If you’re at a remote friendly company, at some point, you’ll get the message. Your employee – a good one, someone you don’t want to lose, tells you they’re thinking of spending a year in Lisbon, Medellín, or Bali. They’ve looked into it, they say. There’s a digital nomad visa. It all seems straightforward.

But that’s not necessarily the case. Whether you’re their employer in the UK, the US, Australia, or anywhere else, digital nomad visas create a set of questions for you that don’t have simple answers – and getting them wrong can be costly.

This guide is written for employers. It explains what a digital nomad visa actually means for your business, what your legal obligations are, and what your options are. It doesn’t have a sales agenda. Some of those options involve us; most don’t.

If you are the employee wanting to relocate on a digital nomad visa – we have a separate dedicated guide for employees.

This content is for general informational purposes only and does not constitute legal, tax or immigration advice. Specific situations require professional consultation.

What is a digital nomad visa – and why does it matter to you?

A digital nomad visa is a temporary residency permit issued by a country to remote workers who earn their income from outside that country. Your employee applies to live in, say, Portugal. Portugal grants them the right to reside there for one or two years. They work from their Lisbon apartment. They continue in their role with your company. Everyone’s happy.

Except that from a legal standpoint, something significant has changed: your employee is now physically located in a different country. And employment law, tax law, and social security obligations don’t care where the employer is based – they care where the work is being performed.

The fundamental issue: if your employee is performing work in Portugal, Portuguese law may have things to say about how that person is employed, taxed, and protected – regardless of where your company is registered.

Here’s what most employers get wrong

The most common mistake is assuming nothing changes. An employee says they want to go to Spain for a year. The employer says fine. The employee goes. They stay on the existing payroll. Nothing is updated. For a few months, everything seems okay.

What’s actually happening, in many cases:

• The employee, who is on your UK payroll, may be creating tax residency in their host country after 183 days – meaning they may owe income tax there in addition to their home country obligations. In Spain, for example, an employee without Beckham Law status faces progressive rates up to 47%; even with Beckham Law (which applies 24% on Spanish-sourced income up to €600,000, and 47% above that threshold, to qualifying employees), the employer has obligations to register with Spanish Social Security.
• The employer may be inadvertently creating a taxable presence in the host country, what’s known as permanent establishment risk, by having an employee consistently working there
• Social security contributions may need to be made in the host country rather than, or in addition to, the home country
• The employer may be in breach of local employment law if the host country’s mandatory protections (minimum wage, leave entitlements, termination rights) aren’t being applied

None of these risks are inevitable – they depend on the country, the duration, and the structure of your arrangement. But they’re real, and they’re worth understanding before you say yes.

The key issue: EOR won’t work here – and here’s why

If you’ve looked into international employment before, you may have come across employer of record (EOR) services. An EOR acts as the legal employer in a foreign country on your behalf – handling local payroll, contracts, tax, and compliance while your employee does their actual job for you.

EOR is a genuinely useful tool for international hiring. But it doesn’t work for digital nomad visa situations, and here’s why.

Digital nomad visa programmes are specifically designed for people earning income from outside the host country. The moment you use an EOR to employ someone locally in, say, Croatia, they become a Croatian employee – legally, contractually, and for tax purposes. That’s a fundamentally different arrangement from a digital nomad visa, and in most countries the two structures are incompatible.

In short: EOR is the right answer when an employee permanently relocates and you want to retain a full employment relationship in their new country. It is not compatible with a digital nomad visa arrangement – but that’s actually the point. In practice, a lot of employees raise the digital nomad visa conversation when what they actually want is simply to live abroad and carry on as an employee, not to become a contractor or manage their own compliance. For those people, EOR isn’t the wrong tool – it’s the only clean one. It removes the need for a nomad visa entirely, because the employee becomes locally employed under the host country’s labour law, holds a standard work or residence permit, and accrues rights toward permanent residency. The nomad visa question becomes irrelevant.

The distinction to get clear with your employee early: do they want to work abroad temporarily and informally, or do they want to relocate properly and stay an employee? The answer shapes everything that follows.

So what are your options?

You broadly have three routes when an employee asks about a digital nomad visa. Before working through the options, it’s worth asking a more fundamental question: does your employee actually need a digital nomad visa at all? Many employees raise it because it’s the visa they’ve heard of – but if what they really want is to live and work abroad long-term while remaining a proper employee, a nomad visa is the wrong structure. The options below reflect both scenarios.

Option 1: Restructure as a contractor arrangement

One of the most frequently used approaches – and the one most compatible with digital nomad visa programmes, is to restructure the working relationship. Instead of an employee, your worker becomes a self-employed contractor. They invoice you for their services. They take responsibility for their own tax filings and compliance in their host country.

This works for digital nomad visas because the visa requires that income comes from outside the host country. A contractor earning freelance income from your business qualifies. They handle their own local obligations.

But the contractor arrangement must be genuine – not a fig leaf over what is actually an employment relationship. If the working pattern, control, and economic reality of the arrangement still looks like employment, many countries will treat it as such. 

In the UK, this is IR35/off-payroll working territory. Other countries have specific and sometimes stricter equivalents: Portugal’s AT (Tax Authority) applies a nine-factor test under the Labour Code to determine whether a contractor is actually an employee, with a rebuttable presumption of employment arising when two or more of six statutory indicators are met; Spain’s falso autónomo rules allow labour inspectors to reclassify sham contractor arrangements and impose backdated social security contributions; Germany’s Scheinselbständigkeit doctrine operates similarly, with the Deutsche Rentenversicherung (statutory pension insurer) actively auditing arrangements; and Italy’s collaborazione coordinata e continuativa rules mean that highly integrated contractors can be reclassified as employees regardless of what the contract says. Before restructuring, take employment law advice in both your home country and the destination country.

It’s also worth noting that the EU Platform Work Directive (2024/2831), which member states must transpose by December 2026, introduces a rebuttable presumption of employment status where certain control criteria are met. While it formally targets digital labour platforms, its transposition is already being interpreted more broadly in several EU member states, it signals the direction of travel across the EU on worker classification – and employers restructuring a relationship to contractor status in an EU country should be aware that the bar for genuine self-employment is rising, not falling. Before restructuring, take employment law advice in both your home country and the destination country.

Option 2: Say no – and understand the cost

You’re allowed to say no. International remote working arrangements are a privilege, not a right, in most employment contracts. If your contract or remote working policy doesn’t permit it, you don’t have to agree.

But there’s a real cost to consider. If your employee wants to relocate for personal reasons or has found a role that lets them live abroad, they may leave if you won’t accommodate them. The question isn’t just ‘is this complicated?’ – it’s ‘how much do we value this person, and is the complication worth working through?’

Option 3: Agree in principle – but structure it properly

This is usually the right approach for employers who want to retain good people. You agree that the arrangement can work, but you take time to structure it correctly – ideally before the employee moves, not after.

That means reviewing their contract, understanding the host country’s rules, taking tax advice on both sides, establishing whether a contractor relationship is genuine and appropriate, and formalising the arrangement in writing. It takes more time upfront. It costs less in the long run.

Option 4: Use an EOR – if your employee wants to relocate more permanently

If your employee isn’t looking for a temporary nomad arrangement but wants to relocate longer term, an employer of record may be the right answer. Rather than keeping them on your home-country payroll or restructuring them as a contractor, an EOR employs them locally under the host country’s labour law – which means they can hold a standard work or residence permit, potentially accrue rights toward permanent residency, and be fully compliant from day one. This is the structure that digital nomad visas explicitly rule out, which is precisely why it’s the right tool when someone is settling rather than roaming. If this is the route you’re considering, talk to us first and we’ll tell you honestly whether it works for your employee’s situation and destination.

	Contractor Arrangement	Local Employment (via EOR)
Who handles local tax & social security?	The contractor – their responsibility in host country	The EOR handles everything on your behalf
Is this compatible with a digital nomad visa?	Generally yes – income originates from outside the host country, which is what the visa requires	No – EOR creates local employment. A fundamentally different structure, incompatible with most nomad visa programmes.
Ongoing employer responsibility?	Lower – but contractor relationship must be genuinely independent	Full compliance managed by EOR; you remain hands-off
Cost	Lower – no EOR monthly fee	EOR monthly fee per employee
Right for you when…	Employee is genuinely independent; arrangement is short-to-medium term	Employee permanently relocates and you want to retain a full employment relationship in their new country
Risk if structured incorrectly	Misclassification – if the relationship is effectively employment, most countries will treat it as such	Not applicable for nomad visa situations – much better solution for longer term

Permanent establishment risk: a real concern for employers

Permanent establishment (PE) risk is the most significant employer-side risk in international remote working arrangements, and the one least understood by non-specialists.

Most countries have rules that say: if a foreign company has a sufficient presence here – then that foreign company can be taxed on its profits here. This is permanent establishment.

In practice, this means: if your employee is regularly working from Portugal, Portugal may argue that your company has a taxable presence there, even if you have no office, no bank account, and no intention of operating in Portugal. This can result in corporate tax obligations that you didn’t anticipate and didn’t budget for.

Whether PE risk actually materialises depends on the facts – the nature of the work, the duration, the employee’s role, whether they have authority to sign contracts on the company’s behalf, and the specific rules in the host country. It’s not automatic. But it’s not theoretical either.

It’s also worth understanding that permanent establishment isn’t a single concept – there are several distinct types, each triggered by different facts. A fixed place of business PE arises where your employee works consistently from a fixed location, such as a home office, over a sustained period. An agency PE arises where the employee has authority to conclude contracts on the company’s behalf in the host country – a higher bar, but one that catches commercial roles more readily than purely operational ones. A service PE applies in some jurisdictions where services are delivered in-country for an extended period, regardless of any fixed location.

The OECD’s commentary on Article 5 of the Model Tax Convention addresses the home office question directly: a home office can constitute a fixed place of business PE where the company has effectively required or sanctioned it as a regular place of business, rather than the employee simply choosing to work from home on an informal basis. The distinction matters in practice: an employee who moves to Portugal and tells you after the fact is a different risk profile from one whose arrangement is formally agreed, documented, and company-endorsed. Both may create PE exposure, but the latter makes it harder to argue the company had no knowledge or control.

The practical message: if an employee is going to work from another country for more than a few months, get advice. The cost of the advice is trivial compared to the cost of an unexpected tax assessment.

Tax and social security: the payroll questions you need to answer

Alongside PE risk, payroll compliance is the other area where international remote working arrangements most commonly go wrong. A few concrete examples illustrate why getting the detail right matters.

Income tax. Your employee may become a tax resident in their host country after 183 days (most jurisdictions use this as a threshold, though the precise test varies by country and some apply additional connecting factors). In Spain, for instance, an employee without Beckham Law protection faces progressive rates up to 47% on Spanish-sourced income; with Beckham Law (where it applies), they pay 24% flat on Spanish-sourced employment income up to €600,000, and 47% above that threshold. The tax outcome varies enormously by country and structure.

Social security. Social security contributions are separate from income tax. Whether your employee continues contributing to their home country’s social security scheme, or starts contributing in the host country, depends on whether a social security agreement (sometimes called a totalisation agreement) exists between the two countries. 

Employer-side payroll. If your employee becomes locally employed via an EOR arrangement – which, as noted above, is a different structure from a nomad visa, you’ll be paying local employer social contributions. For a contractor arrangement, the contractor pays their own contributions locally. Understanding which regime applies matters for budgeting.

This is one area where paying for professional advice is not optional. The landscape is also shifting: Portugal’s NHR regime closed to new applicants in March 2024 and has been replaced by IFICI (sometimes called NHR 2.0), which offers a 20% flat rate but is significantly narrower in scope – most digital nomad visa holders won’t qualify for it. Thailand’s tax rules on foreign-income remittances are actively being revised. Advice that was correct 18 months ago may not be correct today.

Other compliance areas employers regularly overlook

Data protection.

• If your employee is working from outside the UK or EU (the UAE, Thailand, Colombia, for example) and handling personal data as part of their role, GDPR and UK GDPR both have things to say about it. Processing personal data from a third country without an adequate transfer mechanism in place is a breach, regardless of where the company is based. Standard Contractual Clauses, a Transfer Impact Assessment, and a review of your data processing agreements are the minimum steps before an employee starts handling customer or employee data from a non-adequate country. This is frequently missed and increasingly scrutinised.

Benefits portability: equity and pensions

• Equity plans and pension arrangements often have jurisdiction-specific rules that employers don’t think to check until something goes wrong. Share options or RSUs granted to an employee who then becomes tax resident in another country may trigger unexpected tax events – vesting while abroad can create dual tax exposure, and some countries treat equity income as employment income subject to social security, not just income tax. Pension contributions are similarly affected: once an employee is no longer a UK tax resident, they will generally lose access to UK tax relief on their own pension contributions – the ability to contribute may remain, but the tax efficiency of doing so is significantly reduced, and the employee may lose access to tax relief they were relying on. Both areas are worth a specific conversation with a tax adviser before the employee moves, not as an afterthought once they’re already abroad.

Working time and health and safety

• Most employers focus on payroll and tax, and overlook that working time regulations and health and safety obligations also follow the employee into their host country. If your employee becomes subject to local employment law – either because of the duration of their stay or the structure of their arrangement – local working time rules, rest-break requirements, and statutory limits on hours may apply alongside (or instead of) your home-country policies. Health and safety is a less obvious one, but several EU jurisdictions impose employer obligations in relation to the employee’s home working environment, including risk assessments. These are rarely deal-breakers, but they belong on the checklist.

What to put in the agreement

If you decide to support your employee’s nomad visa arrangement, get it in writing. A letter or addendum to the employment or contractor agreement should cover:

• The agreed destination country and any restriction on working from other countries without further approval
• The duration of the arrangement, with a clear review date
• Confirmation of the working relationship (contractor or employee) and which law governs the contract – bearing in mind that under Article 8 of the Rome I Regulation – or its UK equivalent for contracts governed by English law – a choice of law clause cannot override the mandatory employment protections of the country where the employee habitually works. In practice, this means that even if your contract is expressed to be governed by English law, your employee may still be entitled to local minimum notice periods, statutory leave, unfair dismissal protections, and other mandatory rights in their host country. A governing law clause is still worth including, but it does not insulate you from local employment law.
• Responsibility for local tax filings and social security contributions (for contractor arrangements: the contractor’s responsibility)
• Notice obligations if the employee decides to change country or return home
• Data security and IT requirements – some industries have restrictions on where data can be processed or stored
• The position on intellectual property ownership under the laws of the host country

This needn’t be a lengthy document. A clear, well-drafted addendum protects both parties and makes expectations explicit. If you’re uncertain about any of these points, take legal advice before the employee moves – not after.

Frequently asked questions

Can my employee use a digital nomad visa and stay on our payroll?

In theory it is possible, but in practice staying on a home-country payroll while living abroad on a digital nomad visa creates compliance risks for both parties. After 183 days, your employee may become tax resident in the host country, triggering local income tax obligations. Your company may face permanent establishment risk. Social security contributions may need redirecting. Most employment lawyers would recommend restructuring the arrangement before the employee moves, not after.

Is an EOR the right solution for a digital nomad visa situation?

No – and this is the most common misconception we encounter. EOR creates local employment in the host country, which is a fundamentally different structure from what digital nomad visas are designed for. EOR is the right tool when an employee permanently relocates and you want to employ them compliantly in their new country. It is not appropriate for nomad visa arrangements, and using it in that context may actually make the employee ineligible for the visa they hold.

What is permanent establishment risk, and should I be worried?

Permanent establishment risk is the possibility that your company becomes taxable in a foreign country because an employee is working there. It depends on the facts, the country, and the duration. If your employee will be abroad for more than a few months, take corporate tax advice in the destination country. The cost of that advice is small compared to an unexpected foreign tax assessment.

Do we need to change the employment contract?

Almost certainly yes – at minimum, an addendum confirming the arrangement, the applicable law, the duration, and who is responsible for local tax compliance. If you’re restructuring to a contractor arrangement, you’ll need new contractor agreements. The contract should make clear which law applies, what the working relationship is, and what happens at the end of the arrangement.

Our employee wants to work from Spain. Do we need to register with Spanish Social Security?

Possibly – but it depends on how long they’re going and how the arrangement is structured. The UK and EU maintain social security coordination under the UK-EU Trade and Cooperation Agreement, which includes detached worker provisions for assignments of up to 24 months. If your employee qualifies as a detached worker under the TCA, they can remain in the UK National Insurance system and Spanish social security registration may not be required. Beyond 24 months, or where the detached worker conditions aren’t met, Spanish social security obligations are likely to apply. This is separate from any Beckham Law consideration, which addresses income tax only. Take advice from a Spanish employment lawyer or social security specialist before your employee moves – the answer will depend on the specific facts of their arrangement.

Our employee wants to hop between countries on multiple nomad visas. Is that our problem?

If they’re employed by you, then yes – each new country creates a new set of compliance questions. Country-hopping is attractive to digital nomads but significantly more complex from an employer’s perspective. It’s worth setting clear parameters in your remote working policy and being aware of the compliance, potential risks and tax rules before booking the flights.

Who should we speak to if we’re not sure what to do?

A combination of: an employment lawyer in your home country, a tax adviser with international experience, and, if your employee has a specific destination in mind, a local employment or tax specialist in that country. Peak’s team is also happy to talk through the international employment structure side of things, and can help you understand when an EOR is and isn’t the right tool.

Not sure where to start? Talk to our team.

International employment arrangements don’t have to be complicated – but they do need to be done properly. Peak specialises in helping companies navigate global hiring and international employment compliance.

If your employee has raised a digital nomad visa conversation and you’re not sure what to do next, we’re happy to talk it through. No jargon. No hard sell. Just practical guidance from people who deal with exactly these questions every day.

📩 Get in touch with our team

Or read our companion guide: Digital Nomad Visas – The Complete Country-by-Country Guide