The freedom of being able to work from anywhere in the world gets a lot of attention, and that’s often what’s extremely enticing about the life of a digital nomad. Being able to see the world and earn a living on the go. And for the most part, it can be exactly as you imagine it. But not all the time and not constantly. There are definitely some aspects of this lifestyle people overlook when they first dip their toes into it, and mistakes can and will be made.
With this in mind lets take a look at some of the business setup mistakes digital nomads can make.
Not Registering the Business Properly
Plenty of digital nomads set up as “kind of self-employed” in their home country, paying tax there because that’s where they used to live. But really, nothing formal is registered.
The problem here arises when a client asks for a proper invoice with relevant business details on for their records, or a payment processor wants registration documents, or when you have nothing to show when you try to open a business bank account.
A sole trader, LLC, or limited company are all options, and the right one depends on the type of business you’re operating, and here you’re a tax resident and where your clients are. You need to pick one before you start trading, not once a client refuses to pay, as nothing is legitimate.
Picking the Wrong Payment Set Up
Sure, for a lot of payments, PayPal works internationally, but what about when that’s too much? Or are the fees eating into your profits? You need flexible payment options, especially if you’re working with multiple clients paying in different ways or offering one-off services or selling digital products, for example.
When picking how you’re accepting payments, you need to consider things like conversion fees, withdrawal fees, currency margin and slow settlements. These will all eat in the margins quickly. Proper merchant services built for businesses taking payments across multiple currencies and channels can often work out cheaper one your past the first few clients, you will have standardised fees, meaning you can price accordingly to account for this. Plus, you’ll have support for handling things like disputes, recurring billing and multi-currency transactions.
Ignoring Tax Residency
Let’s say you’ve spent six months in Portugal, then three in Mexico, and three back home. That doesn’t mean you don’t owe tax anywhere. It often means you owe tax in more than one place. Tax residency rules are based on days present, ties to a country and where your business is registered, as well as where your income is paid. Getting it wrong results in back taxes being applied, fines and interest from countries you thought you were just visiting. This is where talking to a cross-border accountant can be beneficial before you even start taking on clients. They can talk you through what to expect when tax rules kick in and what your obligations are regarding paying tax in different countries.