The tax implications of remote working abroad: What employers need to know

By now, we all know that getting back to “normal” will, for many people, not involve going back to work in the way we did before Covid-19 hit.

Terms such as “remote working”, “agile working”, and “flexible working” are now used interchangeably to indicate how the workplace will look as we start to ease out of lockdown. But for some, remote working has been – and is likely to continue to be – more remote than for others. Taking advantage of the “work from home” rule, some employees have returned to their home countries, moved to look after elderly relatives in foreign countries, or simply escaped to warmer climes for the duration. For these folks and their employers, taking early advice on the tax implications of this way of working is key to getting the tax right.

Where will the tax be paid?

Where tax is paid will depend on several factors, but the most important is the employee’s tax residence status. The rules are complicated, but at its simplest, if your employee has been out of the country for longer than 183 days, they have likely established tax residency in the other country. If this is the case, the employee will be liable for tax in the country where they have established tax residency.

When the employee first starts to work in the overseas country, an investigation needs to be undertaken to determine if, before the 183 days have elapsed, the employee could be liable for tax in both the UK and the overseas country. This will mean the employer will continue to have withholding obligations in the UK, and the employee may be exposed to tax on the same income in the overseas country. Double tax treaties may come to the employee’s aid, but these will need to be investigated to establish which country has taxing priority.

Who will pay the tax?

The overseas country may require the employer to register in that country to pay the employee taxes.

Alternatively, the employee may be solely liable to pay the taxes. Employers should take relevant in-country advice to understand the full position ahead of the employee (and possibly the employer) incurring significant liabilities in the foreign jurisdiction.

It is also essential to understand that the employee’s activities in the overseas country can establish a tax presence for the employer in that country. If the employee’s duties are such that, for example, they can negotiate contracts for the employer in that country and bind their employer, the employer may have a taxable presence in that overseas country. This means exposure to the relevant business taxes in that country. It may also mean exposure to other business-type obligations required by the overseas country, such as licensing and additional bureaucracy. If these are unintended consequences that the employer is keen not to suffer, then whether it is appropriate for an employee to relocate to work in another country must be considered very carefully.

Take stock and resolve any issues now

It may very well be that neither the employee nor the employer intended for any adverse tax consequences or indeed for a taxable presence to be established in any other country. Now is the time to think about these matters, make sure they are working as intended and effectively, and, if necessary, consider how best to unwind any overseas remote working

Cathy Bryant

Cathy Bryant

Cathy Bryant is a partner in the Blake Morgan’s corporate team specialising in corporate tax. As a dual qualified lawyer, Cathy brings a depth of experience to her role as an adviser on tax matters in corporate transactions. Cathy also advises on employment taxes – for example on termination payments made to employees, the application of IR35 and other employment related tax matters. She develops share incentive schemes for employers and advises on the structure and scope of these.