The digital nomadic customer | CPA Practice Advisor

Do your customers want to be supported in setting up their new business as a “digital nomad”? Digital nomads are people who use technology to work remotely from anywhere they hang their hat, be it a beach, a foreign country, or an RV. To help your clients navigate the world of the digital nomad, here’s what you need to know about digital nomadic entrepreneurship and the legal structures that work best for a digital nomad business.

The rise of the digital nomad

While the concept of the digital nomad has been around for many years, over the past year the world has dramatically embraced the ‘location independent’ lifestyle when the pandemic has necessitated a shift to remote working. According to the MBO Partners report, COVID-19 and the rise of the digital nomad, the number of Americans proclaiming their digital nomad status increased 49%, reaching 10.9 million in 2020.

The report describes digital nomads as “people who choose to adopt a location-independent, technology-based lifestyle that allows them to travel and work remotely, anywhere in the world connected to the internet. “. Typical remote workers typically stay in a geographic area, while digital nomads move around while working and running their business.

The breadth of the digital nomad’s journey is as varied as the types of businesses run by these itinerant entrepreneurs. While some may travel for years around the world, others may be nomadic for short stays, returning to their home base intermittently before departing again.

As the name suggests, typical digital nomads tend to have strong technological skills and are the first to adopt new technologies. The MBO report also revealed that digital nomads work in various industries such as information technology, education, training, consulting, coaching, research, sales, marketing, public relations and public relations. creative services. So really, any business that can be managed remotely using digital tools is a perfect fit for the lifestyle of digital nomads.

Nomadic digital entrepreneurship

While starting a business in the United States and running it from anywhere in the world is technologically very possible, many digital nomads have yet to know how to do it legally and stay in compliance.

The first step, which may seem against the mind of the digital nomad, is the requirement to apply for permanent residence for the business. Regardless of the state in which your client decides to call home, the law examines several factors determining the contractor’s domicile versus residence. A residence is a house the entrepreneur lives in, so for digital nomads, the residence will change frequently. A home is the place your customer considers a permanent home, which the customer returns to after traveling. The “home state” of the business is where the entrepreneur created and / or registered the business with the state, opened their bank accounts and where taxes are deposited.

Even digital nomad sole proprietors (who are not required to register their businesses with the state) have a domicile. In the eyes of the law, the domicile is a question of intention, the place where the entrepreneur has the most roots (registration on the electoral roll, utility bills, etc.).

The choice of the place of registration of the company does not necessarily correspond to the place of domicile of the entrepreneur. For example, many business owners register their business in a state with no state income tax or with fewer regulations like South Dakota or Delaware. However, if the company opens a warehouse or has employees in a state other than where it is registered, it must apply for a foreign qualification. The foreign qualification is when the state determines that a company carries out enough activities to be registered in the state. As foreign qualification requirements vary by state, it is essential that your client verify with the Secretary of State whether filing is required.

If your client’s business has employees residing and / or working in a state other than the home state of the business, the business must also register with the Department of Revenue and the Department of Labor of that state (or a similar office) to withhold taxes on wages and unemployment.

The key legal factor for digital nomads, no matter where they have roots or register their businesses, is where they make their sales. Whether sales take place in the United States or a foreign country, sales taxes must be collected (and paid) wherever sales are made. In addition, the types of sales that constitute taxable items also vary by state and country. To register for sales tax collection, your client should visit the state Revenue Department’s website, find the Sales and Use Tax (or “New Business Activity”) section, and complete the company information.

Finally, digital nomads need to consider whether the countries they are visiting require a visa to work and whether the company needs to be officially registered in that country. Many digital nomads don’t stay in one place for very long, so it can seem easy to get off the radar. However, it’s best to stay on the right side of the law, especially if some sales take place in the country the digital nomad is traveling to.

Legal structures for digital nomads

While many digital nomads prefer sole proprietorship, there are many reasons why a more formal legal structure can be beneficial.

Individual company. All states consider businesses owned by a single owner or married couple to be sole proprietorships by default, unless the business is registered as another legal entity. There is no legal separation of the business in a sole proprietorship – sole proprietorships are not considered employees and do not generate separate business taxes. Other than the required licenses or permits, there are no formal documentary requirements. One of the main disadvantages of a sole proprietorship is the risk involved if the business is sued. Because there is no separation of the business, the sole proprietor is fully responsible and his personal property is in danger.

Partnership. There are digital nomad partnerships that operate as a sole proprietorship, although duties and financial responsibilities are shared between the partners. Partners can be digital nomads traveling together, separately, or there can be a mix of partners who are digital nomads and others who stay put. Legally, as with the sole proprietorship, there is no legal separation between the company and the partners. All profits and losses are passed on to the partners, and in the event of a dispute, the partners are personally liable.

Limited Liability Company (LLC). The best legal structure for a digital nomad might be the limited liability company (LLC). Without the formality of the corporate structure, the LLC combines the liability protection of the C Corp with the tax advantages of the sole proprietorship. Profits and losses are passed on to the digital nomad and are taxed at the personal income tax rate. In an LLC, the business is considered separate from the owner and therefore, in most cases, the entrepreneur is protected from personal liability. Registration and compliance happens at the state level, so it’s important to know what the home state’s requirements are for an LLC.

C Corporation. The C Corp offers the best protection against personal liability, but has the most compliance requirements and is the most expensive corporate structure option. In a C corporation, the business is its own entity and files its own taxes. The owner of a C Corp is an employee of the company. The biggest burden is double taxation, as the income of the business is taxable and then the owner is taxed again on the income distributed to the owner as dividends. Due to the demanding filing requirements and required annual reports, most digital nomads do not need to incorporate unless they decide to hire investors.

No permanent address?

Today, not having a real physical office space is not detrimental to the success of the company. As long as the digital nomad entrepreneur has a place to receive mail (a post office box will do) and a place to meet clients in person, if needed (rented meeting space), a digital nomad can run a business without hitch.

A special consideration for digital nomads who own an LLC or C Corp is to appoint a registered agent in the home state of the business or in states where most of the business is done. A registered agent is a person or company officially recognized by the state and appointed by the company to handle official correspondence, such as legal documents or tax notifications.

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Nellie Akalp is a passionate entrepreneur, business expert and mother of four. She is the CEO of CorpNet.com, a trusted resource and service provider for business incorporation, LLC filings, and corporate compliance services in all 50 states. Nellie and her team recently launched a partnership program for accountants, lawyers and professionals to help them streamline the business incorporation and compliance process for their clients.

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