FULL PROPOSAL SUBMITTED TO CHIANG MAI PROVINCIAL EMPLOYMENT OFFICE IN MAY 2017
DIGITAL NOMADS IN CHIANG MAI AND THAILAND AND HOW TO CREATE MUTUAL BENEFIT FOR BOTH SIDES
Since a few years, Thailand, and in particular Chiang Mai has witnessed the coming of a group of foreigners that in the course of time were labeled ‘Digital Nomads’.
A Digital Nomad is someone who is working (remotely) online. Another word for it is ‘Location Independent Entrepreneur’.
Working remotely online is a trend that became possible due to a combination of technological innovation plus economic factors. Jobs that in the past had to be done full-time in an office and were dedicated to one employer only, can now be done remotely and part-time.
Many online jobs are possible due to splitting the economic process from idea - design - production - marketing - delivery - aftersales into parts, and outsourcing that.
For example, a Digital Nomads could specialise in e-marketing for several products that are not his own.
Thailand, and especially Chiang Mai is an attractive place for (especially beginning) Digital Nomads. Relatively fast and stable internet, low cost of living, friendly climate and good atmosphere have attracted thousands of Digital Nomads to stay long-term in Thailand.
It is hard to get official counts of Digital Nomads in a certain location, but based activities online, forums, and other sources, Chiang Mai is the undispute number one hotspot for Digital Nomads in the world. Other popular places in Thailand are Ko Phangan, Phuket and Bangkok.
Rough estimates about their numbers are: about 6,000-7,000 Digital Nomads in Chiang Mai and several thousands in the rest of Thailand, but because there are no official counts and because someone could be working alone from home without being noticed, these numbers could easily be double.
So far, Digital Nomads as a group have remained largely unnoticed by the Thai government, both on a national and on a local level. There is still a limited understanding with various government departments of the situation and development Digital Nomads in Thailand. There is no clear government policy with regards to this group of foreigners.
With Chiang Mai and Thailand currently ranking as the hotspot of the world for Digital Nomads, we believe that the Thai government cannot stay on the sideline and must take a leading role in this development.
The Thai government should take proper action to tap into the potential of what this group of foreigners could contribute to Thailand in ways that would creates mutual benefit for Digital Nomads and Thailand and that sends a strong signal to the world.
Most Digital Nomads are younger foreigners aged 20-50, mainly from Western origin. Many of them have some skill, either technical or otherwise, that enables them to make an online living. Some are highly educated, master IT skills or webdesign, e-commerce, marketing, programming etc. Others start from sketch.
Income levels amongst Digital Nomads vary greatly: estimates vary from THB 20,000 per month to USD 20,000 per month (!).
Most Digital Nomads do not pay taxes in Thailand, or anywhere else, even if they stay in Thailand for a long time, perhaps for months or years. Although they are called Digital ‘Nomads’, many of them are not constantly on the move, but rather stay in places for a longer period of time (months, years), perhaps because they are in the beginning stages of setting up an online career, because their budget is not high enough to travel intensively, or because they simply like to live in Thailand.
Estimates of the contribution of Digital Nomads to the Thai economy vary. The spending pattern of Digital Nomads resembles that of other long term foreign residents: spending on housing, restaurants, gyms, and so on. Some differences with other long term residents is that some Digital Nomads prefer to work at co-working spaces. Although average spending per Digital Nomad is lower than high profile short-term tourists, Digital Nomads as a group do contribute significantly to the local economy, in part because their numbers are large.
Following a strict interpretation of Thai law, most Digital Nomads are in theory working without a work permit, but since Thai law was not designed to cater for this type of modern developments, since it is difficult to check their activities and since they are unregistered, they have been left alone to do what they do and the practical position of the authorities is to allow them to work unless there are serious issues.
However, some Digital Nomads cross the line and advertise their services within their community or offer jobs, hence create a small economy-within-an-economy. This is partly because it is hard for them to hire local given their lack of legal status.
Digital Nomads are not typical trouble-makers or visa over-stayers, their main purpose is to set their online business successfully.
Interaction between local Thai and Digital Nomads is fairly limited, not many Digital Nomads hire local Thai as they can also hire on the internet or amongst each other.
The following policy proposals aim at improving the current situation for Digital Nomads in Thailand while at the same time generating a benefit for Thailand: a win-win situation.
Any policy proposal that aims to create benefit for just one side is not likely to be workable. This is partly because it is hard to check activities of Digital Nomads and because they can easily move to other countries.
This policy proposal aims to allow Digital Nomads to stay in Thailand on a special visa class, perhaps to be called “1-year Digital Nomad Visa” in return for paying (Personal Income) tax. This Digital Nomad will have full legal status and a tax number. In addition, it should be allowed for Digital Nomads to legally hire a Thai freelancer on a project basis.
1. Tax revenue: Until now, most Digital Nomads do not pay any taxes in Thailand. With this proposal, it can become attractive for some Digital Nomads to pay taxes. Money that Digital Nomads would otherwise spend on visa runs, hotels, transport and so on, partly in other countries, can now be collected centrally in one fund controlled by the Thai government.
2. Registration of (activities of) Digital Nomads: Until now, the Thai government has no clue how many Digital Nomads there are in Thailand, what activities they do, and where their income comes from. Registration of Digital Nomads is the first, essential step, to being able to monitor, make effective policies, and control.
3. Modest employment of local Thai work force Some Digital Nomads outsource part of their projects to other experts. When it is easier and entirely legal to hire a Thai freelancer, they are more likely to do so rather than hire amongst each other or on the internet. Examples are: web design, secretary, project manager.
1. Long-term visa
Most Digital Nomads find the Thai visa options and procedures bothersome and inconvenient and the duration too short. Also, most Digital Nomads stay on visa classes which are not entirely ‘proper’ for their activity: single entry or multiple entry tourist visa or on education visa. Some choose to stay on 1-year education visa but do not go to school.
2. Fully legal status
After paying taxes and being fully legal in Thailand, Digital Nomads do not have to fear to be “working in the grey zone”. To be fully legal on a proper visa that acknowledges their work will be a great a benefit to Digital Nomads.
3. Tax proof to avoid (double) taxation in home country
Digital Nomads who have a financial responsibility in other countries will be happy to pay lower taxes in Thailand to avoid being taxed (perhaps later) at higher levels in their home country.
This policy proposal is considered the most attractive, most workable and most realistic proposal of all options studied. To make this proposal workable, it should be kept simple and efficient, for example in this manner:
a. Digital Nomads should register and get a tax number at one government tax office in main cities (such as Chiang Mai, Bangkok and Phuket: or in Chiang Mai only as a nationwide experiment). This office should ideally operate as a One Stop Shop. Ideally, the tax number would also represent a legal entity, perhaps in the same simple way as Thai people register a shop house.
b. There should be no need to hire an accounting firm or lawyer.
c. Digital Nomads should report their income statements at the One Stop Shop government tax office every 90-days using a simple online format, without the need for an accounting company to present quarterly statements.
d. Digital Nomads then report to Immigration every 90-days with their tax report (in the same way as every non-immigrant visa).(Ideally, there should be no need to go to Immigration every 90-days, it should be done online or at the One Stop Shop, but since all non-immigrant visa are handled in this way, it is assumed the 1-year Digital Nomad visa could operate following the normal 90-day reporting procedure.)
The tax rate levied could either be a flat fee per year or follow the usual tax rate brackets.
If the tax rate is flat, it could be set at a level of THB 30,000-50,000 per year.
If the tax rate follows normal tax brackets, a minimum income level of a Digital Nomad to apply for this should be determined, so that the effective tax paid per year amounts to at least THB 30,000-50,000 per year.
It will not be easy to check online income of Digital Nomads, some might hide some of their online income to pay lower taxes.
If the effective tax paid per year amounts to at least THB 50,000 per month, we expect that this arrangement will be attractive only to the mid- and high-income earners under the Digital Nomads.
If the minimum income level per month is set closer to THB 30,000 per month, we expect that most Digital Nomads will apply, because this is close to the costs they will have to spend on visa and visa runs anyway. The lower the effective tax to be paid per Digital Nomad, the less revenue per Digital Nomad there is for the Thai government, however more people will apply and therefore the total tax revenue collected might be greater. Also, the more Digital Nomads apply, the more are registered and this is a benefit in itself.
The higher the effective tax to be paid per Digital Nomad, the more distinctive the measure will be: lower-income earners might be discouraged, while higher-income earners may be encouraged.
Getting Digital Nomads registered and paying taxes in Thailand is also a first step to induce them to set up a real business with much more benefits for Thailand.
If Thailand implements this policy in the right way, it will also send this signal to the world and attract more Digital Nomads into Thailand.
It is widely acknowledged that Foreign Direct Investment (FDI) creates benefits for the hosting country, especially in terms of employment for Thai and some knowledge transfer. FDI is also essential to realise Thailand 4.0.
Some Digital Nomads are highly educated and have valuable skills but do not enter the stage of setting up a real company in Thailand. This is partly because the lifestyle preference of Digital Nomads is not about establishing and commitment, and partly because the procedures to set up a real business for foreigners is too complicated:
1. starting capital is needed of about THB 2 million
2. seven Thai shareholders need to sign
3. work permit requirement: for every work permit, four Thai have to be employed
4. accounting requirements, annual reporting, etc.
These barriers are too high to attract more foreign business into Thailand, especially for Digital Nomads.
This policy proposal aims at inducing a certain percentage of Digital Nomads to start a real business in Thailand.
One way to do that could be to allow Digital Nomads to be approved by BOI under certain conditions (to be further determined).
Another way could be to simplify the procedure to set up a company:
1. starting capital of only THB 200,000
2. no Thai shareholders
3. one work permit for the foreign owner, and one more work permit after 1 year for a partner
1. FDI
2. Employment of local Thai work force
3. Knowledge transfer
Ideally, Thailand should learn from international examples such as e-Residency in Estonia and the efficient way foreigners can set up and run an (offshore) company in Hong Kong and Singapore.
Although not all foreign companies set up in these countries lead to real physical businesses with operations and staff, easing the set up of foreign companies has the following benefits:
- it provides additional income for the financial, legal, accounting and government sector.
- it is a first step in attracting foreign businesses in a worldwide competition.
- eventually, a certain percentage of these “virtual businesses” will become a real physical business.
Until now, those Digital Nomads who enter a more serious phase than freelancing on the internet set up a Limited in Hong Kong or Singapore, not in Thailand, even though their physical activities are located in Thailand. This means that Thailand is in fact losing out.
It will require many steps to make Thailand’s financial, legal and accounting sectors as competitive as those in Singapore and Hong Kong. If Thailand is to move in the direction of Thailand 4.0, some steps that make it easier and more attractive for foreigner to set up an entity in Thailand should be made.
Since Digital Nomads are competing on a worldwide scale and at the edge of modern technology in the market place, they often possess state-of-the-art knowledge or master a unique skillset that Thai workers could benefit from.
Universities and other knowledge centers should create (more) part-time teaching or mentor positions to Digital Nomads who can convey their knowledge to Thai students. Especially in more practical areas that are currently not sufficiently being taught at universities but that are the reality of the market: dropshipping, webdesign, e-commerce and so on.
Knowledge transfer from Digital Nomads to local Thai workers must be carefully structured so as to leave a lasting knowledge base that all Thai can benefit from.
The main benefit for Thailand is knowledge transfer in areas which are driven by the market, not just by academics.
To attract a sufficient number of Digital Nomads, these teaching or mentor programs should not require a 40-hour workweek but (much) less, probably about 1 or 2 days maximum per week.
In return, the Digital Nomad will get a 1-year Teacher Visa and some renumeration.
If the Thai government does not acknowledge the phenomenon and potential of the presence of Digital Nomads and does not take action, Thailand will miss out opportunities in at least the following ways:
1. Lack of tax revenue
Digital Nomads will continue to work in the grey zone without paying taxes. The number of Digital Nomads is likely to only increase in the future, because of changes in the economic process, so the amount of tax revenue not collected will be larger and larger.
2. Lack of control and monitoring
Without registering Digital Nomads, large numbers of foreigners and their activities remain invisible and no policy action can be taken.
3. Improper use of visa
Large numbers of Digital Nomads will (continue to) use mainly tourist and education visa in improper ways.
4. Low benefit for Thailand
Digital Nomads will come, built up their business in one or two years and go. Their contribution to Thailand will remain limited to spending as a long-term tourist and they will not leave a lasting impact in terms of knowledge transfer, employment, businesses or income to Thailand.
5. Risk of loosing the world wide no. 1 hotspot
If the visa and work situation for Digital Nomads deterioriates or gets stricter, some Digital Nomads will not choose Thailand anymore as their prime location but instead will prefer Cambodia, Vietnam, Malaysia, Indonesia, Columbia or Portugal. During the past 3 years, visa for foreigners have become stricter and stricter and many Digital Nomads have already left to other places where they feel more welcome. If another hotspot for Digital Nomads gets stronger, thousands of Digital Nomads may leave and the local economy will suffer.
6. Fewer new start-up companies in Thailand
Because the current procedures to set up a company in Thailand are so complicated, not many Digital Nomads set up an entity in Thailand, but those who are ready set up an entity in Hong Kong or Singapore instead, even though real operations are conducted in Thailand. This is also true for many existing businesses with operations in Thailand: quite often, invoicing is from an entity in Hong Kong and Singapore.
The policy proposals described in this paper signify major directions the Thai government could take to make use of the potential of Digital Nomads in Thailand in a mutually benefial way.
In order to make any such policy proposal work effectively and efficiently, many more details will have to be determined in the planning phase. Also, in the next phases of implementation and monitoring and controlling, careful management is needed.
It is recommended that a Working Group with representatives from different government departments as well as from the Digital Nomad community guide this process during each phase to get maximum results.
Experiments with the development of certain economic sectors have been carried out in leading cities around the world, for example in Berlin and in Amsterdam. Some models of development have proved successful in fostering so-called ‘entrepreneurial breeding spaces’, which encourage the setting up of small start-up companies by entrepreneurs.
Thailand 4.0 as an ambitious program aiming at lifting the entire country up to the next level of economic and social development could greatly benefit from local and regional pilot projects that, if successful, can become pillars for nationwide progress.
Thus, if nationwide implementation of any of the above policy proposals is one bridge too far, Chiang Mai could serve as an experimental ground to lead pilot projects in “Chiang Mai 4.0”, which could then be rolled out nationwide after successful results have been obtained.
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