27 January 2023
The last few years has seen the evolution of global remote working as common working arrangement and in the last year there has been an increase in global business travel to almost pre pandemic levels; organisations should consider, what are the risks of these working arrangements and how are organisations managing these?
As has always been the case, tracking of employees in these scenarios is essential and establishing certain key facts and circumstance, such as where is the home employment, countries they are in, for how long and the details of the role and the work duties undertaken.
Many organisations used the natural gap in travel to review and enhance their tracking systems, some adding enhanced focus on safety and security aspects which were really brought to life when lockdowns were first enforced.
Organisations have or are looking at their policies for global business travel and global remote working; agreeing the strategy of the organisation as it relates to these new ways of working, putting this in a policy or updating an existing policy, and then establishing a clear process to assess and manage the associated risks in the organisation. An effective and well-planned communication to the business will ensure that all parties are aware of the process and rationale.
In addition, other considerations which have really come to the fore in the last two years are being included as part of this; what is the benefit of in person v virtual sessions, mitigation of costs and also the ESG aims of the business (Environmental, Social and Governance), how can the global business traveller policy be used to support the net zero or other ESG commitments of the organisation?
A reminder – what do we mean by the terms global business travel and global remote work
Business Travel – an employee travels to a country for a business purpose
- Driven by a business need
- Very short term in duration
- Recurring – multi trips, multi countries
- Associated travel and compliance costs met by the employing company
Global Remote Work- an employee goes to work in a different country by personal request
- Driven by personal choice/request of the employee
- Temporary, but longer term in nature than a business trip
- Typically to one country for a fixed length of time
- Travel costs are personal – but compliance costs can be for the business
What are the risks?
When an employee works in a country different to that of their ‘home’ for employment purposes, there can be a number of tax, social security and regulatory issues for both the individual and their employer. Depending on the country combinations and the role/duties of the employee, obligations can be triggered even by a very temporary business trip or global remote working arrangement of a short duration.
What to consider
An individual working in another country can trigger residency for tax purposes, which might mean they will be liable for personal tax and need to file tax returns. This becomes even more likely if the individual is a returning national. If tax is due in the current work country and home employment country, who will pay the difference? The company or the individual?
Temporary arrangements of less than 183 days, where there is no permanent establishment, can usually be exempted from income tax using a tax treaty exemption. Often though, this needs to be claimed on a tax return and, for example in the US, this exemption is not recognised in all states.
Tax and payroll
Even without a presence in the host country, the employer may have a local payroll tax withholding obligation, meaning the employer would be required to register with the local authorities and withhold foreign taxes on the employee’s earnings. In some countries, this may require a local bank account to make these payments over to the local authorities.
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.
Special care should also be taken when an employee is working from a country their home country does not have a Double Tax Agreement (DTA) with, as a local tax liability may arise a lot sooner.
Permanent establishment (PE)
An employee of a company working overseas may create a corporate presence of the home employing company in the other country. This is called a permanent establishment. There are often registration and reporting requirements attached to this, for corporate, payroll and social security purposes.
As such arrangements are made more permanent, the likelihood of a permanent establishment may increase. A permanent establishment may also be more likely where sales teams negotiate and conclude contracts, and/or the individual is a senior executive.
Further detail in respect of potential PE risk can be found here.
Other taxes may be impacted such as VAT and transfer pricing arrangements.
Social security obligations for employees working overseas can be overly complicated. An employee and employer will normally be liable to social security contributions in the country in which they perform their employment duties.
However, where an employee is temporarily working overseas for their employer, it is often possible to stay in the home country social security system. This requires an application to be made either under the EEA rules or the networks of global reciprocal agreements for social security. These applications should be made to cover retrospective periods and be monitored for coverage dates.
Where an employee permanently relocates overseas or it is not possible to remain in the home country system by making an application, a local social security liability would normally arise. In most circumstances, this would also create a social security payroll withholding obligation, even if there is no presence for payroll tax withholding.
Baked-in’ tax implications
Employment income earned equally over a set period (for example bonus payments or vesting share/RSU awards), may result in employment income continuing to be attributable to an overseas jurisdiction, even after the employee has returned to their home country.
For example, if an employee spent six months of a bonus period working overseas, half of the bonus may need to be apportioned accordingly, resulting in an additional overseas tax obligation in a subsequent year. Share/RSU vestings, that may vest over three to five years, may result in additional overseas tax obligations for the relevant vestings in the future.
An employee working in another country for a period might be covered by the employment law applicable in the country that they are working in, causing complexity in the event of any claims as employment rights can sometimes be generated by only a short period of working overseas.
Where the employee is not a national of the country, immigration obligations should also be reviewed to ensure they have the right to work in the country. This may be particularly relevant post Brexit when many of the rules changed, and in a large number of organisations the lack of travel and mobility has meant that these new rules and regulations haven’t had to be considered.
We can help
Our specialist advisers can help you by reviewing or developing policies and designing processes to handle your ongoing compliance for both global business travellers and global remote workers.
RSM Pinpoint also provides a technology-based tracking solution for global business travellers and global remote workers.
For more information or advice global mobility arrangements, please contact Joanne Webber or Ainsley Wainwright or Chris Gore.