Nearshore Americas

Companies Grapple With Compliance as Digital Nomadism Surges

Wherever digital nomads roam, red-tape almost assuredly will follow. The Covid-19 pandemic, and the prior increase of co-working and co-living spaces, have accelerated the use of remote work as a leading trend across industries. A study conducted by MBO Partners revealed that the amount of American digital nomads has grown by 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 companies need to adapt to changing regulations and international requirements imposed by employment and tax laws, data and privacy considerations and human resources management.

Scott M. Nelson says interest in remote work from global companies has increased

“Global companies – particularly more sophisticated tech firms – are looking into having permanent remote work conditions with employees in different parts of the world. This is something that we see happening more and more often”, said Scott M. Nelson, a Houston-based partner with the firm Hunton Andrews Kurth and an employment law expert.

Motivated by the potential stimulating effects for local economies, several Latin American and Caribbean countries have begun offering long-stay visas for foreign remote workers. Islands such as Antigua & Barbuda, Barbados, Bermuda and the Cayman Islands, now have legal frameworks that allow visitors to stay by complying with basic solvency 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.

ECIJA is assisting the Costan Rican government, says Zuñiga

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

The proposed law will establish a subcategory under the existing Estancia immigration category that will allow digital nomads and professionals to work remotely in the country but generate their income from sources outside of Costa Rica. “This legislation will only require a US$3,000 per month as basic income for people to qualify. Applicants can prove they earn the requirement through bank statements, and we will have online application procedures. This is new and very beneficial, considering how slow immigration issues have been in the past,” added Augusto Arce, managing partner of the Costa Rican law firm GLC Abogados.

Online procedures have accelerated visa processes, says Arce

Panama is another country that hopes to position itself as a hub for remote workers through its generous tax structure and business-friendly culture. “Although Panama doesn’t have a plan to legislate about digital nomads in a specific manner, the system is already very flexible, offering many simple immigration and business opportunities for foreigners. That is just the way this nation works,” said Aritzel Ho, an attorney in Panama.

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 have just one staff member in a different country can be forced to follow all the local regulations of that country. “It really depends on the country, although sometimes we face similar conditions in many jurisdictions. US citizens and green card holders will always be conditioned by the American tax system, as we tax people independently of where they establish residency. However, paying local taxes in recipient countries varies depending on local legislation and if the worker is considered an employee or independent contractor. Some of it changes if the worker in question is conducting activities that benefit the recipient country or mainly directed at U.S. consumers,” added Mr. Nelson.

Contract enforcement can depend on where the contract was signed, says Ho

At the same time, while most digital nomads are freelancers, some are considered employees at the companies they work for. Employers will still have commitments as defined by individual contracts. In countries like Panama, the contract between the employer and employees defines the conditions of the agreement while in other jurisdictions local employment laws may apply. “If the contract wasn’t registered in Panama, then all disputes will be settled depending on the conditions between the employer and the employee. Panamanian authorities will not intervene, even if the worker is in Panama. We usually recommend an arbitrage clause,” said Aritzel Ho.

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Though post-Covid-19 more professionals may want to combine remote work with international travel, there are challenges from the standpoint of employment law. “Many countries believe that they should have an interest in all of their residents’ working status. Sometimes local employment laws would apply independently of agreements and contracts,” added Mr. Nelson. Continuing healthcare and other benefits, including 401k pensions and stock options plans, can prove difficult for remote workers. Digital nomads and global firms must consider this and, if required, find supplemental solutions such as local or travel insurance policies.

Companies also need to report employees’ payroll taxes for U.S. employees. “Sometimes payroll gets a bit tricky when you have employees in different locations. Often, if you have a number of workers under the same jurisdiction, some companies just create a foreign entity to do it. Of course, it is all easier if a worker is considered an independent contractor or operating as a freelancer,” Mr. Nelson concluded.

The final consideration arising from remote work is security and privacy. The absence of security protocols when working from home or cafes can open worker’s tools and any employer’s systems that might be connected, to significant cybersecurity risks. Global companies employing remote workers also need to adapt to local data protection laws, an additional regulatory challenge. As employers adapt to the new reality, it is likely that investment in cybersecurity training and surveillance techniques to monitor remote workers, like applications to track keystrokes and productivity, will rise.

Bryan Campbell Romero

Bryan Ch. Campbell Romero is the Investment and Policy Editor at Nearshore Americas. He also contributes to other publications with analysis on political risk, society and the entrepreneurial ecosystems of Cuba and the Latin American region. Originally from Cuba, Bryan holds a Bachelor’s degree in Philosophy (Licenciatura en Filosofía) from the University of Havana.

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