July 7, 2021

“Remote Workers” or “Business Travelers”: How to Mitigate Tax Risk

The COVID-19 pandemic brought international business travel to a halt. Fast forward and now remote working has become the norm for many employees.

Remote workers conducting their employment from another country are likely creating a range of tax issues for themselves and their employers.

We would recommend working with a company specialized in global mobility tax, like Glomotax. However, if you are not yet working with a tax services provider, below are a few ways you can mitigate tax risk posed by “remote workers” (or “business travelers” to the IRS).

How to Mitigate Global Tax Risk

The general rule is that the IRS assesses tax where the employee performs their job. To find out whether your employees are business travelers to local tax authorities, you can do the following:

  1. Determine if work has taken place outside of your employee’s normal work location.
  2. Carefully review the tax laws of each location.
  3. Prepare to meet any tax obligations.
  4. Keep close records of any future work related employee travel and the location of your remote workers to avoid costly tax errors.

International Tax Considerations

Working remotely in a country other than the regular work location (employment of record) exposes the employee and the employer:

For the Employee this means:

  • Host Country Income Tax
  • Host Country Social Tax

For the Employer this means:

  • 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, a tax professional could utilize tax treaties or totalization agreements. Tax treaties and totalization agreements are specifically designed to avoid double taxation between international territories.

About Income Tax Treaties

To invoke a tax treaty to avoid income tax in a host location, these are the usual requirements:

  1. 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),
  2. Compensation must be paid from the home country, and
  3. A host country entity must not bear the costs of compensation.

Additional Items to Note About Income Tax Treaties:

  1. Some states or jurisdictions do not accept treaty provisions (for example, California).
  2. Some host locations require that the host location entity is not an “economic employer”

About Social Tax Totalization Agreements

If the country has a Totalization Agreement with the host country, the employer may apply for a Certificate of Coverage. This certifies that social tax is paid in the home location.  Once the home social tax system has signed the certificate, the employee is not subject to the host location social taxes, and both employee and employer host social taxes will be forgiven.

In Conclusion

Any travel for work outside of your normal work location may be considered business travel to local international 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 contribute to tax.

If you would like help addressing your international tax risks stemming from remote work, please reach out to the team at info@glomotax.com. We are happy to discuss any questions you might have.

You may also be interested in our article:  forming a “Work from Anywhere” HR policy 

Kimberly Engstrom, CPA

Kimberly is a Senior Manager, joining the firm in 2006. In her role, she specializes in the coordination of global engagements, providing individual tax planning and compensation recommendations to meet the client’s strategic goals. 

Kimberly is a Certified Public Accountant with over 25 years of experience. She received a Bachelor’s degree in Political Science from the University of California, Santa Barbara.

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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.

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