Businesses struggling with compliance as digital nomadism increases

Wherever digital nomads roam, paperwork will almost certainly follow. The Covid-19 pandemic, and the earlier increase in coworking and co-living spaces, has accelerated the use of remote working as a dominant trend across all industries. A study conducted by MBO Partners revealed that the number of American digital nomads has increased 49% to a total of 10.9 million people since 2019.

As countries as diverse as Estonia and Mauritius, and cities like Dubai, launch special programs to attract entrepreneurs and digital nomads, global businesses must adapt to changing regulations and imposed international requirements. through employment and tax laws, data and privacy, and human resource management. .

“Global companies – especially the more sophisticated technology companies – are planning to create permanent remote working conditions with employees in different parts of the world. It’s something we’re seeing happening more and more often, ”said Scott M. Nelson, a Houston-based company partner. Hunton Andrews Kurth and an expert in labor law.

Motivated by the potential stimulus effects on local economies, several countries in Latin America and the Caribbean have started offering long-stay visas to distant foreign workers. Islands like Antigua and Barbuda, Barbados, Bermuda, and the Cayman Islands now have legal frameworks that allow visitors to stay by complying with basic credit requirements and providing proof of work. The Central American nation of Costa Rica is moving forward to create the option of a digital nomad visa in new, forward-looking legislation.

“We are currently helping with this new legislation in Costa Rica after studying the experiences of Estonia, Bermuda and other jurisdictions. The most important element of the figure of the digital nomad is that there is now a worker who resides in Costa Rica without fully complying with Costa Rica’s labor laws and social security regulations, ”said Guillermo E. Zúñiga, partner of the law firm. ECIJA in Costa Rica.

The bill will establish a sub-category within the framework of Estancia category of immigration that will allow nomads and digital professionals to work remotely in the country but generate their income from sources outside Costa Rica. “This legislation will only require US $ 3,000 a month as a basic income for people to qualify. Applicants can prove they meet the requirement through bank statements, and we will have online application procedures. This is new and very beneficial, given the slowness of immigration problems in the past, ”added Augusto Arce, managing partner of the Costa Rican law firm. GLC Abogados.

Panama is another country that hopes to position itself as a hub for remote workers thanks to its generous tax structure and business-friendly culture. “Although Panama does not have a plan to legislate digital nomads in a specific way, the system is already very flexible, providing many straightforward immigration and business opportunities for foreigners. This is how this nation works, ”said Aritzel Ho, Panama lawyer.

Human resources in the era of remote work

Having full-time staff in various locations means following multiple local employment and tax laws and companies that only have one staff member in a different country may be required to follow all local regulations there. country. “It really depends on the country, although we sometimes face similar conditions in many jurisdictions. US citizens and green card holders will always be conditioned by the US tax system as we tax people regardless of where they establish their residence. However, the payment of local taxes in recipient countries varies depending on local law and whether the worker is considered an employee or an independent contractor. Some of them change if the worker in question is engaged in activities that benefit the recipient country or that primarily target US consumers, ”Nelson added.

At the same time, while most digital nomads are freelancers, some are seen as employees in the companies they work for. Employers will always have commitments as defined by individual contracts. In countries like Panama, the contract between employer and employees sets out the terms of the agreement while in other jurisdictions local employment laws may apply. “If the contract was not registered in Panama, all disputes will be settled according to the conditions between the employer and the employee. The Panamanian authorities will not intervene, even if the worker is in Panama. We generally recommend an arbitration clause, ”said Aritzel Ho.

While more professionals after Covid-19 may want to combine remote working and international travel, there are challenges from an employment law perspective. “Many countries feel that they should have a stake in the employment status of all their residents. Sometimes local employment laws would apply regardless of agreements and contracts, ”Nelson added. Continuing health care and other benefits, including retirement plans and 401k stock options, can prove difficult for remote workers. Digital nomads and global businesses must take this into account and, if necessary, find complementary solutions such as local or travel insurance policies.

Businesses must also report payroll taxes for U.S. employees. “Sometimes payroll gets a little tricky when you have employees in different locations. Often times, if you have a number of workers under the same jurisdiction, some companies simply create a foreign entity to do so. Of course, everything is easier if a worker is seen as an independent contractor or working as a freelance, ”Nelson concluded.

The final consideration arising from remote working is security and privacy. The lack of security protocols when working from home or in coffee shops can open up worker tools and any employer’s systems that might be connected to significant cybersecurity risks. Global companies employing remote workers must also adapt to local data protection laws, an additional regulatory challenge. As employers adjust to the new reality, it is likely that investment in cybersecurity training and surveillance techniques to monitor workers remotely, such as apps to track keystrokes and productivity , will increase.