As work-from-home becomes the new normal, more expats feel tempted by the possibility of being a digital nomad who works from a Brazilian beach or a European summer house. However, some expats are doing it without the prior consent of their employers. This can create serious compliance and regulatory issues for the company, issues for which the worker can get sacked.
Post-pandemic workers do not want to be bound to the office – or a single country
In 2020 and 2021, the pandemic forced both companies and employees to work remotely from home. Workers' relationship with work has changed a lot in these last 3 years. Among the changes is a greater desire for flexibility, including the flexibility to work from anywhere that's most convenient or pleasurable for them.
Companies are struggling to bring workers back to a 9-to-5 office routine. Case in point, a study by the British property consultancy firm Remit revealed that in September 2022, only 33% of workers in the UK were going to the office every day. In India, only one major IT company, Tata Consultancy Services, managed to mandate at least 3 days of in-office work per week. Other Indian tech giants are struggling to encourage this: some aren't managing to attract more than 10% of their workforce back to the office, reports Money Control.
Some tech companies are tapping into the trend and creating entire legal and administrative frameworks to allow their workers to be digital nomads (i.e., work remotely from any country) for part of the year. Airbnb, Atlassian, Meta, Slack and Spotify are such companies. On its website, Airbnb acknowledges that “most companies don't do this because of the mountain of complexities with taxes, payroll, and time zone availability.” Some workers, unfortunately, can be unaware of (or willfully ignore!) those issues when they decide to become digital nomads without first informing their company.
Some employees are even taking wildly creative steps to hide their actual location. Subscribing to a VPN service, never showing any outdoor space during video calls, dressing in thick coats in the sweltering Thai summer just to pretend to still be in Pennsylvania during calls, working in the middle of the night to accommodate for the time zone difference, pretending to buy plane tickets back home and then just canceling the booking immediately, saying that they cannot come to the occasional on-site meetup because of an ailing relative, etc. While these smokescreens can actually convince their boss for months, they do not eliminate tax and regulatory risks.
Tax and regulatory risks of lying about your work location
Assuming that “work from home” (WFH) and “remote work” are the exact same things can have dire consequences. When you are working from home, you are still within the same city, state or country as your company. This means that your tax address is the same as theirs. Your income tax is withheld by the exact same authorities which levy corporate tax from your company.
Your salary is calculated according to the cost of living in that particular city, state or country. You are in the same time zone, so you will be assumed to be free for calls or occasional on-site meetings when it's daytime in that city, state or country. If you relocate internationally without informing your company, all of the above enters a legal gray area.
If an employee works in a foreign country long enough, they will automatically (we might even say, unintentionally?) establish income tax residency there. Even if their employer is domiciled in their home country and the work is 100% remote. The 183-day rule in many countries, including the UK, Canada and Australia, requires a person to pay taxes in the country if they have stayed there for half of the year (183 out of 365 days). Becoming a tax resident also means that your property and assets back home (wealth) and inheritance might suddenly be liable to double taxation – in both your home and host countries.
Remote workers might also be working abroad with an inappropriate visa, for instance, with a tourist visa instead of a digital nomad one. The UK's Home Office has clarified that it's illegal to use a tourist visa with the main purpose of working remotely while in the country, even if the employer is a non-UK one. You can only perform occasional work duties like replying to emails and troubleshooting while on a UK tourist visa.
If your company's Human Resource Department isn't aware of this change in your tax residency, they will face compliance issues at the next audit. They risk being heavily fined and firing the employee who caused this. Your mere extended presence abroad might make them unintentionally establish corporate tax residency there. The British legal firm Stevens & Bolton says that even with the existence of treaties that prevent double taxation, this can still create VAT issues if the worker is conducting client-facing sales, business development, or senior management tasks from abroad. It will also create a conflict if your company happens to have another branch in the country you're secretly living in.
HR will also face compliance issues concerning payroll. For example, some digital nomads refrain from disclosing their true location to their company to avoid having their salaries or benefits reduced in line with a cost-of-living adjustment. For this reason, some companies are now monitoring their employees' location rather than simply trusting self-reporting.
Other aspects affected by secret digital nomadism are social security, data protection, and health & safety. As for taxes, you might be required to pay social security contributions in a foreign jurisdiction if you stay there long enough. Data protection safeguards vary between countries, so it's important to check how well-protected confidential data is when you email your company from overseas. As for health and safety, your company might not be able to cover any work-related accidents or health issues abroad if they don't know you're there in the first place. Sick, pregnancy and holiday leaves vary between countries, which means that your employer should have consulted their legal team to discuss your leave allowances when abroad.
All of the tricky legal and administrative issues above show that it's best to be 100% honest with your company about your desire to work remotely from abroad. This way, you can negotiate and come up with an agreement that is tax-compliant and safe for both of you. Of course, you can also reconsider if this company is the right fit for you if it shows itself to be completely inflexible about the possibility of being a digital nomad.
