Should Digital Nomads Pay Income Taxes?

The digital nomad lifestyle with people working remotely for their laptops anywhere in the world has been going on for at least a decade and growing in popularity.

Most digital nomads in the past would work remotely and stay in countries like Thailand or Indonesia on tourist visas. They would do border runs and renew the tourist visa to allow them to stay longer. With the Covid-19 pandemic and quarantine rules, these runs have become impossible to do so. This resulted in Digital Nomads going back to their country of citizenship or stay in countries where they are allowed to stay.

The Rise of Digital Nomad Visas

Last year a lot of countries started to launch Digital Nomad Visas, programs and tax incentives. These visas allow people to stay and do remote work within a 12 to 24 month period.

These visas are created for various reasons. It is mainly to help the local tourist industry that has been ravaged by the Covid-19 pandemic. Some other countries are also thinking more long-term with these programs and use them to reverse brain drain and to slow down the effects of depopulation.

About one month ago I launched an article on all the countries that have launched a digital nomad visa. This article got quite a lot of traction on Linkedin and I decided to investigate the comment section which was all about the Croatia Digital Nomad Visa program.

This program which is available to non-EU citizens has a special income tax exemption. The comments were mainly negative and focussed on the fact that Digital Nomads should pay the same tax as locals and also that digital nomads with their well-paid jobs make everything more expensive for locals, especially rent and house prices. The latter is more related to the AirBnB effect and over-tourism, which is a totally different subject.

Here is one of the comments which I translated to English before I set out why countries should tax incentivise Digital Nomads.

What has been stinging my eyes from the beginning is that Croatia has adopted rules for the DN as rich countries or countries have that want to attract only very wealthy workers who will easily fit into their standard of living. Countries, which are comparable to Croatia, all have a certain type of tax that DN has to pay. In my opinion, DN with high purchasing power will be able to very negatively affect the standard of the local population because it will be able to offer more for the best service, e.g. renting apartments and houses in the best locations or prices in restaurants. In doing so, they will not have to pay taxes and surtaxes during their stay in Hrv, thus using the infrastructure paid for by the local population to enjoy benefits that the local population cannot afford. Here’s my humble reflection on the subject.

Why Digital Nomads Should Pay No Income Tax

Incentive

Low or no income taxation is an incentive for Digital Nomads to come and visit and spend in the country. The Digital Nomad will spend money that is most of the time taxed at VAT rates which in a lot of countries sits at 15–25%. When it comes to renting, short term tourist rentals have VAT applied to them, whereas long term rentals have within their fees the local taxes that need to be paid. Some goods consumed even have high import duties applied to them.

Contribute Through Visa Application Fees

Digital Nomads pay high fees for applying for the extended visa. A Country like Barbados with the Barbados Welcome Stamp, which is a 12-month visa with the right to remote work, has an application fee of $2000 for an individual or $3000 for a couple or family.

Digital Nomads Create Local Jobs

Digital Nomads do not take away jobs in the country, they work remotely and are not allowed to take on local clients. This does not mean that some nomads are scouting for social media management or website building business within the borders of the country. On the contrary, the local spending of nomads is more likely to create local jobs.

Digital Nomads do not Cost Money

Digital Nomads do not use a country’s social security system and health care system. Digital Nomads on tourist visas have travel insurance. Digital nomads on a special visa program are required to have private health insurance.

Most Digital Nomads also do not use the countries education system and if they do, you can make them pay for it like international student programs already do. Barbados requires that Digital Nomad families that want to send their kids to a state school, that they pay a fee.

Digital Nomads are not Grounded

Digital Nomads are not grounding in the country they stay in and if they want to, countries should have proper mechanisms in place for people to become long term residents and eventually even become citizens with the right to vote. Especially the Digital Nomads that bring value to a country.

A good digital nomad visa scheme and process combined with clear paths for migration and citizenship could be useful for countries suffering from brain drain or depopulation.

Conclusion

Digital Nomads are fluid and will go to countries that make them feel welcome. An income tax exemption could be a good incentive to attract long term guest in countries ravaged by the Covid-19 pandemic. There are still plenty of economic benefits to be had even without income taxation.