Digital nomads and tax: is it an ethical lifestyle choice or cheating?
“I go for a surf, work by the pool, get a massage, go home and my maid’s cleaned my house, drink a coconut at sunset, then repeat.”
More Westerners are becoming “digital nomads”, descending on cheaper countries in South-East Asia, Eastern Europe and South America, to flee rising rents, stagnant wages and repetitive lifestyles back home. And as the economy moves further online, more businesses are realising remote workers free them from overheads while opening a global talent pool.
“We say ‘digital nomads’, but really we’re just immigrants,” 26-year old Oli Canavan says.
“When it’s Westerners invading the East, we’re “digital nomads”, but when it’s Easterners coming to the West, they’re “immigrants”.”
On day two of his holiday to Palawan in the Philippines, the white sand and jungle paradise tagged “Asia’s final frontier”, Mr Canavan decided to ditch his “soulless” sales job and start a tour company with a local. One year on, he manages Big Dream Boat Man remotely from Bali, enjoying a lifestyle world’s apart from his high-pressure corporate role.
But for those stuck in “the cubicle” back home, the enviable lifestyles of nomads can feel like cheating.
Are we just jealous or are digital nomads exploiting the system? If so, who’s losing?
‘Are these people paying any tax?’
The most common question from “cubicle” critics is, “where are these bloody millennials paying taxes?”
Like everything to do with tax, the answer is complicated.
Most nomads have simply taken their job on the road and continue to pay taxes to their home governments.
It’s possible that nomads could escape paying tax altogether — “I am generally travelling on a tourist visa and not in one country long enough to be considered a resident, therefore I don’t pay taxes anywhere,” one traveller claims on a digital nomad forum.
Becoming “tax non-resident” is more complex than just leaving the country for a long time. Using Australian bank accounts or leasing and owning Australian property may mean you’re still a “resident” while you’re away. But it’s theoretically possible.
Then there’s company tax — some savvy nomads are moving their business structures offshore to score lower company taxes in places like Singapore and Hong Kong.
“Startups don’t stay in Australia because the capital gains tax system is not attractive,” says Australian nomad Brie Moreau, who runs a digital marketing conference and agency, which employs 10 people around the world.
“We’re seeing a brain drain because it’s not beneficial to be in Australia for financial reasons. Digital nomads are the start of this exodus of money out of Australia and other Western countries.
Offshoring not just for global companies
Some digital nomads spread tips on “offshoring” and tax minimisation through a web of Facebook groups. For many, paying tax to a country they don’t live or work in is the true injustice.
“I don’t have a problem paying tax to Australia; my company is set up in Australia and pays tax,” says Mr Moreau. “But I don’t think I should have to pay a 30 per cent [company] tax rate and deal with the bureaucracy of the Australian tax system when I don’t live there and my clients are international.”
Tech consultant Michael Tremeer works to “optimise” his tax bill, but views it in relation to the Australian services he will use across his life.
“I’ve been to university, I’ve used Medicare … Australia has been good to me, so I don’t mind paying my share,” he says.
But for Mr Moreau, the concept of a lifetime exchange with one country is at odds with the roving future he sees for himself.
“Are you obliged to pay tax to a country for the rest of your life because you lived there for a certain amount of time?” he says.
“I am not using Australia’s services yet I’m paying tax for them.”
‘They’re back home living with their mums in a year’
How to tax nomads goes to bigger questions for the digital economy: how do we say “where” digital work is done? Which government is entitled to reap taxes from work that’s done in the cloud? In a global economy, does a national tax system still make sense?
“This is a big problem for tax authorities and most major governments,” says Antony Ting, associate professor at University of Sydney Business School.
“The tax system was designed before we even had internet. Digital nomads might have small turnovers, but if you look at the bigger picture, digital companies like Google, Microsoft and Apple are deriving significant revenue in Australia, but the tax system can’t capture that income.”
For Mr Canavan and Mr Moreau, the focus should stay on these big companies and not on enterprising digital nomads.
“Eighty per cent of digital nomads are not making any money. They’re back home living with their mums in a year,” says Mr Canavan.
“So this tax question is not as big a deal as people think.”
‘Crypto-nomads’ are on the rise
Policing tax is tricky at the best of times, with most tax systems relying on workers to honestly report their earnings. Policing across border is even harder, but the Australian Tax Office is working on it:
“Information-sharing between countries has increased significantly in recent years with data exchanged automatically and through programs specifically implemented to improve global tax transparency,” the ATO said in a statement.
From September, foreign banks will feed information back to the ATO about Australians’ transactions overseas, under a new measure called the Common Reporting Standard. In theory, this should make it difficult for Australians overseas to conceal their earnings.
But, like all tax measures, it can’t monitor cash payments, bartering or cryptocurrency. Bartering is common in the co-working spaces that dot nomad hotspots. On cork pinboards and their digital equivalent — Facebook groups — nomads list their skills to share, from standard creative services (graphic design, marketing consulting) to more fringe offerings (“growth hacking”, “cryptocoaching”).
“Crypto-nomads” are also on the rise, as cryptocurrency trading goes mainstream, offering global, digital currencies without foreign transaction fees or high exchange rates. At this stage, not enough businesses pay or accept payments in cryptocurrency for digital nomads to bypass regular banks. But in future, it’s possible that digital nomads could operate independently of banks, hidden from the prying eyes of tax authorities behind 256-bit encryption — unless tax authorities catch up.
Are locals losing out?
Ask a digital nomad if they’re helping their host country and you’ll get an enthusiastic list of the ways. They’re volunteering on community projects. Bringing new skills. Spending money in the local economy. Paying their host government thousands in sales, lodging, transport and bed taxes — although usually not in income or company taxes, despite working from the country.
Ask a local and you might hear a different story. Yes, nomads are injecting funds into local economies, but this can also price-out locals — particularly when it comes to rent. In 2017, protests swept Europe as locals blamed Airbnb for driving up rents. Mr Canavan likens this to the gentrification of big cities.
“It’s an age-old story: first the artists move in, then the yuppies move in, then the artists have to move out. It’s the same here: the digital nomads move into a place, then the tourists come, then the digital nomads leave,” he says.
“It used to be that artists could go and live anywhere and create with their tools. Now you can be an artist with your computer.
“Digital nomads are kind of artists who can’t paint.”
Nomads argue they’re bringing new skills into their host countries. The influx of tech yuppies to Bali has seen the island dubbed “Silicon Bali”. Skill-sharing is key to the nomad ethos, but how often do locals get a look in?
“I’ve given talks at co-working spaces all over Europe, Asia and North America. There’s locals at those talks too, and they ask questions, and I am always willing to help anyone willing to learn,” says Mr Moreau, who runs Bali’s Digital Marketing Skill Share conference.
“The skills level in the digital marketing sector in Indonesia is low. The more high-level people that are here, the more that benefits the economy.”
Yet this model relies on co-working spaces taking the initiative to host events, and locals hearing about them, being able to afford a ticket and speaking English. Mr Moreau concedes that not all co-working spaces are so proactive: “many are just a shared office”.
Is being a digital nomad ethical?
At best, the digital nomad is a welcome financier of local, often struggling, economies. At worst, nomads are neo-colonialists, reaping cheaper living costs in a wealthy expat bubble.
Human resources expert Angela Knox isn’t confident that it’s possible to be an “ethical” digital nomad.
“Even if they’re careful with the way they’re making decisions to spend their money in that country, it will drive up costs for locals.
“We know the “trickle-down economy” doesn’t work like it should in theory.”
Remote work not for everyone
The difficulty of nomad life could offer a natural ceiling to the number of Westerners moving offshore. For every coconut at sunset there’s an inconvenient visa run or early-morning Skype call to loved ones thousands of kilometres away.
“Remote work isn’t straight-forward,” says Ms Knox, who is an associate professor in the University of Sydney Business School’s Discipline of Work and Organisational Studies.
Open-plan co-working spaces, unreliable technology and time-zone differences can make nomads unproductive, according to Ms Knox. And while co-working spaces can offer social connection, “the person you sit next to today, you might never see again.
“Some extroverts might enjoy the opportunity for constant networking, but this could be an introvert’s nightmare.”
Plugging the brain drain
Ms Knox believes companies could be doing more to stop smart young people from leaving the Australian market:
“One of the main reasons a lot of these young people go is that they’re unable to get permanent jobs, and even if they are lucky enough, many of them don’t see that there’s an internal labour market that will allow them to progress their career. People would also think twice about going somewhere else if the wages here were more attractive and there was wage growth.”
But in many cases, nomads can come home with new skills and connections that they couldn’t find at home.
When Mr Tremeer was travelling the world as a digital nomad, he met his tech idols by attending talks and workshops in Europe “every night of the week”.
“That was the most valuable part — that energy of everyone creating things, you sort of feed on that,” he says.
Now back on the Gold Coast, Mr Tremeer is using the tech skills he learnt while travelling to help Queensland hospitals use artificial intelligence to better diagnose disease and improve patient outcomes.
Be like Simba
For Mr Canavan, this reintegration is key to being an “ethical nomad”, which he explains with a handy reference to the Lion King.
“Being a digital nomad is like when Simba goes to Hakuna Matata world, and enjoys a few years of easy, worry-free living. But eventually, he stops eating bugs and goes back to fix his kingdom. I think that’s the healthiest path: you come home and take on whatever it is that you define as your purpose.”
“Not everyone comes home. You see people here who kind of own a bar and they’re always drunk and they’ve been here 30 years.
“You have to be careful not to get forever lost in paradise.”