Digital Nomads: Consideration & Implications
Digital Nomads
For years, countries have frowned upon people working while traveling, creating grey areas for countries and visitors alike, with those working remotely simply ticking the ‘tourist’ field on passenger forms, even though they planned to work during their travels. Working remotely and abroad has increased 44% over the past five years and over the previous 10 years it grew 91%. Between 2005 to 2017, there was a 159% increase in remote work. In 2015, 3.9 million U.S. workers were working remotely. 7.3 million Americans describe themselves as digital nomads, according to recent research by MBO Partners, a provider of back-office services to independent workers that studies the freelance economy1. With these two things gradually becoming more popular, there has been a correlation with an increase for workers beginning to investigate international remote working opportunities while either being self-employed or remote working with a United States employer.
Destinations were historically so eager to protect local jobs, they overlooked the fact that most digital nomads were typically already employed and were simply looking for a more attractive place with an internet connection to do their existing work, not to take away local jobs. By making the process easier, countries have realized that benefits to the local economy can outweigh traditional taxation and bureaucratic tasks, and that it’s better to have the daily activities of someone already working for a company and paying taxes elsewhere, than to keep them out. Simultaneously, there are numerous items to take into consideration from both the business and digital nomad perspective. Taxes and insurance are multifaceted and need to be thoroughly examined before making the digital nomad decisions.
Trends
Currently there are 16 countries2 offering some type of visa status to attract foreign persons to live and/or work. In many cases, these are visa programs that require the foreign person to be either self-employed or working for a foreign company (i.e. bringing work from outside of the country to benefit those inside). There are some exceptions in which the digital nomad visas are more for passive income earners and working is not permitted. The digital visas are usually valid for at least a year and many can be extended.
With the COVID-19 pandemic, there has been somewhat oxymoronic execution of the digital nomad concept. With many workers who are expecting some type of work from home arrangement in their current position, often the next thought is often, “If I can work from home, why can’t I work from home in a nicer location until everything subsides?” The concept of working from home/abroad as borders shut down creates issues with attracting foreign persons as digital nomads. This tied in with the compliance, insurance, and tax implications creates a grey area for both employer and employee in approaching digital nomad work.
Insurance Implications
When you are looking for digital nomad insurance, there are two different types of insurance that come into play: travel insurance and health insurance.
The general idea of health insurance is that it pays your medical expenses when you go to the hospital or receive medical treatment. All countries require some form of health insurance coverage upon receiving the digital nomad visas.
More Insurance Coverage:
- Health Insurance
- Travel Insurance
- Business Insurance Considerations
- Cyber Risks and Insurance
Taxation
It is important to note that this section is not meant to give tax advice, but for informational purposes only. IMA is not authorized to provide tax advice. Employers should seek the guidance of legal counsel or tax professionals.
United States citizens are subject to citizenship-based taxation. Simply put, this means that regardless of where an employee resides, he or she is subject to United States income tax (and possibly state tax depending on the state). Depending on where an employee chooses to be a digital nomad and for how long he/she resides there could mean tax liability to that country. The United States has tax treaties3 with numerous countries.4 Generally, the tax treaties help clarify at what tax rates taxable actions are at and who has the right to tax on them. These treaties do not negate the fact that U.S. citizens are still required to file a tax return with foreign tax exclusions or credits.
Please take into consideration each country treats taxation differently with different regulations for residency and subsequent taxation liabilities.
More Taxation Coverage:
- Individual Taxation
- FATCA
- Business Taxation
- Foreign Taxation
- Pofeldt, “More Americans Try the Digital Nomad Style.”
- These include Antigua & Barbuda, Barbados, Bermuda, Cayman Islands, Costa Rica, Croatia, Czech Republic, Dubai, Estonia, Georgia, Germany, Mexico, Norway, Portugal, Spain, and Anguilla (UK territory).
- Countries with tax treaties with the United States: Australia, Austria, Bangladesh, Barbados, Belgium, Bulgaria, Canada, China, Cyprus, Czech Republic, Denmark. Egypt, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, India, Indonesia, Ireland, Israel, Italy, Jamaica, Japan, Kazakhstan, Republic of Korea, Latvia, Lithuania, Luxembourg, Malta, Mexico, Morocco, Netherlands, New Zealand, Norway, Pakistan, Philippines, Poland, Portugal, Romania, Russia, Slovak Republic, Slovenia, South Africa, Spain, Sri Lanka, Sweden, Switzerland, Thailand, Trinidad and Tobago, Turkey, Ukraine, United Kingdom, and Venezuela.
- IRS, “Tax Treaty Table.”