countries digital nomads have to pay taxes after 183 days of living and working there but this varies from country-to-country and therefore can be particularly complex if your employee has an appetite to tour. It is worth bearing in mind that some countries (such as the USA) have varying tax laws depending on the state or region which adds another layer of complexity.

Practical steps

• Given the complexity of tax and legal matters, consulting with tax advisors, legal experts, or international business consultants is strongly recommended
• Keeping meticulous records of your income, expenses, travel history, and work-related activities is crucial. These records can serve as evidence to support your tax residency claims and compliance with local regulations
• Research destinations before embarking on your journey, thoroughly research the tax and legal requirements of your intended destinations. Understand their rules regarding visas, work permits, taxation, insurance and business operations
• Do not expect your employer to honour a nomad request due to the extent of extra work they will need to undertake, especially if they have not employed someone on this basis before.