Government considering offering visas to attract ‘digital nomads’

Sunday, 31 March 2024

New Zealand may join the rapidly-growing list of countries that are enticing “digital nomads” to their shores, by offering them special visas.

But it is not yet clear whether they would come with tax concessions that are a common feature of such schemes overseas.

Immigration Minister Erica Stanford says the Government is considering a visa scheme for digital nomads, though “unfortunately not as an immediate priority”.

Stanford explains that is because it is currently working on changes to immigration settings, including the Accredited Employer Work Visa.

Prior to the election, the National Party indicated it could start small by offering visas to 250 digital nomads that would allow them to live and work in New Zealand for foreign employers for up to a year.

Revenue Minister Simon Watts wouldn’t comment directly whether he thought tax incentives needed to be part of the equation, saying only that he was “currently considering a range of tax policy options to increase productivity in our economy”.

Supporters argue that rolling out the welcome mat to digital nomads is a win-win.

There are a growing number of young professionals and freelancers, particularly in the technology industry, who can work for their employers or contractors from anywhere in the world with an internet connection.

Proponents argue that so long as they are not taking locals’ jobs, countries would appear to have very little to lose and something to gain by offering them a base from which to work, even with low or no income tax.

The Spanish government is one of the most enthusiastic converts and currently has one of the best deals on offer for digital nomads.

Its digital nomad visa offers non-EU citizens employed by foreign firms and earning at least €2,646 (NZ$4410) a month the ability to live in Spain for up to five years, while paying income tax at a non-resident rate of 24% on earnings of up to €600,000 a year.

Argentina also has a generous, specific visa for digital nomads that lets both remote workers and freelancers live and work in the country for up to a year with no need to pay any tax on income they receive from sources outside the country.

Although it is no-one’s job to count digital nomads — so estimates may need to be treated with caution — it is commonly reported that there are currently 35 million of them taking advantage of such opportunities in about 40 countries around the world.

The OECD reported in 2022, before countries including Spain, Italy and Columbia joined the game, that at least 28 countries including six OECD member-states offered specific digital nomad visas.

Mahesh Muralidhar, the National Party candidate who lost out to Green Party co-leader Chlöe Swarbrick in Auckland Central in the October election, believes New Zealand should consider following suit.

He is understood to have become personally wealthy recently thanks to shares that he received several years ago when “head of people” at Australian technology company Canva.

Early investors and executives in Canva are understood to have secured a A$1.4 billion payday after being given an opportunity to sell shares in the publishing-technology firm to new investors ahead of a mooted public listing next year or in 2026.

Muralidhar says he can’t disclose how much he himself made from that transaction but makes clear that involvement with Canva was a life-changing experience for a number of Kiwis associated with the company.

“I didn’t come from much … there is a powerful story here.”

He sees the technology industry as a route to national as well as personal prosperity and says a digital nomad scheme could be one way to address the “productivity problem” that Prime Minister Christopher Luxon highlighted in the wake of the election.

“I think New Zealand will now and forever offer something truly special for anyone that comes here. We are incredibly lucky to have what we have and we should take advantage of that,” he says

Muralidhar says he is not suggesting that there needs to be “a dramatically different tax system”.

But he says incentives might be justified if digital nomads were bringing in new skills, “helping us learn and helping us grow”.

“We do need to encourage them to stay here and be part of our community.”

By a digital nomad Muralidhar indicates he is thinking of “a software engineer who has worked at a large company and had one or two failed start-ups, or a designer coming here, mixing and mingling with our founders and entrepreneurs.”

Taxing those types of remote workers — who might commonly be earning well into six-figures — a lower rate of tax than Kiwi workers on lower pay might not be step forward for egalitarianism.

But Muralidhar argues New Zealand needs to grow the pie before fretting too much about the size of the slices.

“If we don't grow the value of our ‘household’, to the extent of Sweden, Denmark, Norway and similar countries, then we're not ever going to be in a position to really address the inequity piece,” he argues.

“Equity is so important to Kiwis; we want people who have different economic situations and income situations to sit at a bar and have a conversation, that's part of ‘who we are’. But our biggest challenge in my opinion is we are just not ‘keeping up’.”

It’s a different issue from attracting digital nomads, but in light of his own experience at Canva, Muralidhar is also calling for a reform of the rules surrounding the tax treatment of shares and options offered to staff by their Kiwis employers.

Bringing New Zealand more into line with tax rules in, say, the United States would mean start-ups could more readily offer equity-incentives to staff, enabling them to better reward top talent with less capital, he argues.

On this, at least, Muralidhar may get his way.

Watts says the Government is looking at options that encourage start-ups to grow and thrive and “how technology firms incentivise staff will be part of that”.

International economic institutions have voiced mixed opinions about the digital nomad schemes that have been introduced elsewhere.

The head of the IMF’s mission to New Zealand, Evan Papageorgiou, doesn’t believe the IMF has done any significant work on the implications of such schemes.

But he points to an IMF report on Andorra that described its decision to establish a legal framework for digital nomads as one of a number of “welcome steps towards diversification and greater economic efficiency” in the tiny European country.

The OECD, which has spent 10 years and counting trying to stamp out multinational tax rorts and ensure technology giants pay a fair rate of tax in all the countries in which they operate, has appeared cooler.

It described the idea that digital nomads could stimulate innovation and growth in the countries they moved to as “untested”, in a 2022 report.

The Geneva-based International Association of Employers identified both pros and cons in a detailed report published earlier this year.

It took note of news reports that locals on the Portuguese Island of Madeira and Mexico City — both of which are popular destinations for digital nomads — had complained about them contributing to inflation, in particular by pushing up rents.

Addressing the elephant in the room, the OECD said there was a risk schemes that offered digital nomads lower rates of tax could “give rise to tax competition concerns” – in other words a race to the bottom on tax rates.

That concern looks set to grow as the proportion of the global workforce who can work from anywhere increases.

In January, The Economist quoted a forecast that there could a billion digital nomads by 2035.

While that would seem extraordinary, it hints at the potential risk to global income tax revenues if incentives for digital nomads were to proliferate and become entrenched.

Deloitte tax partner Robyn Walker says that even without any specific concessions, New Zealand’s income tax regime should already be competitive internationally.

“The highest tax rate of 39% is relatively low and you don't have the extra employment taxes, surcharges and various other things that a lot of other countries have.

“Obviously, we’re in a global war for talent but we still want people who will be happy to pay their fair share,” she says.

Walker suggests the sentiment among Kiwis might not be supportive of offering digital nomads too much in the way of financial concessions.

“They're driving on New Zealand roads and using other New Zealand resources so there's a feeling they probably should contribute something,” she says.

“People would probably need to come to New Zealand for more than tax reasons, because they liked dolphins or mountains or Lord of the Rings or whatever.”

There is evidence Kiwis are being lured to work as digital nomads overseas in much larger numbers by some combination of a sense of adventure, a lower cost-of-living and incentives.

US-owned resume technology firm Cvapp says Google data indicates there has been a 2700% increase in interest from New Zealanders in remote work since 2019.

Its analysis of tens of thousands of Instagram posts suggests top destinations for Kiwis considering becoming digital nomads include Australia, Thailand and Bali.

Indonesia is reported to be planning to introduce a dedicated digital nomad visa that will allow foreigners to live and work in the country for overseas firms tax-free for five years.

Advice published by consultant PwC indicates foreigners can legally avoid having to pay tax on any portion of their foreign earnings that they can save when working in Thailand, as they are only taxed on funds they need to remit to the country in order to spend there.

The fact the New Zealand Government is considering its own digital nomad visa scheme suggests it may be thinking “if you can’t beat them, join them”.