Back to top

The Rise of the Digital Nomad & Its Tax Implications

The Rise of the Digital Nomad & Its Tax Implications

The rise of digital nomads and its tax implications will be one of the topics to be discussed at #TLTaxCon19 in Barcelona this coming October. Make sure to join the discussion by grabbing your tickets HERE. Hope you can join us!

As borders become more porous and online communication becomes easier by the hour, the number of digital nomads—individuals who work remotely from any location throughout the globe—is rapidly on the rise.

Digital nomads are predominantly young entrepreneurs and freelancers who ply their trade in the knowledge economy in sectors such as marketing, consulting, education, information technology, content creation, writing and media, to name a few.

Assisted by the wide provision of cheap Internet access, short-term lodging services such as Airbnb, smartphones, and other computer-based communication solutions, digital nomads travel the world while working, either on a project basis or as part-time employees for multiple firms.

In a interview with Entrepreneur, Dr. Poornima Gupta, Associate Professor of HRM & Organisational Behaviour at Great Lakes Institute of Management in India, summarizes the concept nicely: digital nomads, who are mostly millenials, are a “growing breed of entrepreneurs who embody the success and freedom that an Internet Lifestyle can provide” and combine “the money to spend that they earn through various income streams – blogging, training, e-products, internet e-commerce, webinars, etc.,” with “a passion to travel and enjoy new things in life.”

The appeal of working remotely and independent of location has led to the growth in number of digital nomads.

For instance, statistics shared by Raconteur show that in the US alone, “the number of remote workers increased from 39 to 43 per cent between 2012 and 2016, according to Gallup.”

More specifically, a 2018 research study performed by MBO Partners determined that “4.8 million independent workers currently describe themselves as digital nomads” in the US with an additional 59 million potentially being added to their ranks during the next couple of years.

Furthermore, across the pond in the UK, “the ONS reports that 2.6 million people work from different places with their home as a base.”

Main Advantages & Disadvantages of Being a Digital Nomad

Main Advantages & Disadvantages of Being a Digital Nomad

So what are some of the main advantages of being a digital nomad?

  • Plenty of flexibility when it comes to your choice of job or projects, base country, living arrangements, travel plans and working hours, to name a few.
  • Great opportunity to stay updated on the latest communicational tools and computer-based solutions to improve your job performance.
  • Chance to learn about difference cultures, meet new people and establish a myriad of relationships that could be beneficial in the future.

How about some of its main disadvantages?

  • Sleep patterns might be interrupted as a result of random working hours, time difference and not having a regular bed.
  • Additional barriers might be imposed due to travel restrictions and visa requirements.
  • A lack of physical interaction with other people in a workplace can take a psychological and physical toll on an individual.
  • Settling one’s tax responsibilities might be trickier than usual.

Tax Implications of Being a Digital Nomad

Tax Implications of Being a Digital Nomad

So what are the main tax implications of being a digital nomad?

Given their nomadic lifestyle, handling their tax affairs can be problematic for the digital nomad.

Talking to the New York Times, Chad Rixse, a financial planner working with Forefront Wealth Partners in the US, explains that, in many jurisdictions, “you can usually avoid paying taxes on your income by not spending more than six months there at a time, but rules vary in every country.”

So one main recommendation offered to the digital nomad is to hire an experienced tax consultant who will help him or her navigate through their tax obligations and always stay in compliance regardless of their nationality, residency status, current home, etc.

For instance, the Nomad Capitalist suggests that digital nomads should acquire a second residency and potentially earn your money via an offshore company.

Another financial challenge posed by the gig economy and the constant movement of the digital nomad relates to banking.

Fintech Futures writes, “Traditional banking simply isn’t suited to the digital nomad lifestyle,” adding that  “static taxes and deposits are almost impossible to regulate if you’re spending the working year in three different countries, or potentially more.”

This issue is compounded when one also takes into account things such as “exchange rates, transfer charges and so on.”

Back in 2017, Micropreneur Life summarized this quandary nicely: “The world is not ready yet for digital nomads. We are slowly getting there, in my opinion. However, right now, the concept of “not belonging” to a place or not having a steady residence completely clashes with most tax regulations. Countries are not ready for this kind of lifestyle, and obviously, your home country and any other place where you spend enough time will want to get money from you in form of taxes. To make things worse, there’s no international law regarding taxes for digital nomads. Current laws were written in the times when people usually stayed in their home countries. Traveling the world on a regular basis presents many challenges that have no answer as of today.”

This subject will be discussed in depth by Dr. Svetislav Kostic, Docent in Tax Law at the University of Belgrade in Serbia, so make sure to join us in Barcelona!

TAGS