If your employer allows you to work from home, are you allowed to do that work from a different country?

Following on from our article regarding Covid-19 Travel and Global Mobility Issues, the issues surrounding working from home overseas during, and after, the Covid-19 pandemic have become a hot topic around the globe. It is set to continue to be a question which employers will be asked regularly by employees seeking to get that work/life balance correct in an ever increasingly mobile world.

At first glance, you might consider that if someone is able to perform their job from home in the country in which they are employed, that they could also do that job from another country, still working from home.

It is certainly possible, Covid-19 travel restrictions dependent, however, what does that mean for the employee and the employer in terms of tax, social security and payroll related implications? What requirements need to be met and what obligations and implications exist in order for this set-up to be compliant and sustainable?

First and foremost, it is important that any employee who is considering a move to work from home overseas tells their employer as there may be implications for the employer from a payroll taxes, immigration and corporate tax perspective depending on what work is being performed by the individual from home in the overseas location.

Depending on the country the individual is looking to work from, there may be income tax and social security implications and obligations from the outset, both for the employee and the employer. Employers will need to consider this, along with any payroll tax implications that might arise by having an employee working in that country. This is not only where the employee is working long term overseas, but even for shorter periods of time, including during the pandemic.

Each country has specific rules and each employee’s situation is potentially unique and accordingly, there is no standard answer as to what will need to be done when a request to work from home overseas comes across your desk.

Some countries have put in place regulations for those who are stuck working in the country due to Covid-19 travel restrictions, but when the employee chooses to work from another country, these regulations are unlikely to apply, particularly where this becomes a longer-term arrangement.

Here are some questions and considerations which employers should ask themselves about their employees who request to work from home abroad. Some of these questions are complex and will require professional advice:

  • How long term is the employee looking for this arrangement to be in place for?
  • What country is the employee wanting to work from? Are they a national of that country? Is there a double tax treaty and/or social security agreement between the country in which they are currently working and the country in which they wish to work?
  • What are the immigration requirements for that country based on the individual’s circumstances? Do they need a visa, sponsorship and so on to be able to work there?
  • What duties is the employee going to be performing? Does this cause you any issues with regards to a creation of a permanent establishment and in turn corporate tax exposure?
  • Is the employee going to continue to be paid in their normal location? Is there any obligation for the company to operate a payroll in the other location? If so, what needs to be done to set up a payroll in that location?
  • Is the arrangement going to mean there is a potential income tax liability for the employee in the country which they wish to work? Is there any way to alleviate this?
  • Is the arrangement going to mean that there is a potential social security liability both for the employer and employee in the country which they wish to work? Is there any way to alleviate this?
  • Is the company going to recharge costs to any entity in that other country? Does that impact any of the above points?
  • Will there be a requirement for you to establish or incorporate any type of legal entity or structure in country in order to facilitate the payroll and/or employment tax obligations.

Long after Covid-19 has, hopefully, dissipated and travel restrictions are lifted world-wide, these considerations of payroll tax, healthcare, immigration, income tax and social security will apply for any employer looking to send individuals overseas, whether that be for a long/short term secondment, to allow an individual to work from home overseas or for business travel.

If you need more help or would like to discuss how these issues might affect you, then speak to our specialised internal Global Mobility Team. They work closely with our customers to eliminate any potential issues when employees are working outside their normal country of residence.

Please note that this article was originally posted in September 2020, but has since then been updated.

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