Traveling the world, being part of the global digital community, earning a living in far-flung destinations… Almost everybody has at least once fantasized about living the life of a digital nomad. However, is it as simple as it seems at first glance?
Digital nomads are location-independent workers that avail of amazing technological innovations and modern culture to work remotely. As technology has dramatically reshaped the work environment, swapping the office for some distant destination is becoming a reality for many. Key to this digital nomad lifestyle is the ability and the flexibility to work remotely. To do so they use wireless internet, smartphones, Voice over IP, or other cloud-based applications to work remotely from afar. Digital nomads may use co-working or co-living spaces, cafes, house sitting agreements, and shared offices.
By strategically choosing a location, digital nomads may leverage the differences in currency and cost of living to minimize their tax bill and maximize profit—whether to save for retirement or generate cash. Even in developed countries, digital nomads can usually benefit from favorable tax treatment, which may allow them to retain a greater portion of their earnings.
The thing is, packing up and moving from one country to another and popping open the laptop to work is not simple as that. There are many factors to be considered when tackling the digital nomad equation. Passports, taxes, and internet speed top the list. However, a “visa” should also make the list. (Not the credit card, though that is also something to think about it.) Namely, a visa allows a person to enter, leave, or stay for a specified period of time, or even permanently, in a country. There is no universal rule for visas; visa conditions vary from country to country. In most countries, digital nomads are not permitted to work while on a visa-free stay or on a tourist visa. In fact, foreigners require a work visa to work legally. Ensuring you stay legal as a digital nomad may not be the most exciting part of the dream.
Serbia is a visa-free country for almost every passport holder. In other words, a visa is not required to enter and stay in the country. For a limited stay of 90 days within a 180-day period, there is no requirement to pay visa fees and go through the administrative obstacle course. Besides, foreigners must report their stay within 24 hours of arrival. To stay in Serbia longer than 90 days, a foreigner needs to apply for a residence permit through the Ministry of Interior.
There are two possible scenarios for digital nomads. The first one involves becoming a non-resident of the home country for tax purposes (this does not apply to US citizens) while not becoming a tax resident in any other country. It is worth noting that, in almost all jurisdictions, 183 days’ stay makes you a tax resident. The second one is getting a residence permit in one country and staying there.
Back to Serbia. Given that it is still a net capital importer, Serbia places a limited tax liability, meaning that it only taxes the assets situated within its territory and the income emanating from it. Needless to say, tax residents are subject to unlimited tax liability while non-residents are taxed only based on the source of their income and property.
In order to avoid double taxation of employment income, Serbia exempts foreign-sourced income. Namely, Serbia, as the state of residence, limits its taxation right to tax foreign-source income. Consequently, said income is taxable exclusively by the source state. This method cuts the administrative and compliance costs both for tax authorities and taxpayers.
However, this should not blind us to its inconsistency with non-discrimination as one of the fundamental principles of international tax law. Discrimination based on the nationality of the taxpayer is a “catch-22” because of the different treatment of tax residents and non-residents.
As a part of a wider plan to encourage tech-related startups, Serbia has recently introduced a tax incentive[1] for digital nomads which frees them from paying tax on income earned while working in Serbia for the first 90 days.
This incentive introduces an exemption from personal income tax for income earned by a non-resident who spends a maximum of 90 days in the Republic of Serbia, within a period of 12 months starting or ending in the respective tax year. The work must be performed for a non-resident client. In other words, the income generated during this period will not be considered as income originating within Serbia and will thus not be taxable in Serbia.
The reasoning behind this measure was to provide an incentive for foreign nationals to come and work in Serbia temporarily. Essentially, even though they would not pay income tax, the benefit for the Republic of Serbia would be increased VAT receipts from their consumption in Serbia. However, this incentive may not seem so promising in terms of attracting more digital nomads to Serbia, as they anyway do not pay taxes in the host countries but rather do so in their home countries or countries where their business is registered.
So, let’s not forget that Serbia needs to develop a unique tax system in order to attract the growing population of digital nomads. Implementing attractive tax incentives to support the growing trend of location-independent lifestyles could make our country a desirable place to stay. The rolling out of a new tax incentive should be based on well-structured measures ensuring a blanket tax exemption for non-residents. This method is the sure-fire way to grant satisfying benefits to digital nomads. Most importantly, by doing so, Serbia would deliver a powerful message that it is a progressive and forward-thinking country in tune with a rapidly changing society.
The COVID-19 pandemic induced a shift to remote work and took millions away from their offices. Could this unprecedented situation influence workers to leave their armchairs and become digital nomads? That would change digital nomadism in different ways:
Namely, a growing number of companies are announcing that they plan to allow a much greater degree of remote work in the long term. This is giving millions of people the ability to become more nomadic – and many are doing so.
However, instead of flying from country to country, digital nomads are staying closer to home due to travel restrictions. Amid the Covid 19 pandemic digital nomads may choose to settle more and travel less, which may open their eyes to the advantages of exploring places and cultures in-depth.
One thing is certain, traditional work patterns are experiencing changes; many are now able to make a living while traveling the world. Yet, a wise choice of destination makes a difference. In that sense, Serbia has taken the first steps to make its taxation system more friendly for digital nomads by exempting non-residents who spend up to 90 days in Serbia from personal income tax.
[1] Personal Income Tax Act, „Official Gazette of the RoS“ No. 5/2020, Article 9b.
Authors: Jelena Škorić, Nadja Kosić and Jovana Trivunović
