• Dr. Julia-Sophie Ezinger

LET'S TALK ABOUT TAX, BABY 👀


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In a world where connectivity and communication are so easily facilitated by technology, the case for travelling abroad and working remotely from another country is only getting stronger for job seekers. For business owners, human resource personnel, and company executives, there may be some hesitation in hiring an international remote worker. This is an understandable concern, as there are many risks that this type of working arrangement can present.


Diversity in the workplace is helpful for businesses in many ways[1], so knowing the challenges that are commonly associated with employing workers across borders can help you take advantage of the benefits while offsetting the risks.



PERMANENT ESTABLISHMENT RISK

Permanent establishment is most generally regarded as the top risk[2] for companies that hire and work with international employees. Permanent establishment is an international tax concept that centers around the country or jurisdiction in which a company conducts its business. When business is conducted in multiple countries, it can lead to a company being charged penalties, interest, and additional taxes.

How does this affect a digital nomad employee? Temporary residence does not typically create permanent establishment risk for an employer. An employee who is travelling abroad and frequently moving from place to place may not pose a substantial challenge in this context; however, that can change if the digital nomad settles down into a more permanent living situation across borders. This is certainly something to consider in situations where your employee is a cross-border remote worker with a main home office abroad.

Corporate tax liability is connected to permanent establishment risk because if a company creates permanent establishment in other countries by employing remote workers, then their corporate tax obligations will likely be affected.


SOCIAL SECURITY

One key issue that both workers and employers should be aware of is the risk associated with social security. People who are working remotely from another country may not be able to contribute to the social security system that they hope to benefit from in future years. Conversely, in some situations, a remote abroad worker may be required to pay into a social security scheme for a country they have no intention of living in long-term[3]. Either way, there are also risks for the company that has hired the digital nomad employee, as they must be aware of which social security system should be receiving funds.


WAGE TAX

Many management and human resource staff members report that maintaining compliance with wage tax regulations is challenging when hiring remote employees stationed in other countries[4]. The issue arises out of the need to pay wage tax based on where the employee lives versus where they are employed or where the company is located. When these places are in two or more different countries, it can be complicated to determine which jurisdiction’s wage tax system should be applied.


IMMIGRATION LAW

Depending on the circumstances of each employee that is working remotely from another country, there may be various risks associated with immigration law. Work permits, for example, are not generally required of European Union residents if they are working for another country within the EU[5]. A tourist visa is sometimes an option for digital nomads who plan to hop borders within a couple of months, but some countries offer special types of visas for digital nomads[6] when longer stays are desired. It is helpful for employers to understand the requirements so they can ensure compliance and advise their remote employees on the best course of action.

These are not the only areas of potential risk that companies face when working with remote international employees. Data security is an essential consideration for many companies, and certain types of businesses may also face industry-specific risks like intellectual property rights and ISO certification compliance.




[1] CEDEFOP. The Business Case for Diversity. https://www.cedefop.europa.eu/en/news/business-case-diversity-good-practices-workplace#:~:text=Diversity%20policies%20make%20good%20business%20sense%20say%2083%25,improved%20community%20relations%20and%20an%20enhanced%20company%20image. [2] Work From Anywhere. Running Towards Permanent Establishment Tax Risk. https://www.wfa.team/running-towards-permanent-establishment-tax-risk/ [3] ECA International. International Remote Working – Tax and Social Security Compliance Risks. https://www.eca-international.com/insights/blog/april-2021/international-remote-working-tax-and-social-secu [4] ECA International. International Remote Working – Tax and Social Security Compliance Risks. https://www.eca-international.com/insights/blog/april-2021/international-remote-working-tax-and-social-secu [5] Your Europe. Work Permits. https://europa.eu/youreurope/citizens/work/work-abroad/work-permits/index_en.htm [6] ETIAS. Digital Nomad Visas in EU Countries. https://www.etiasvisa.com/etias-news/digital-nomad-visas-eu-countries

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