Top Legal Considerations for Digital Nomads:
If you’re exploring the exciting prospect of becoming a Digital Nomad, it’s vital to first wrap your head around the legal framework that underpins this lifestyle.
First off, a quick clarification: Being a ‘Digital Nomad’ isn’t a job title. It’s an umbrella term that covers a myriad of professionals – entrepreneurs, freelancers, remote workers, influencers, graphic designers, and the list goes on. In essence, it means you’re leveraging the power of the internet to earn while being location-independent.
Now, let’s delve into the legalities of digital nomad life that you should understand before embarking on this exciting chapter!
When it comes to legal considerations for digital nomads, effective contracts are vital.
Whether you’re crafting one for your clients or your clients provide you with theirs, you need to understand the key elements that every contract should embody.
Knowledge of contracts can help you to negotiate better and safeguard your business.
Let’s break each of these elements down:
Before drafting the contract, ensure that you and your client engage in a transparent discussion to align on the roles and responsibilities for the project.
It’s crucial that both parties are on the same wavelength to prevent any misunderstandings down the road. Once agreed, express these responsibilities in straightforward language in the contract to avoid ambiguity and clearly define the tasks of each party.
Above all, you need to ensure you’re compensated adequately for your efforts. So ensure you include a payment clause in the contract outlining:
- The payment terms
- Due date
- Acceptable payment methods
- The payable amount
- The recipient.
This is undoubtedly one of the most important legal considerations for all digital nomads.
It’s typical for clients to request ownership and assignment of rights to them when you have completed your job. While it’s often standard to grant these rights, be mindful that clients might request more rights than necessary for their benefit.
If you have unique methods and processes that distinguish your business, retain these rights. Although the final product can be assigned to the client, the tools and techniques used to produce it should remain yours.
Ownership clauses can often involve complex legal jargon. To ensure you’re not inadvertently forfeiting crucial business rights, consider consulting a lawyer who can draft appropriate clauses and guide you through them.
Or, check out my legal template store for some amazing and totally affordable ”fill-in-the-blank” legal templates, which you can download!
Often a contract will include some restrictive clauses with regard to confidentiality, non-competition, or non-solicitation. For example, it’s typical to find a clause about keeping proprietary information confidential.
However, you should always consider whether these restrictions are reasonable given the market and circumstances of your business.
Often as a Digital Nomad, you are the brand, the product, and the business. Therefore, it is essential that your personal liability is not put at risk by your business activities.
To avoid putting personal assets at stake, consider setting up a corporation to separate your personal assets (such as your house or car) from your business. This is one of the top legal considerations for digital nomads.
When you set up a corporation you must keep your business assets and your personal assets separate. In practice, this means keeping separate business and personal banking accounts, keeping a record of all your business activities, and complying with all business regulations.
Formally setting up a business entity is in most cases straightforward and can be done online.
If you don’t incorporate a company, you will by default be operating your business as a sole proprietor. This means you are personally responsible for any business liabilities created by your business.
So before embarking on your Digital Nomad adventure, I highly recommend reviewing all of the business entities available to you to determine which one is best suited to you.
If, for example, you are looking to set up a tax free company in the Middle East, consider setting up a Freezone company in Dubai. I used Cavenwell to help set mine up and the process was super easy because they’ve got a wealth of experience in corporate structuring.
As an employee, you are only accountable for income taxes. However, as a Digital Nomad or self-employed individual, you will be shouldering more responsibilities like Social Security Contributions, Medical Care, and Pension contributions.
The exact obligations will vary based on your business structure, so it’s essential to understand the implications of operating as (1) a Corporation or (2) a Sole Proprietor.
This is one of the most important legal considerations for digital nomads.
A corporation will usually pay its own income corporate taxes which are separate from personal income tax that you pay on your salary.
Corporate tax rates are usually lower than individual income tax rates. There are also multiple ways to reduce the tax liability of your corporation through dividend payments, loan payments and deductions, etc.
When it’s time to file your tax return for your company ensure that you’ve kept a record of all your business activities, as this will save you and your accountant a lot of time and will avoid having to go through a potential audit.
At this point, it might be worth considering incorporating your company in a lower tax jurisdiction as opposed to your home country.
#2 Sole Proprietorship
As a Sole Proprietor, you will pay taxes on all of your income (as you and your business will be one and the same entity).
However, depending on where you live, you might have to pay self-employment tax and assume all of the obligations that your employer used to assume.
When considering the legal implications you are about to take on as a Digital Nomad it is probably worth getting help from professionals to ensure you start off on the right footing.
You may also like to read:
Disclaimer: While I strive to provide accurate and helpful information on a wide range of topics, it is essential to note that my knowledge is based on my experience, general principles and concepts, and the information provided should not be considered as specific advice tailored to your unique circumstances. For personalised guidance and legal opinion, it is always best to consult with a lawyer who can assess your individual situation and offer the most relevant and up-to-date recommendations.