The Covid-19 pandemic resulted in many employers implementing temporary remote working arrangements. As we emerge from this pandemic, employers are receiving many requests from staff to work remotely in other countries but what are the tax considerations for these employees and employers?
For Employers
1.The risk of an employer triggering Permanent Establishment (PE) in the remote-work location;
Article 5 of the OECD Model Convention for Tax states that a PE exists where ‘a fixed place of business through which the business of an enterprise is wholly or partly carried on’. Consideration needs to be given as to whether the use of a home office could constitute a ‘fixed place of business’ for an entity. The commentary to the Model Convention is helpful in this regards and states:
Even though part of the business of an enterprise may be carried on at a location such as an individual’s home office, that should not lead to the automatic conclusion that that location is at the disposal of that enterprise simply because that location is used by an individual who works for the enterprise…….In many cases, the carrying on of business activities at the home of an individual will be so intermittent or incidental that the home will not be considered to be a location at the disposal of the enterprise……Where, however, a cross-frontier worker performs most of his work from his home situated in one State rather than from the office made available to him in the other State, one should not consider that the home is at the disposal of the enterprise because the enterprise did not require that the home be used for its business activities’.
It further noted that activities carried on at a home office will often be merely auxiliary in nature and therefore would fall within the exception to paragraph 4 of Article 5 of the Convention such that no PE arises.
However, where an individual habitually concludes contracts on behalf of an enterprise there is an additional risk that PE can exist in that location (refer Article 5(5) of the Model Convention).
2.Requirement to register to withhold employment taxes in the remote working location
3.Employment tax withholding obligations in two working location
For Employees
1.They need to understand their own personal tax residency position in the remote working location;
2.Whether they will qualify for exemption from tax in that location under the relevant Double Tax Agreement;
3.Whether they have broken tax residence in their previous location and the tax implications of this (e.g. cases of ‘dual tax residence’ can result whereby there could be tax exposure in two locations)
4.The existence of bilateral social security agreements between the two countries.
Overall
Aside from different time zones, employment law issues and insurance issues it is fair to say that generally accepted work practices have changed and employers and employees need to keep pace with this change.
Employers should ensure they obtain expert tax advice to ensure they do not inadvertently fall foul of compliance obligations in the remote working location. The employee should also seek local advice to ensure they understand the implications for them personally. We specialise in supporting remote workers in Ireland. If you are working remotely in Ireland for your overseas employer and wish to discuss these points further please contact us for further information.