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Remote, hybrid or digital nomad?

November 3, 2021

What are the tax implications of being a “digital nomad”?

Covid has created a new wave of people embracing the opportunity to work from anywhere. “Digital nomad” was an expression first used in the late 90s, during the dot-com boom as the technology community took advantage of developments in technology, using nothing but an internet connection and a laptop or mobile phone to set up an office anywhere.

This flexibility has created opportunities for people who do all their work via a computer, as well as some challenges; from complying with local employment laws to international tax obligations. There is also the perception that digital nomads are entrepreneurs, running their microbusinesses anywhere in the world, but businesses have also enabled employees to be able to work from anywhere. Having a robust global mobility strategy, including understanding your tax obligations, is key to a smooth transition.

Top 5 tax implications for UK tax residents working abroad

Tax residence status

Be aware of your residence status, which is defined by the Statutory Residence Test.

The employee may need to report their departure to HMRC on a P85 “Leaving the UK” form or a UK tax return.
If you are a UK tax resident and UK “domiciled”, you will pay tax on all your income, but may be able to claim a Foreign Tax Credit for overseas income which is also taxed in another jurisdiction.

If you are a UK tax resident non-UK domiciled, you could complete a UK self-assessment tax return. If you elect to be taxed on the remittance basis, any overseas income will not be taxable in the UK unless it is remitted to the UK.

For dual-residents, the relevant Double Taxation Agreement should be considered to determine where you are a treaty resident.

PAYE

As an employer, you can continue to pay employees from the UK payroll, considering the individual’s residency.

Identify any PAYE adjustments that need to be made, including;

  • The NT code
  • s690 agreement
  • Net of Foreign Tax Credit Relief scheme

Social Security

  • A temporary move should mean being able to remain in UK NIC.
  • A permanent move to an EU/EEA country, or to a country with a social security agreement may also mean you are able to remain in UK NIC.
  • Travelling across multiple countries also affects this status. Checking with an international tax accountant will confirm what is required.

Permanent Establishment

If you are granted “permanent establishment” (PE) in the foreign territory, tax advice should be taken in that country, usually resulting in profit being taxed locally.

Overseas compliance

Seek local advice on complying with tax in the overseas territory, checking whether as an employer you need to register locally, operate a payroll to withhold tax and social security?

Considering the timing of when to become a resident or non-resident can maximise opportunities.


If you are a digital nomad or employ staff you are looking to move overseas and need help with international tax, contact us here. As members of the Expatland Global Network, we can also provide you or your staff with support for your next relocation.