Working Remotely – Nine to five at the office is no longer the norm… but neither is working in a UK office

The impact of COVID has been widespread and far reaching, touching all aspects of work and home life. Many now have the option to work from home, but some are taking this as an opportunity to work from anywhere, including perhaps, a home overseas.

Remote, flexible, or agile working arrangements, are all part of the normal employee landscape right now, but working remotely overseas brings particular tax challenges, that do need to be considered carefully ahead of any decision to relocate.

Country of Tax Residence is key

The country where an individual is tax resident will largely dictate how and where they will be taxed, irrespective of who is paying them and where that employer is based. It is therefore crucial that advice is taken to confirm what the expected tax residence position will be according to expected days of presence.

Jurisdictions have different approaches to determining tax residence and so it is also important to understand that advice is needed in each country, but actual days of presence will be key in any determination.

Even if you don’t become resident in another country, you may still be taxed on any employment income earned whilst there, unless the double tax treaty provides protection.

Dual Residence

It usually takes less time to become resident in another country compared to the time required to break UK residence. This means it is perfectly possible to be resident in both countries, in which case the tax treaties in place between the countries involved (assuming one exists) will direct who has primary taxing rights and thereafter how sources of income and gains should be taxed.

Managing departure/arrival

Separate consideration needs to be made relative to when residence is acquired, if and when UK residence is broken. Some countries allow for their tax years to be split where individuals are coming in / going out. For example, the UK does provide for “split year” treatment, allowing exemption on overseas income and gains received in the overseas part of that tax year. Split year treatment must be formally claimed and all criteria met for this to apply. Plus failure to achieve non residence the following tax year usually means the split year claim could fail in the year of departure, so always better to take advice and plan ahead, as much as possible.

Employer or Employee Liability

Employers should be wary of their exposure to overseas liabilities, including social security costs in that jurisdiction. The overseas country may require the employer to register in that country to pay employee taxes. This will mean the employer will continue to have withholding obligations in the UK, and the employee may be exposed to tax on the same income in the overseas country. Double tax treaties may come to the employee’s aid, but these will need to be investigated to establish which country has taxing priority.

Employee presence and activity in another country may also establish a “corporate presence” or permanent establishment there. This could create an overseas corporation liability.

Post-Brexit considerations

Because the UK is no longer in the EU, British Nationals are required to obtain appropriate visas to be able to work or relocate to any EU country.

“Big Brother” & Tax Reporting

The Global Automatic Exchange of Information Agreements, effectively allow tax authorities to communicate between each other and to track individuals’ income and wealth.

It follows that penalties for not reporting correctly or timeously can be severe in most jurisdictions. It is therefore essential that appropriate professional advice is taken to ensure all compliance obligations are met.

The Future – Simplification?

In recognition that distance working, particularly across borders, can result in complex tax reporting aspects, the Office of Tax Simplification (OTS) has just published an outline of their planned call for evidence. They will review emerging trends connected to remote working, examples of international experience or best practice, double tax treaties and employment law, but ultimately, they hope to provide recommendations to make things simpler for both employees and employers

The Private Client International Tax Team at AAB are perfectly placed to provide this type of specialist tax advice, utilising key overseas global network to provide the holistic tax position in these situations.

For more information on remote, flexible, or agile working arrangements, please do not hesitate to contact Lynn Gracie, or any of our Private Client International Tax team.