For many people the monotony of a structured working environment is far from ideal. The notion of a perpetual Groundhog Day where you’re endlessly trapped in the same routine is leading many of us to become bored, dissatisfied and restless when it comes to our working life.
According to a huge report by Gallup, there are twice as many “actively disengaged” workers in the world as there are “engaged” workers. Put simply only 13% of individuals LOVE what they do.
It’s therefore not surprising that a growing community of ambitious and location independent entrepreneurs are seeking new and innovative ways of working. With many businesses simply needing an active Internet connection in order to conduct business, becoming a digital nomad is enabling an increasing number of indivuals to follow their passion from anywhere in the world.
Wikipedia – the holder of all things accurate and true - describes a digital nomad as:
“People who are location independent and use technology to perform their job”
On the surface it’s easy to view a digital nomad as a tie-dye trouser wearing hammock dweller who simply wants an extended holiday, but the community contains serious entrepreneurs who are proving that increased mobility and freedom aren’t barriers to developing successful businesses.
It’s an attractive proposition. However being able to pick up and take your business anywhere presents a few challenges. Here are some "how to become a digital nomad" considerations that you may need to think about:
Which type of business is best?
Going freelance is easier than ever. All you need to become a consultant, designer, accountant or developer is a laptop and an Internet connection.
For some who require little investment and have minimal startup risks, it can often be a great choice. However many freelancers don’t realise that they’re actually starting their own small business.
You still need basic business skills, marketing ideas and accounting to invoice clients and pay your taxes. As a result many people who set themselves up as a freelancer will do so without actually establishing a separate legal or capital structure through which to run the business.
Referred to as a sole trader in the UK, Enterprise Individuelle (EI) in France or Sole Proprietorship in the US, the disadvantage of this type of structure is that from the very moment that you sell your first product or take on your first client, you can be exposed to liability.
Your house, car and any other assets are at stake and you are personally responsible for paying both income taxes and business debts. Considering the primary motivation for becoming a digital nomad is freedom, often both financial and lifestyle, this independence and security can be in danger if a business transaction or deal goes awry.
If your plan is to have a serious business then the alternative is to set up a business entity that provides liability protection for your personal assets. By setting up a formal business entity, you can distance your personal finances from those of your business.
How to structure your business as a Digital Nomad
There are five basic types of companies that you can set up:
IBC: International Business Company
PLC: Private Limited Company
LLC: Limited Liability Company
GBC: Global Business Company
SÀRL: Société à responsabilité limitée (French)
Each type has advantages and disadvantages in complexity, ease of setup, cost, liability protection, periodic reporting requirements, operating complexity and taxation. The best choice for you will vary depending on your own unique requirements, and it’s important to examine all the options available to you. For more information on the types of business structures in each country, simply select the country where you're looking to start a business.
Setting up an e-commerce business
Some of most successful digital nomads have created e-commerce businesses that, to a certain extent, can create “passive” income to help fuel a digital nomad lifestyle.
The word “passive” can be a little misleading, implying that once you’ve set everything up you can sit back and enjoy the fruits of your labour. But running a successful business is never quite that simple. It will still need dedication, focus and hard work to consistently bring in revenue. This is obviously dependent on how much time and effort you want to put in, and where you ultimately want you businesses to go.
One of the most popular techniques for setting up an e-commerce website due to its relative ease is a technique called “Drop Shipping”. The simple premise is:
- You create an e-commerce website and list products for sale.
- You drive traffic via paid media, Adwords, SEO and social media.
- Customers place orders on your website.
- You order the product from a supplier.
- The supplier is then responsible for shipping the product directly to the consumer.
In reality there’s a little more to it than that, and the e-commerce industry is highly competitive, but the relative low set-up costs ensure that if you get it right, businesses can grow very quickly.
Buying an existing business
A faster but riskier way to become a digital nomad is to simply buy an existing online business. You can buy businesses on sites like Flippa.com where you’re able to see how much money the business already generates.
Buying a business is much easier than building a business from the ground up, but be sure to get advice from experience professionals before you buy anything to reduce your risk and costs.
How to pay tax as a digital nomad
Contrary to popular belief, unless you’ve gone all “Matrix” and physically become a part of the Internet, then your business is not all online. You’ll still be selling or entering contracts with other people who occupy space in the real world, which means you still have to pay tax.
If you decide to become a Digital Nomad, there is one legal term that you’ll have to become accustomed to - Domicile. The word is a legal term that typically refers to where you permanently reside, however the exact definition can change depending on the country you’re in.
For example if you are born in England, or have English parents, then you have English domicile.
In France it refers to your actual residence, and this is what determines your tax liability to the French administration.
Article 4B of the Code General des Impôts states that a person’s fiscal domicile is in France if:
- Your main residence is in France.
- Your professional activity is carried on in France, unless it can be shown that business activity is applicable for another (e.g. carried on in England).
- Your financial interests are in France.
It can get confusing as the concept of being a digital nomad is relatively new and lots of the old bureaucratic processes have yet to catch up. Ultimately many existing digital nomads would like to see a simpler tax regime, however for now tax requirements will vary depending on which countries you’re visiting, where you have citizenship and your legal residency.
If you start spending long periods of time in one particular country then you may have to pay taxes on anything you earn while living in that country. Some countries (the UK for example) have double taxation treaties with many other countries, meaning you won’t have to pay taxes twice. However this isn’t always the case and some countries will also require that you pay taxes on any locally earned income regardless of how long you’re there for. It’s therefore always important to check on local legislation before you visit a country.
For U.S. based digital nomads, the United States is one of the only countries in the world that requires its citizens to pay taxes regardless of where they’re living. However if you qualify for the FEIE (foreign earned income exclusion) you can pay zero U.S. income tax (up to a limit of $100,800) on any income your earn while living outside the U.S. The test is subjective and will take into consideration the nature and length of your stay abroad.
Software & technology you’ll need to become a digital nomad
Becoming a digital nomad means that you’ll very quickly get accustomed to the variety of tools and software available that can make your life on the road much more efficient and productive.
World Clock & Google Calendar
Digital nomads often have to speak to different clients across multiple time zones. World Clocks is an extension that you can use on Chrome that shows the times in multiple locations.
You can also use Doodle if you’re trying to schedule a meeting across multiple time zones without visibility into other guests’ calendars. This desktop app works with calendars (and time zones) to find an open time slots that are suitable for everyone.
Skype for Google Hangouts
Both Skype and Google Hangouts are great options for video conferencing or staying in touch with friends and family. However the general consensus is that in remote places with slow Internet connections, Hangouts beats Skype hands down.
Buy a USB ethernet adaptor
Using a Mac is common, trendy and a favourite for digital nomads. However many models don’t have an Ethernet port. Considering that many places in the world (particularly those off the beaten track) have not yet mastered the joy of an accessible Wi-Fi connection, you may need a USB Ethernet connector to get a hard-line connection to the Internet.
This device is also helpful if you’re in a crowded co-working space where everyone is fighting for precious bandwidth, taking you back to the Internet of the late 1990’s.
A hard-line connection is often much faster than the free Wi-Fi, allowing you to calmly take Skype calls while everyone around you can be heard saying, “Hello, hello……….HELLO”.
An easy to use “to do” list that helps digital nomads to stay on track with tasks and goals.
Arguably a must have for anyone who works through the Internet as it enables all payments online.
Starting your own business can be extremely fun and incredibly rewarding, and while there are a few hurdles to overcome, creating a successful lifestyle away from the monotony of the daily slog has proven to be more than worthwhile for a growing number of digital nomads. All it takes is a leap of faith, a good idea and some sensible tax guidance along the way……hammocks are optional.
We hope you found our how to become a digital nomad guide helpful, but if you would like any further advice, please feel free to get in touch with any questions you may have. We can help you with everything to do with setting up your global business from accounting to serviced offices, bank accounts to registered addresses, tax planning to VAT services. You can call our team on 0033 (0) 1 53 57 49 10 or email us via our contact page with any queries you may have.