Remote WorkersDuring Covid-19, many employers have discovered that employees have chosen to "work from home" in locations outside of their home country. GTN can help unravel the tax and social security implications and ensure a business is compliant in both the home and host country and assist with longer term planning and policy development to cover what is fast becoming the new way of working.
One of the biggest issues with remote workers is they they are often "discovered" versus planned, without consideration for the compliance requirements, costs and tracking needed. The questions that HR will then need to ask include:
- Which countries do you currently have remote workers in
- How many days have those workers spent in each overseas country
- What percentage of working days have remote workers spent in each overseas country
- Does the home county entity have a branch, subsidiary or parent company in the overseas countries
- Are there any Covid-19 government policies that may protect the employer from overseas tax and social security and for what periods are these in place
- Are there any immigration issues and does the remote worker have the right to work in the overseas country without a work permit or visa
- What is the role of the remote worker and are they creating a taxable presence of Permanent Establishment in the overseas country
A key issue that is often missed is the impact of remote workers on employer social security compliance and costs. For example, allowing a UK employee to work remotely in an EU country may trigger social security in those countries if the remote worker spends more than 25% of their EU working time (including the UK) in either country in any calendar year. The impact of this could be a requirement to register as a foreign employer, establish a payroll and pay social security in the host country, often at rates that are substantially higher than the UK.
In come countries that is easier said than done. In Spain, for example, obtaining a payroll reference for an overseas employer with no entity there can take a significant amount of time and become very expensive for the UK employer. Additional challenges include the need to obtain a local company bank account in order to remit payments, which can take several months. In countries such as Portugal, it is not possible to backdate social security without establishing a branch and in Norway, there are strict company registration requirements for any foreign employer before any local payroll applications can even be considered.
An employer needs to decide whether or not they are prepared to undertake the overseas compliance required (and potentially incur any additional cost) or whether they need to limit the amount of time in the overseas country to avoid triggering any local payments and update their policies to reflect this.
In addition to social security, there are also tax issues to consider.
Where a remote worker spends 183 days or more in an overseas country (assuming there is a tax treaty in place with the home location), there is likely to be a tax issue in the host country. For some countries the residence may be triggered well before 183 days such as Italy, where this will also depend on whether the remote worker has registered in the local town hall or not. In most cases, it will be the responsibility of the employee to register, file and pay the appropriate taxes in the host country and reclaim any tax in the home county (as far as possible). However, this can vary between countries and may depend on whether the employer has a fixed presence in the overseas country or not.
From a company perspective, it is also important to consider the role of the remote worker and whether they may be creating a permanent establishment or "taxable presence" in the overseas country. If so, the employer may need to register an overseas branch or subsidiary and could be liable for additional corporation tax and filings. In many cases, this will be unlikely and the remote worker may be based at home and only providing a support function to the employer, but it will be necessary to review this in line with the applicable local law.
An employer will also need to consider whether there are any immigration issues that need addressing. For example, a UK employer working remotely in the EU post Brexit will now have limitations on the number of days they can spend in the overseas country without a work permit. There may also be employment law issues if the UK contract does not comply with local legislation on sickness, annual leave, insurances and mandatory pension/other benefits and potential fines for the employer if these are not met.
At GTN, we have assisted many employers with the review of their remote workers in numerous countries in conjunction with our overseas partner firms. We have significant and specialist experience in the assessment of compliance requirements and associated risk, together with providing solutions for short term and long term arrangements, including technology tools for monitoring, tracking and alerting employers of risks and key dates.
For further information or to arrange a review of your remote workers, please contact Richard Watts-Joyce or call us on 0207 100 2126.