Legal Things To Consider Before Becoming A Digital Nomad

So, you are thinking about becoming a Digital Nomad or you have an opportunity to take up freelancing as a full-time job and would like to travel the world at the same time?

Before you decide to take this huge step, it is important that you understand some basic legal principles around becoming a Digital Nomad.

First up, I want to clarify that being a ‘Digital Nomad’ is not a job in itself. However, Digital Nomads include entrepreneurs, freelancers, remote workers, graphic designers, developers, influencers, coders, business and life coaches and any other job that you can do while on the move.

What it really means, is that you are able to make an income while being completely location independent. In short, you are able to do your work from anywhere in the world as long as you have a working internet connection.

Now back to the legal concepts that you should familiarise yourself with before you start your journey as a Digital Nomad or freelancing or self-employment (you get what I mean now):

  • Contracts
  • Personal liability
  • Tax obligations

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CONTRACTS

It is essential that you become comfortable with contracts. Whether you are planning on drafting one to engage clients, or whether clients will hand you their own contract, you need to know that certain clauses are crucial and should form part of every contract. Also, once you’ve come across a few contracts you’ll be able to negotiate better deals with your clients and make sure that your business remains protected.

Contracts between your business and your clients should include at the very least the following terms:

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#Responsibilities

When it comes to the responsibilities clause in the contract you should first and foremost make sure that you have an open and honest conversation with your client before you draft the contract. You want to make sure that both your client and you are on the same page about roles and responsibilities within this engagement.

Once the discussions have been concluded you can then proceed to use plain language in the contract. Try to eliminate any ambiguity by making it very clear what each party’s task is.

#Payment

Most importantly, you want to make sure that you get paid for your work and for this you should include a payment clause within the contract that states the payments terms, when payment is due, the payment methods available, the amount due and who to pay it to.

#Ownership

It is normal that your clients will ask for ownership and assignment of rights to them when you complete a job for them.

While in most cases it is common practice to assign those rights to clients you need to be aware that clients will hire you for their own benefit and they may ask for more rights than what is necessary to give to them.

If you have any specific methods and processes in place that make your business unique then you should keep the rights to these methods. While it is alright for the final product to be assigned to the client, the tools and processes that you used to create the product should remain with you.

Ownership clauses can be drafted in a very tricky legal language. If you want to make sure that you are not giving away any important rights of your business, than I recommend you seek help from a lawyer who can draft the correct clauses for you and walk you through it.

#Restrictions

Many times, a contract will include some restriction clauses with regard to confidentiality, non-competition or non-solicitation.

It is normal to find in a contract a clause about keeping proprietary information confidential. However, if the clauses sound too restrictive you need to consider whether these restrictions are reasonable given the market and circumstances of your  business.

PERSONAL LIABILITY

Personal liability means that your personal assets such as your house, your car, etc. are at risk if your business faces legal consequences.

Oftentimes as a Digital Nomad you are the brand, the product, the processes, mechanisms and the business. Therefore, it is vital that your personal liability is not put under risk by your business activities.

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#Corporation

The best way to separate your personal liability from your business is by setting up a corporation.

When you set up a corporation you must keep your business assets and your personal assets separate. In practice this means that you need to keep separate business and personal banking accounts, you need to keep record of all your business activities, and you need to comply with all business regulations.

Formally setting up a business entity is in most cases pretty straight forward and can be done online.

#Sole Proprietorship

If you don’t incorporate a company, you will by default be operating your business as a sole proprietor.

As a sole proprietor, you are personally responsible for any business liabilities created by your business even though your business and you are the one and the same entity.

Make sure that before you embark on your Digital Nomad journey you review all the business entities that are available to you and weigh all the factors to decide which one is the best suitable to you.

TAX OBLIGATIONS

When you are employed you only pay income taxes. Most of the times you probably don’t even realise that your employer has tax obligations and has to pay Social Security Contributions, Workers Compensation, Tax Withholding, Medical Care and Pension contributions.

When you become a Digital Nomad (or self-employed) all of the above obligations will fall on you.

Your obligations will also depend on the business structure that you chose. The most common form of business structures for Digital Nomads are Sole Proprietorship or a corporation.

 

#Corporation

A corporation usually pays its own income corporate taxes which are separate from your personal income tax that you have to pay on your salary.

Corporate tax rates are usually lower than individual income tax rates. There are also various ways to reduce the tax liability of your corporation through dividend payments, loan payments, deductions, etc. It is best to discuss this with your accountant.

When it’s time to lodge your tax return for your corporation make sure that you have kept record of all your business activities as this will save you and your accountant a lot of time and will avoid you having to go through a potential audit.

Given the fact that you are about to embark on your Digital Nomad journey you might also want to consider incorporating your company in a lower tax jurisdiction as opposed to your home country.

#Sole Proprietorship

As a Sole Proprietor you will pay taxes on all of your income as your business and you 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 starting to think about all the legal implications you are about to take on as a Digital Nomad you might be better off getting help from a professional like us. We understand that most Digital Nomads like to take all of their matters into their own hands. However, we are happy to do the work for you and then take the time to walk you through the whole process so that you understand all the consequences of your decision to become a Digital Nomad.

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We hope you have enjoyed this article. If you have any further questions please leave us a message below and we’ll get back to you as soon as we can.

 

NOTICE: The content of this article is not to be considered as a legal opinion or tax advice. Wanderers Wealth does not hold itself out as a legal or tax advisor. If you want to receive a legal opinion or tax advice on the matter in this article please contact us directly and we will refer you to a legal practitioner.

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