January 22, 2021
“Remote Workers” or “Business Travelers”: How to Mitigate Tax Risk
While international business travel has come to a screeching halt during the COVID-19 pandemic, remote working has become the norm for many employees.
Remote workers conducting their employment from another country due to state to shelter-in-place are likely creating a range of tax issues for themselves and their employers.
We have created a few considerations that can assist you in mitigating tax risk caused by “remote workers” or “business travelers”.
Where to Start
The general rule of thumb is that employees are taxed in the place where services are performed, not where they are paid. Take these steps to assess if employees are business travelers to local tax authorities:
- Determine if remote work has been performed outside of the employee’s normal work location.
- Work with your tax advisors to review the tax laws of each location.
- Prepare to meet any tax obligations.
- Keep your tax advisors informed of future business travel plans and remote workers to avoid costly mistakes.
International Tax Considerations
Working remotely in a country other than the regular work location (employment of record) exposes the employee and the employer:
- Host Country Income Tax
- Host Country Social Tax
- Host country income tax and social tax reporting and withholding obligations,
- City employee taxes, and
- corporate nexus or permanent establishment issues.
To alleviate the international income and social tax obligations in the location of remote working, we may be able to turn to tax treaties or totalization agreements if we manage timing and compensation payments properly. These agreements are specifically designed to avoid double taxation between international territories.
Income Tax Treaties
To invoke a tax treaty to avoid income tax in a host location, these are the usual requirements:
- Workers resident in their home country must spend less than 183 days in the host country within any 12-month period (beginning or ending in the taxable year concerned),
- Compensation must be paid from the home country, and
- A host country entity must not bear the costs of compensation.
Additional Items to consider:
- Some states or jurisdictions do not accept treaty provisions (for example, California).
- Some host locations require that the host location entity is not an “economic employer”
Social Tax Totalization Agreements
If the country has a Totalization Agreement with the host country, the employe
e may apply for a Certificate of Coverage to certify that social tax is paid in the home location. Once the home social tax system has signed the certificate, the employee will not be subject to the host location social taxes and both employee and employer host social taxes will not need to be remitted.
Any travel for work outside of your normal work location may be considered business travel to local tax authorities. Remote workers are susceptible to being taxable business travelers, depending on the unique situation. Even personal (non-work) travel to the host location before the “business trip” can be a contributing factor for tax purposes.
Please reach out to us at email@example.com, we are happy to discuss any questions you might have.
Human Resource or Payroll Managers: check out our recently article about forming a “Work from Anywhere” HR policy that you may also find relevant.
We’re Here For You
For 15 years, Global Mobility Tax, has been assisting startups and early growth companies to navigate the tax implications of a global workforce. We provide strategy, consulting, and tax services to organizations and individuals that relocate internationally.
Contact us for any of your global mobility questions or concerns.