By: Hannes van den Berg, CEO of Momentum Consult
People are becoming digital nomads as a result of the pandemic, earning a living working online in various locations around the globe. Previously a privilege afforded to relatively few, 2020 ushered in a new era in which working remotely has become commonplace.
Three years ago, only 4% of South Africans had the flexibility to work from a location of their choice. Now that figure is close to 40% thanks to pandemic-induced lockdowns, according to research by Towers Wills Watson.
This mirrors the trend we are seeing on a global basis: it’s expected in 2021 there’ll be a doubling in the percentage of workers permanently working remotely, according to a survey from Enterprise Technology Research (ETR). Meanwhile, 70% of the global workforce is forecast to be doing so at least five times a month by 2025, according to research cited in a Forbes article.
This remote working movement has resulted in the rise of the digital nomad: a person who uses technology to do their job from anywhere in the world.
There are even efforts underway to convince the national government to introduce a “digital nomad” visa to encourage foreigners to stay for longer periods, earning and spending foreign currency in our country, which would be a boon to domestic growth.
Becoming a digital nomad has its perks. Imagine being able to travel the world while still advancing your career in a meaningful job!
You may choose to go abroad and continue to work for a South African company, you could choose to go abroad and work for a foreign company, or you could base yourself in South Africa while working for a foreign or a local company.
It sounds like bliss to me, but it also has its drawbacks as it can easily complicate your financial obligations.
A financial plan
My advice is to start with a financial plan, preferably one put together with the help of a trusted financial adviser. This should be the first step you take on your journey to becoming a digital nomad.
Advisers can work with you to map out a plan that’s best suited to your individual financial needs and goals but there will be limits as to what they can advise on.
For example, a South African financial adviser isn’t permitted to give advice on products they’re not accredited to, or to give advice on non-South African products. But, they’ll be able to help you find someone who can. At Momentum Consult, we partner with Momentum Trust, who take care of offshore fiduciary services, and we offer various offshore international investment solutions to our clients.
It’s important that your financial plan isn’t derailed by your decision to become a digital nomad. If you land up moving overseas, it may make sense to keep your South African investments or it may not.
Everyone’s plan will look different, which is why it’s so necessary that a planner helps you tailor yours to your individual situation.
Know your insurance needs
A key part of drawing up your financial plan will be to ascertain what kind of insurance cover you may need, whether that’s in terms of life or medical cover.
You may have cover in place in South Africa for both these aspects but if you move overseas you need to consider a possible change in your occupation (life cover) and specific requirements in respect of your medical cover.
For example, what will the consequences be if you have cover in South Africa but you work overseas? Do you need private medical cover or are you happy to use state facilities? What will happen to your life cover if you changed your occupation?
What will this mean for your will? You may need an offshore will if you acquire assets overseas. For example, a foreign will is almost always advisable if you own fixed property overseas.
One thing’s for sure, a professional financial adviser can answer all these questions.
Tend to your taxes
No matter what you do, becoming a digital nomad will have tax implications. It’s important to know that South Africa has a residence-based tax regime. This means that if you’re a South African resident, even if earning as an overseas employee, the South African Revenue Service (SARS) will tax you on your worldwide income.
The authorities have made things easier for those working abroad by scrapping financial emigration. Now people can work in a foreign country without having to give up their tax residency status, which involves shutting down all South African financial accounts and potentially being liable for significant capital gains tax. This also means such individuals can return to South Africa easily.
That said, there are double taxation agreements (DTA) in place with many countries to ensure you aren’t unfairly taxed. It doesn’t mean you’ll be exempt from paying tax if there’s a DTA in place, but will mean that you won’t land up paying double tax.
Consider the rand
If you’re living in South Africa but working for a foreign company, or even if you’re living overseas but have financial obligations in South Africa, you need to take into account currency movements.
Looking forward over the next 10 years or so, our experts expect the rand to weaken by at least the SA long-term inflation rate of between 4% to 6%. This would increase your salary if you’re earning foreign currency and converting it into rand.
We expect the rand to be quite volatile, especially over shorter time periods, and you do need to be in a financial position to absorb this.