Category: Education

Remote working across borders: opportunities and traps for international employers

You might think you can simply register as a non-tax resident and avoid it all, but this is a dangerous game to play, with an increasing number of random audits and heavy penalties for flouting the law. Working from home is the new normal and combined with a notable reluctance to return to the conventional office, there is no doubt the nature of work has changed dramatically. Some brave souls took the opportunity to transform themselves into digital nomads, or perhaps more prudently they moved to a sunny spot in Spain with a decent internet connection. Remote workers now count for a sizeable number of employees, with the inevitable tax implications.

remote work and taxes

Launched in June 2020, Malta offers a Nomad Visa that allows workers to stay in the country for a year, this is renewable for up to three years. An applicant must be able to prove they earn 2,700 euros monthly (roughly translating to £2,300). Our full range of enhanced corporate services aimed at large
companies and those requiring audit, assurance, corporate tax advisory and
diverse tax planning services. Where
such arrangements involve an overseas jurisdiction, this can have far reaching
tax implications.

General areas of government policy highlighted by respondents

HMRC guidance[footnote 7] confirms that travel between two places of work, in the same employment, would be incurred in the performance of the duties. Further, for a travelling appointment all travel would be in the performance of the duties, even where starting or ending at home. A travelling appointment is one where the duties inherently involve travelling, such as a commercial traveller or service engineer. An exception would be where duties are in a particular area and the employee chooses to live elsewhere.

  • The DGT case referred to a UK teleworker employed by a British company, but the precedent will apply to any person who works remotely in Spain for a company established overseas if that person spends more than 183 days here.
  • Alternatively, taxpayers who are permanently on the move throughout their career (e.g., freelancers) may be able to argue that they are “itinerant” workers whose tax home follows them to wherever they work.
  • Current guidance appears to be limited[footnote 54] and needs to be expanded given the increase in employees working from home in the UK for an overseas employer.
  • For example, an employee working in the UK from the US would only trigger employee social security, whereas an employee doing the same thing from EU will trigger both employee and employer social security.
  • As mentioned above, there are exceptions in social security agreements which allow individuals to remain paying into their home social security scheme if they are temporarily posted to another country.

The DGT case referred to a UK teleworker employed by a British company, but the precedent will apply to any person who works remotely in Spain for a company established overseas if that person spends more than 183 days here. An overseas worker classed as a tax resident in Spain is liable for Spanish income tax AND tax on all their worldwide income. The very important modelo 720 form is an essential piece of tax kit for any foreign worker and neglecting to submit it may incur severe fines and an enormous headache. Beware, however, because if the business does not have a permanent premise in Spain but makes use of a place of business to which it is not legally connected, local tax could be applied.

The future of international remote working

Of the 60 respondents who answered in the previous question that they were working overseas or planned to, a third replied that they were looking to work overseas for up to two weeks (33.3%). 23.3% replied that they have or planned to work overseas for over a month and up to six months and 20% replied over two weeks and up to one month. 18.3% answered that they have or are planning to work overseas for over a year and 5% replied that they have or are planning to work overseas for over six month and up to a year. 76.2% of total respondents said that things had become more flexible for them since the pandemic, whilst only 2.8% of respondents answered that things have become less flexible.

remote work and taxes

For this reason, international organisations such as the OECD could be ideally placed to shape the tax system in line with the new ways of working. Nonetheless, the Pillar 1 and 2 projects have consumed a lot of resources and political capital. Hence, the OECD or other organisations such as the United Nations may not be able to devise a multilateral solution.

Hybrid and distance working report: exploring the tax implications of changing working practices

You will need to set up a payroll system and process to ensure that you are withholding the correct amount of taxes and making the required employer and employee contributions to the social security fund. The longer an employee works overseas, the greater the risk they will become liable to local taxes in the host country and the greater the risk there will also be a payroll tax withholding obligation. The greatest risk will be when the employee remains overseas for more than 183 days, or their activities create a permanent establishment.

  • In case a person working remotely from Switzerland does not have a Swiss (factual) employer, he must himself pay and declare the Swiss social security contributions.
  • The OTS received 425 completed responses to its Survey (399 were from employees and 26 were from self-employed individuals).
  • This Chapter and Chapter 4 (Cross-border corporate tax and partnership issues) concentrates on those issues where we have heard there are increased complexities caused by the changes in the ways people are working across borders.
  • Furthermore, the facilities or premises need to be at the disposal of an enterprise to constitute a permanent establishment of it.

In addition to the tax considerations of working across borders, people must consider the potential liability to local social security and the risk of liability to social security in multiple countries. Employees who live and work in the same country as their employer will be in the straightforward position of paying social security only in that state. It becomes more complicated when employees work in a different state to where they live (including between Ireland and the UK) or work in a different state to their employer (either on a temporary or permanent arrangement). UK employers have often chosen whether to allow placement in a country based on whether they could understand the tax implications, so the converse was seen as likely to be true. If you’re working for any US-based entity, whether as an employee, contractor or freelancer, the company that you work for should provide you with a W-8BEN form to fill up. Part of that form is a declaration of your country of residence — meaning where you currently reside and, preferably, where you are a tax resident.

If you work in the same state as the company

Before we get into it, we should clarify that these are merely suggestions, and you should always ultimately get in touch with experts to stay compliant with local tax laws. What we outline here is meant to be an informational guide and should not be used as concrete advice. If the employee travels to the US on business trips, there will likely be at a minimum a reporting obligation for the employer, or potentially a requirement to operate a US payroll for time spent in the US depending on the specific circumstances.

Can I live in the UK and work remotely for an EU company?

As the world returns to normal, many people see the opportunity to work remotely in warmer EU climates. However, in reality, most UK employers will not accept employees based outside the UK unless you are a contractor or set up as an independent Ltd company.

This creates a disconnect between the employer and the employee’s location which, traditionally, are situated in the same jurisdiction. This option involves working with a local partner or third-party provider, who will then be responsible for paying the employee’s salary. This is a good option if you don’t have the time or resources to set up a local entity. The employee will pay taxes in their home country but may be able to take advantage of certain benefits that are locally relevant.

Places to Work Remotely and Tax-Free

It’s also recommended to depend on the professionals’ expertise in labour regulations. This solution involves working with a third-party provider, who will then act as the employer of record. This is a good option if you want to avoid setting up a local entity or if you have employees in multiple countries. Paying your employees through a third-party service provider can be more expensive than setting up a local entity, especially if you have remote employees across different countries. It’s also important to check the reviews and ratings of the provider before you commit. One of the benefits of working with remote international employees is that businesses can get exposure to various languages and cultures.

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shamim July 18, 2022 0 Comments