Three key complications of working abroad

With an audience representing HR, Payroll, Corporate Tax and other Global Mobility functions, it was interesting to see how organisations are managing and communicating with employees.

Only 29% of the audience stated that there was an organisation-wide policy in place to deal with working from abroad requests, with the remaining members revealing that such requests were either dealt with on an ad hoc basis or that they did not keep track, or were unaware, of their personnel working abroad.

With travel picking up in the post-pandemic period, as well as HMRC stepping up compliance activity around Short Term Business Visitors (STBVs), non-resident Directors and Remote Workers, this issue is now more important than ever.

We explore the three key complications of working abroad and how these can be mitigated.

Key complications of working from abroad

1. Business Travellers: With the UK having double taxation agreements with most jurisdictions, it is important that organisations with UK business travellers consider entering into an Appendix 4 STBV agreement with HMRC. The Appendix 4 provides an administrative easement with claiming a UK payroll tax exemption for business visitors employed in a treaty agreement country (assuming the outlined criteria for tax exemption per the agreement is met). UK National Insurance implications should also be considered as social security does not follow the tax rules.
2. Reporting implications for non-resident directors: Non-resident directors can be a tricky population to manage with so many variations. Directors could be executive or non-executive, and they may or may not be remunerated for the directorship role. Where a director is remunerated, in most cases, there is a requirement to allocate their remuneration to local payroll taxation (exemptions under double taxation agreements don’t typically extend to directors). In some cases, an application can be made to tax authorities to restrict payroll taxation to an estimated percentage of duties performed in the UK, such as a UK section 690. Social security implications should also be considered based on the director’s home country. It is worth noting that the corporate and employment tax considerations for non-resident directors and remote workers are inextricably linked. Where a director or directors working in the UK also sit on the board of an overseas company and take management decisions physically based in the UK, there is a risk that the UK presence of these directors may lead to the corporate tax residency of the overseas company switching to the UK.
3. Remote working: The panellists highlighted the various considerations for remote workers such as immigration, employment law, employee well-being and corporate tax implications, in addition to the individual potentially creating a payroll tax or social security presence. It was also highlighted that subject to certain criteria being met, the remote worker could lead to a creation of a corporate tax presence (Permanent Establishment) in the other location. In this case, the overseas employer would be required to make corporate tax registrations and file corporation tax returns as well as potentially register a local payroll for the remote worker depending on whether their presence has created any local income tax and social security withholding requirements. For businesses with a global reach, there are likely to be cost recharges between group companies. It is important to have a transfer pricing policy in place to value group transactions whilst as the same time ensuring employment tax considerations are aligned.

The key takeaway for the audience was to strongly consider all tax implications where they have employees, senior executives or Directors working on a cross-border basis, and to take prompt action to manage business risks, compliance and costs globally.

Would you like to know more?

If you have any questions about the above, please get in touch with your usual Blick Rothenberg contact or any of our panellists: Alan Tam, Andy Briggs, Alejandro Algarra and Fahad Saad.