Employees today have shown that if employers can’t deliver the career development opportunities and lifestyle choices they want -from flexibility in working schedule, hybrid working between the office and home, to the ability to work an extended period overseas for example- they are willing to seek them elsewhere.
At the same time, there has been a shift in how many companies engage talent, as shown by a considerable increase in contingent labor through contractors or short-term contracts. Some companies have set up, maintained or transitioned to operating on a fully remote basis without physical offices. Others encourage remote-first, with office space being downsized or physical space limited as the company grows.
"As an employer brand, digital nomadism can be a powerful differentiator in attracting and retaining talent. Offering the possibility of working remotely from anywhere not only reflects a flexible and modern organizational culture, but also appeals to the expectations of the new generation of workers who value autonomy and a balance between work and personal life," highlights Matiana Behrends, Advisory Services Partner at Grant Thornton Argentina.
"In addition, promoting a nomad lifestyle can enhance the company's reputation, positioning it as innovative and adaptable, which attracts candidates who are looking not only for a job, but for an enriching and diverse work experience," she adds.
From an operating perspective, professional employment organizations (PEO) and employers of record (EOR) have also increased in popularity, as an expanding labor market brings a significant number of new entrants alongside established vendors. These vendors allow businesses to engage employees in countries where they do not have a legal presence, with the EOR/PEO assuming the compliance and payroll requirements and effectively loaning the employee to the engaging company.
From a talent perspective, the concept of remote work has increased in popularity significantly. From being a relatively uncommon arrangement or restricted in many situations, remote and hybrid working has now become a necessity in many companies, and as a consequence, shifted the balance of power to employees. From highly skilled employees, employees in senior positions, to roles that require less or no in-person working, some employees have been able to negotiate longer-term remote working arrangements or influence company policy. This requires input from tax and finance departments to balance risks and compliance while HR and talent requirements necessitate an approach that enables mobility rather than inhibits employee movement.
In recent years, the introduction of a category of “digital nomad visas” has expanded, allowing employees to work in a country without needing a local employment contract, immigration sponsorship from an employer, or the personal expense that investment visas may require.
“Argentina has launched its digital nomad visa in May 2022”, explains Julia Adano, Lead Tax Partner at Grant Thornton Argentina. “This allows foreigners to work remotely, either for themselves or for a foreign company outside of Argentina and is valid for 180 days and renewable for an additional 180 days.”
A Harvard Business Review articlei describes digital nomadism as “a lifestyle where one leverages remote work to travel and live in varying, often affordable locations around the world.” Interest from employers in digital nomad arrangements is increasing, in part due to the increase in the number of countries offering digital nomad visas since the end of the pandemic and the ability to enable mobility with relative ease.
These incentives also create risks, as a recent Grant Thornton surveyii showed that 49% of respondents identified remote working as the key mobility tax risk issue to manage. While encouraging digital nomadism may appear attractive as a means of incentivizing employees and enabling increased mobility, companies should be aware of the potential tax risks of such visa programs.
A widespread misperception of digital nomad arrangements is that there is limited exposure to income tax and tax compliance obligations at the individual taxpayer level along with correspondingly limited employer responsibilities like payroll and employment taxes, and critically limited or corporate tax exposure and compliance obligations.
Few countries, however, offer specific tax breaks for either employees or employers. A Grant Thornton review of 21 countries found 79% of digital nomad visas have no relief from individual tax while 85% have no exemption from corporate tax risk.
“From an income tax point of view, in Argentina, non-resident individuals are only required to pay the tax to the extent that they perform activities that Argentine legislation considers to be of ‘Argentine source’ (activities carried out within national territory)”, highlights Julia Adano. “However, if the person is in the country for a period not longer than 180 days, the person will qualify as foreign beneficiary, and if there is no local company that makes the payment of his or her wage, in practice, no income tax withholding will be possible”.
“Regarding social security obligations, there are no general exemptions applicable. Although from the first day, the person who is in Argentina would have to pay Social Security. If there is no local company that makes the payment of his/her wage, in practice, no payroll taxes will be applicable”, she adds.
“In Argentina, the digital nomad visa does not provide an exemption from income tax neither payroll obligations, and if the person is in the country for more than 180 days, local residents’ general regime will apply with the obligation to register for income tax and pay the tax due”, concludes Adano.
Benefits of digital nomadism to countries:
Benefits of digital nomadism for employers:
Without specific tax relief under a digital nomad visa program or provided under a double tax treaty, companies must rely on tax laws in the country the digital nomad employee is working to determine the potential tax exposure that could arise from having an employee working remotely on a digital nomad visa. In this circumstance, a corporate taxable presence may be deemed to exist, potentially resulting in corporate and other entity taxes and obligations, including:
A range of employer obligations may also arise, requiring a company to comply with local regulations and potential exposure to employer taxes and other tax risk, where:
For companies exploring the use of digital nomad visa programs as an opportunity to expand remote working arrangements for employees, careful review is required to ensure the tax implications are fully understood and the company does not assume unwanted financial exposure.
i. The New Reality of Digital Nomads,. Eckerhardt & Atanasova, Harvard Business Review, February 5, 2024
ii. www.grantthornton.com/events-and-webcasts/tax/2024/tax-symposium-2024/07-25-tax-symposium-global-mobility-remote-workforce-trends-and-leveraging-data-for-an-ai-future
