The pandemic has made a lot of employees and employers open to the idea of remote working. As a result, we have been receiving increasing numbers of enquiries concerning the tax implications of working for an overseas employer. This typically happens in one of two scenarios:
(i) An individual is recruited internationally but chooses not to move abroad i.e. they work remotely from their home country.
(ii) An individual accompanies their spouse abroad and their existing employer allows them to continue working for them remotely.
When an employee is living and working in a different jurisdiction from where their employer is based, there are various considerations for both parties, of which tax and social security are particularly important. If you just spend a few days working overseas, this is unlikely to trigger any unexpected liabilities, but the longer the amount of time you work overseas, the greater the risk.
Key Considerations for Employees
Income Tax and social security need to be considered separately:
i) Income Tax
Where will my earnings be taxed? Earnings are usually taxed where you are physically carrying out your employment duties; the location of your employer and where you are paid doesn’t tend to affect this.
Where am I resident for tax purposes? It is common to be subject to tax on your worldwide income in your country of residence. The first step is to look at local law; the UK has a Statutory Residence Test, but each country has its own individual rules. It is possible to be resident in two (or more) countries at the same time.
How can I relieve double taxation? Is there a double taxation agreement between the two jurisdictions? Can I claim an exemption or a foreign tax credit under the agreement?
Where do I have tax filing obligations?
How and when do I pay my taxes?
ii) Social security
Where will I be liable for social security payments? Social security is generally paid in the country where you physically carry out your work. So, if you are working in the UK, you will normally make National Insurance Contributions.
Can I continue paying social security in my home country? There can be an element of choice as to where social security is paid. This will depend on the arrangements and duration of work abroad, the countries in question, and the terms of the specific social security agreement.
Can I protect my entitlement to state benefits? It may be possible to continue paying voluntary contributions in certain countries, for example in the UK you may be able to pay Class 2 or 3 voluntary National Insurance Contributions.
How should I pay social security; do I pay directly or does my employer have withholding obligations?
Key Considerations for Employers
The presence and activity of an employee overseas can create obligations for an employer in that country, such as payroll reporting requirements and Corporation Tax filings in the UK. This will depend on several factors, including whether a ‘permanent establishment’ or ‘fixed’ place of business has been created in that country.
It is important to take advice when considering your filing obligations for remote working overseas, so do get in touch with us if you require assistance.
