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Last updated: 12 May 2022
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Working from home overseas – the tax, social security and payroll considerations

Employees working in a different country from their employer can inadvertently create tax, social security and legal issues in the home and host countries for both parties. Here’s the key considerations to be aware of and how to remain compliant.

There have always been globally mobile employees- people working in different countries from where they were originally contractually employed -and this has historically been initiated by employers via formal secondment arrangements. With the COVID-19 pandemic forcing people to work from home for extended periods of time – and often doing so successfully in many professional sectors - you may think that all employees need is their company laptop and a good internet connection to work in whatever country they like. Many employees have persuaded their employer to allow them to do so.

Employees may want to work from abroad as they like their job but want to return to their country of origin. As the pressure on allowing flexible working arrangements increases on employers to retain and attract staff, it can be tempting for employers to allow their employees much greater say in where they work, including on occasion, being based in a different country to the employer.

About the author

David Conway

+44 (0)207 710 0363
conwayd@buzzacott.co.uk

There have always been globally mobile employees- people working in different countries from where they were originally contractually employed -and this has historically been initiated by employers via formal secondment arrangements. With the COVID-19 pandemic forcing people to work from home for extended periods of time – and often doing so successfully in many professional sectors - you may think that all employees need is their company laptop and a good internet connection to work in whatever country they like. Many employees have persuaded their employer to allow them to do so.

Employees may want to work from abroad as they like their job but want to return to their country of origin. As the pressure on allowing flexible working arrangements increases on employers to retain and attract staff, it can be tempting for employers to allow their employees much greater say in where they work, including on occasion, being based in a different country to the employer.

Key considerations

Planning ahead

Planning ahead – can employees really work from abroad?

The short answer is “maybe”. The long answer is it depends if the employer gives them the green light to go ahead with their plans to perform their employment duties abroad, particularly with regards to a long-term arrangement. It’s absolutely essential that employees get the go-ahead from their employer before embarking on working abroad, as there are a number of tax, social security and compliance issues for both employee and employer to consider. Furthermore, employees should also check their employment contract as it may specify that they’re not allowed to work from abroad.

Employers should consider each request for cross-border working and obtain professional advice to highlight the risks and obligations. They must also make sure they have robust measures in place to keep track of where their employees are, which is more important than ever in this era of working from home.

Tax and social security

Tax and social security 

Employers need to fully understand and quantify their obligations to collect tax and social security payable in both countries. Beyond that, employees are responsible for paying the right amount of tax on all their income, and are completing tax returns where necessary. Furthermore, consideration has to be given as to whether employment income is covered by a bilateral tax treaty, which would help to manage costs, particularly if the employee wants to work in a jurisdiction with higher tax rates than the home country. 

Social security obligations can be one of the most significant contributions that employers will pay if an employee decides to work abroad. Employers need professional advice as to whether contributions to social security plans will be required in the home country, host country, or both. Also, employees need to be informed if the international assignment will result in losing social security benefits at home. Again, bilateral social security agreements are important as they could keep them within their home social security system and remove the obligation of making contributions in the other country, if that suits their plans. 

Payroll

Payroll

Employers need to ensure they understand and fulfil their payroll obligations in the home and host countries. There may be an additional cost to setting up and running payroll in the host country, particularly if the employer does not already have a presence there. Employers will also need to ensure they are withholding the correct amount of tax and social security as appropriate. Furthermore, unless there is a Certificate of Coverage / A1 certificate in place for the employee, employers may have an obligation to ensure that social security contributions are included in the payroll. 

Pension auto-enrolment

Pension auto-enrolment 

In the UK, most employees aged 22 and over are automatically enrolled into a workplace pension scheme. Overseas, employers who send their employees to work in the UK need to make sure that they get this right and fully understand the additional costs of making employer contributions. UK employers sending their employees overseas will also need to consider any ongoing requirements to keep the employee within the pension scheme.

Similarly, employees need to understand the additional cost of having to contribute to two or more workplace pensions (if the host country also requires a workplace scheme) and whether these contributions will result in annual allowance charges in the UK.

Permanent establishment

Permanent establishment

The presence of working overseas could potentially create a fixed place of business for the employer in a jurisdiction where there was none before, which could lead to additional requirements and potential tax liabilities. This should be carefully considered, particularly if the employee in question is in a senior or decision-making position.

Immigration law

Immigration law

Employees must have the right to work in the host country before they start their remote working arrangements. It’s therefore crucial to seek advice from an immigration lawyer to obtain the appropriate visa.

Working towards a mutually beneficial solution

Working towards a mutually beneficial solution

Moving to work from home abroad needs planning and, as we’ve seen, it’s crucial both employee and employer engage with each other to make the employees’ plans come to fruition in a way which ensures both parties are compliant with their tax and social security obligations.

The best way for employees to get their employer on board is to speak to their HR or line manager. Dialogue is crucial, as is both sides getting the right professional advice. 

For smaller employers that do not have an international presence, such a request could still work if you want to agree to the move. As long as you seek professional advice, you can get the appropriate infrastructure suited to the situation in question in place that will make cross-border remote working for your employee achievable.

Get in touch
Get in touch

If you’re an employee trying to plan an international move, or an employer who has been asked this question or wanting to put procedures in place, get in touch with our international tax experts for an action plan for either or both sides who have a multitude of experience dealing with global mobility matters. As members of PrimeGlobal, an international network of accountancy firms, we can provide the full complement of tax, payroll and social security advice and manage the compliance and reporting process in the UK and overseas.

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