Advancements in communication technology such as Skype have enabled the rise of Digital Nomads (DN). This technology allows remote workers to perform their work from any location with a reliable internet connection. As such, there has been a noticeable increase in this field. Approximately 4.8 million Americans described themselves as Digital Nomads in 2018 (Forbes). A Digital Nomad will typically work and travel in a location with a good quality of life and low-cost base. They are often swapping from their home cities such as London or New York, where the cost of living is higher.
Social media has potentially glamorised the Digital Nomad lifestyle of passive income. Many DN individuals have built themselves extraordinary lives from working remotely. However, despite undoubtedly being many advantages of working remotely, starting out as a Digital Nomad in a foreign country can be complicated. It requires much more than having a computer and a backpack. That is not stopping waves of young people from buying one-way tickets in search of this elusive lifestyle. Many individuals may indeed end up socialising in Digital Nomad circles. However, they are often missing the number one ingredient; they are unable to generate income for themselves while living abroad. It can result in them eating into savings and possibly returning home to their previous job.
The surf town of Canggu in Bali has rapidly grown to become the number one Digital Nomad location (Nomad List). It is easy to see why, with a low cost of living ($1,500 pm), surfing on-demand and crucially for DN’s – fast internet speeds. Canggu’s many advantages seem to outweigh its flaws of inadequate healthcare, traffic safety and pollution for the growing Digital Nomad Canggu community.
However, there is a strong argument within the Digital Nomad Canggu community that the term ‘Digital Nomad’ is destructive. For example, being a Digital Nomad is not a profession. You cannot invoice an employer for 40 hrs of work as a Digital Nomad. These individuals are in-fact Web Developers, Graphic Designers, Architects, Videographers. These are the specialist services for which they are employed.
As such, the term Digital Nomad refers to a broader community of people working remotely in a location independent manner, not the individual itself. The surge of Instagram and social media has further blurred these lines. More and more frustrated employees dream of becoming a Digital Nomad. However, they do not necessarily think about what they would do to make a living while seeking a Digital Nomad lifestyle.
From our experience of advising Digital Nomads, there is a re-occurring theme in their success. Firstly, they are individuals who are highly skilled within their niche sector and know their industry inside out. Secondly, they did not learn all of these skills in a coworking space in Bali or Chiang Mai. They often developed these skills at home while working in a much larger company. They worked alongside highly experienced professionals and were at the forefront of their sector within a dynamic team. Their nomadic lifestyle began after they had sufficient experience, knowledge and industry connections.
This is not to say that you cannot fly to Canggu and create an excellent business and recurring income. The point is that many Digital Nomads put in the hard work in the earlier stages of their career. What is more, their old employer trained them much of what they now know. You have a higher chance of becoming a successful Digital Nomad if you leave home with a specific skill-set that you know how to deliver. This skill set should ideally be high in rising demand. Lastly, many Digital Nomads are now working with clients they met at their previous company. Connections are everything in business.
Like any industry, a Digital Nomads salary can vary dramatically. A recent survey discovered that 18% of Digital Nomads reported earning over $100,000 a year while 22% reported earning between $50,000-$99,999 (The Republic). As such, a high proportion of those living nomadically makes more than the average US worker on $46,600 per year. However, this does not paint the complete picture. Due to lower costs of living a remote worker earning $50,000 per year may be able to afford a more comfortable lifestyle than a colleague earning $100,000 in the US. For those of you who like things in pounds, the average salary in the UK is £28,677 (The Guardian, 2019).
This statistic undermines the romantic idea of entrepreneurs packing their suncream and Mac and making it as a Digital Nomad. The above study also revealed the majority of remote workers (35%) are employed by a company with a fixed salary, as opposed to being a freelancer (28%) or owning their own business (18%).
These employers may well go on to become freelancers or business owners. However, this vital statistic evidences our point that the majority of successful DN’s create their nomadic lifestyle through their home employer. That is also logical as many employers may have already been working from home in Europe or the US. Therefore, the conversation of asking to work and travel remotely was not a big step for them with their current employer.
An issue for Digital Nomads is that there is often no HR department forcing you to make pension contributions to save for retirement. It may sound great, as it gives you a more substantial surplus income to enjoy your travel and social life. However, the problem is that you are losing ground to your counterparts back home. Your friends back home may earn less, but they are consistently saving for retirement and their contributions have longer to grow.
No-one enjoys paying the last price for the festival ticket. Early bird tickets guarantee you entry at the lowest cost, and you even quickly sell it again closer to the time. Digital Nomad Retirement Planning is no different. The chart highlights the difference of saving $500 pm from the age of 25 and saving $500 pm from the age of 35 with a net annual growth of 5% pa. Importantly, the individual who saves from age 25 creates a pension pot of $409,348. While the individual who saves from age 35 receives a pension pot of only $203,728.
Through compound interest, the Early Bird Saver only saved ten years longer but doubled their Digital Nomad retirement fund. In percentage terms, they only contributed 43.9% of their own money to their retirement fund ($180,000) with the remaining 56.1% being accumulated through growth ($229,348). However, the Digital Nomad who started saving later at 35 will end up contributing 58.9% of their own money to their retirement fund ($120,000) with only 41.1% being accumulated through growth ($83,728). What would you do with the extra $200,000 in retirement?
DN’s are typified as surfing and eating avocado slices and being out of touch with the realities of ordinary life. In our experience, though, many DN’s we speak to are acutely aware of saving and protecting their financial future. Some DN’s operate in markets or grey areas that can rapidly change such as Amazon, dropshipping or being an influencer. They need somewhere safe and tax-efficient to save lump sums that they receive.
Cameron James offers our clients the Digital Nomad Platform. The platform allows DN’s to gradually ensure that their global earnings and wealth are being stored in a secure country. That is valuable when living in less politically stable countries or when you would not trust the local banking system. It is also beneficial in-case something happens to you. Your family and beneficiaries will receive all of your money without needing to search for it or take any flights. Crucially, the Digital Nomad Platform allows you the opportunity to benefit from the long term upward trend of equities which have consistently outperform any other asset class (Reuters, 2019). You can invest in over 2000 funds or listed assets. It permits both Active Investment strategies or a Passive Investment strategies or a combination of both.
A growing number of young families are adopting a Digital Nomad family lifestyle. Your children can benefit in numerous ways. The lifestyle encourages them to explore outside of their comfort zone and learn new hobbies and languages. It can also work for you financially as the cost of living may be lower. For you, this equates to low-cost and often vibrant working spaces to meet like-minded professionals. It may also mean you can afford a local driver or full-time nanny. Moreover, your children can attend more weekly activities, such as surfing, yoga, soccer or swimming. All of which at a lower cost compared to your western city.
While your living expenses may be low, the cost of international schooling is typically not. The cost of international education in South East Asia can rival even the most expensive English schools, such as Eton. However, access to low-cost local state schools may be limited as places are prioritised for local children. Your children may also be denied access or struggle to learn unless they have picked up the local language.
The table outlines the total annual tuition costs of attending Grade 12 in Canggu Community School and Bali International School with the Average UK Cost of Private School (The Independent). This highlights how despite offering a low-cost of living, private education in Bali can be as expensive as UK private schools.
Many people believe that Digital Nomads do not need to pay UK tax. That is not necessarily true. It will depend on your tax residency. An individual is classified as a UK tax resident if he spends more than 183 days annually in the UK. Thus they must pay UK tax on their earnings (Gov.Uk). Similarly, an individual is automatically classified as non-resident if they spend fewer than 16 days in the UK per year. Therefore, no UK tax is due on their earnings.
However, in between these two clear definitions, there is a large grey area of Digital Nomad tax situations. Also, tax authorities are not naive or a soft touch when it comes to tax evasion. For example, an individual who spends 95 days in the UK and the remaining 270 days elsewhere, could still be classified as a UK tax resident. This could occur for a variety of factors; including ownership of a UK business or UK property.
The U.S. has a unique taxation system. In effect, the term tax residency does not exist in the United States. All Green-Card holders and U.S. citizens must report their worldwide income and tax irrelevant of where they may reside (IRS). In 2010, the U.S. government and IRS introduced FATCA legislation. It forces all non-US financial institutions to review customer records of any client who has distinguishing links to the U.S. They also need to report these assets and the identities of the individuals to the U.S. Department of the Treasury.
If you are a U.S. Citizen or Green-card Holder living abroad, you still report your worldwide income to the U.S. If you meet certain conditions, you may be able to exclude up to $105,900 (2019) from your U.S. tax assessment (Medium). In addition to this, you may also be able to deduct certain foreign housing costs.
The IRS has several measures to access this, including the Bona Fide Residence Test and a Physical Presence Test. The former test may only be utilised with a country with whom the U.S. has an income tax treaty in place. The Physical Presence Test means you must be physically present in a foreign country 330 full days during 12 consecutive months. In summary, U.S. citizens of Green-Card holders need to pay close attention to tax. They need to ensure that they do not fall foul of their U.S. tax returns. As well as, take advantage of legislation that is in their favour.
Believing you do not have any tax responsibilities if you keep travelling without a permanent residence can have catastrophic consequences. The long-term rental of a villa, guest house or hotel room that is ‘at your disposal’ can be deemed as a residence. Many DN’s may have been doing this for years and not paid tax anywhere.
However, this kind of lifestyle comes at a high-risk. Depending upon where you reside in the world, the local government, police or tax authorities may not be as accommodating as your home country. Especially when your defence is that you didn’t understand you were working or your DN tax residency.
Governments globally are trying to raise tax revenues in any way possible. In less affluent countries, fining foreign nationals who are not declared as living and working can be a lucrative business for officials. This type of involvement with the authorities is unadvisable. Complications can range from corruption (paying officials to not turn you over to the authorities), being investigated by the authorities or being banned from the country. Your DN life may be great, but you need to take responsibility and know your rights. Specifically, where you should be declaring and paying your taxes.
It will depend on the kind of your working status. If a company employs you from home, a Digital Nomad Accountant may not require. Your HR team may already be paying your taxes directly for you. If you are a freelancer or running your own business, then a Digital Nomad Accountant may be required. You will firstly need to report your taxes. That is, what income or dividends you have received from your company and where you should pay tax on this.
Secondly, you will need to assess where your Digital Nomad company is tax resident and to which government your company should pay corporation tax. In some instances, your company may be located in a tax neutral jurisdiction, so no corporation tax is due. If you do not have a full understanding of the above, then you should have a free consultation and Contact Us.
You may live thousands of miles from home, not use your local roads or healthcare, not conduct business there and only visit your home country once a year to see your family. We can understand why you may prefer not to pay corporation tax on your company profits back home. The conversation of Offshore vs Onshore Digital Nomad companies has been intensified with recent revelations, including the Panama Papers (BBC News).
However, there is also the reality that we are now living in an age of information sharing. Governments are actively collaborating with an Automatic Exchange of Information (AEOI) to reduce global tax evasion (OECD). This system is a win-win for Governments. They exchange information with one another, and in doing so, each raises more taxes.
This system enables the discovery of previously undetected international tax evasion. There is also the premise that having this system in place will increase voluntary disclosures of earnings. The main reason for this being that the individuals know they are more likely to be discovered.
So what does this mean Digital Nomads who want to minimise their global taxation? It is important to note that while tax evasion is illegal, tax avoidance is not illegal. Tax avoidance is using the rules laid down by governments to minimise your global taxes.
The worlds leading companies such as Amazon and Apple, avoid tax legally to significant effect. Whether these practices are immoral is not for us to pass judgement on. Amazon famously made UK headlines in 2012 when it declared UK sales of $213 million and sales of $11 billion in Luxembourg (Medium). The population of the UK is 66 million, while in Luxembourg it is 590k (World Bank).
As a Digital Nomad, there is nothing wrong with understanding how to minimise your global taxation. It is a natural business decision to increase your profits while remaining within the letter of the law. However, this is a crucial point and why taking professional advice is essential. There is a fine line between tax avoidance which is legal and tax evasion, which is illegal. As when setting up such arrangements, it is you who is personally signing the paperwork, not the formation company. It is you whom the relevant tax authorities will contact.
Minimising the risk of anything disrupting or closing your business should be your number one priority. Speak with our Financial Advisers today to understand which Offshore location may be best suited for your Digital Nomad Company.
Andrew Reynolds is a UK entrepreneur who runs entrepreneur events in the UK. People pay to attend his events and receive encouragement for starting businesses at home in the UK as he did. The website has a page called Andrew Reynolds Digital Nomad Retirement. However, the page only has one sentence which describes what a DN is. The remainder of the page talks about himself. For this reason, we should suggest the article is perhaps not focused on DN’s or their financial planning needs. For a detailed understanding, read our section on Digital Nomad Retirement Planning.
Challengers banks are also providing unbeatable foreign exchange deals on cash withdrawals. For those who travel frequently, this can provide significant annual savings. For example, Starling Personal and Starling Business accounts include unlimited free withdrawals abroad. That means no on-off withdrawal fee and no foreign exchange % charge. It is different from Barclays who charge a 2.75% Non-Sterling Transaction Charge. It equates to a monthly cost of £41.25 when withdrawing £1,500 pm. That means, over the course of a year, a Digital Nomad could save £495.00 from this feature alone.
Starling Bank, like its challenger competitors, also provides more advanced and useful features within its mobile application. For example, if you misplace your bank card during an evening out, you can ‘lock’ the card within the mobile app. After doing that, no-one can use the card. If you find the card a few hours later, you can ‘unlock’ it again with full capabilities. You do not need to order a new card and wait for delivery which is very helpful when travelling with work.
As outlined on the right, you can also toggle any number of options, including ATM withdrawals and online payments. That is valuable in high countries such as Indonesia which have top credit card fraud. Both Visa International and Mastercard rank Indonesia as No.2 on their list of the worst countries for credit card fraud. This list is ranked by the number of incidents recorded.
The ATM withdrawals toggle function allows people to withdraw their funds before un-toggling ATM withdrawals again safely. It means that even if their card gets ‘skimmed’ the criminals will not be able to access funds quickly.
Talk to one of our Financial Advisers to learn which bank might be most suitable for you as a Digital Nomad.
The average time for a pension transfer is 3-4 weeks. Depending upon the type of pension with DB transfers taking longer and DC transfers shorter. In our experience, exemplary paperwork and streamlined communication are keys to faster transfers. Errors lead to longer transfer times. International SIPP transfers are generally quicker, while QROP transfers take longer.
Nobody likes surprises. At CJ our clients know exactly how much their financial advice will cost before they proceed. We have initial advice and set-up fee of 1-3% depending on the size of your investment and an ongoing annual management charge of 1% – Our Costs.
Absolutely not. There are no nasty lock-in periods with CJ. If you are ever unhappy with our level of service you are free to leave without cost. This keeps us on our toes to continue delivering our high quality of service.
Your policy will pass directly to your named beneficiaries which you state in your application process. So you have peace of mind that your loved ones will automatically receive your assets. No messing around.