• The future of international remote working

    Businesses across the globe are reworking and reimagining their remote working policies.

Article:

The future of international remote working

29 March 2021

Historically, international remote working arrangements have been widely frowned upon by employers, wary of the potential additional compliance costs and other immigration and employment law risks.

However, the COVID-19 pandemic caused a shift in working behaviour and global mobility, which has ultimately been seen across all sectors of the global economy. Sudden border closures and quarantine requirements led to a displacement of workers across the globe on a scale never seen before, and employers suddenly had little influence over the location of their employees.

In March 2020, it seemed that this would be a temporary consequence of the pandemic that would be short-lived enough that the resulting compliance risks would be minimal. When we wrote our first article on the topic in April 2020, not many of us imagined that almost a year later we would still be working remotely and that businesses across the globe would be reworking and reimagining their remote working policies

One year on

With a vast network of Double Taxation Agreements reducing the risk of double taxation, and certain European countries quickly introducing concessions for income tax and social security purposes, the early indications were that there would be no significant challenge from short-lived international remote working arrangements.

However, almost a year on, many employees continue to work remotely, either through choice, health and wellbeing reasons or due to sustained border closures.

The treaty protection that was available in a lot of circumstances, where individuals had moved to another country for a period of less than 183 days in a specified 365 day period, has now long since expired and treaty tax residence positions may have shifted for individuals. This will invariably trigger an overseas tax liability for international remote workers. Employers are, therefore, now working to determine the potential risks to their business created by long periods of international remote working arrangements and some are also now clarifying the individual implications for their employees.

What are the risks of international remote working?

  • Income Tax and Social Security – Will the proposed arrangements create an overseas income tax or social liability, or can these be mitigated through the numerous Double Taxation Treaties or social security agreements? Will employers agree to become liable to a potential costly overseas employer social security charge?

  • Permanent Establishment – Is there a risk of a creation of an overseas permanent establishment and corporate tax exposure in a foreign jurisdiction?

  • Payroll and compliance costs – Overseas corporate registrations and operation of a foreign payroll can be extremely costly and administratively burdensome. Some remote working arrangements may result in dual withholding so an employer may consider offering a loan to the employee to assist with cash flow issues.

  • Corporate Criminal Offence (CCO) - UK businesses can be considered to commit a criminal offence if they have not taken reasonable steps to ensure that overseas tax liabilities are met. Are employers comfortable that a CCO is not being committed?

  • Immigration – Do your employees have the right to work in the host country?

Other issues – these include:

  • ​Does the employee have overseas health insurance, and who would be responsible in the event of overseas costs?
  • Is the employee performing restricted activities that have to be performed within the UK?
  • Are professional qualifications recognised in the overseas jurisdiction?
  • Can the employee continue to contribute to the UK based pension scheme and/or share scheme?
  • Data protection – what are the data transfer rules in the overseas country?
  • How will the employee’s work be supervised and how would any underperformance issues be addressed?

Looking to the future

Early indications are that the pandemic has caused a permanent shift within global mobility and attitudes towards remote working. Many employers have suggested that remote working is here to stay, whether through a hybrid model of office and home based work, or via permanent office closures creating 100% working from home arrangements.

Trends within global mobility and remote working are also quickly changing, with Spotify becoming the latest company to announce that they are adopting a ‘work from anywhere’ model. On the flipside, Goldman Sachs have rejected working from home as being the ‘new normal’. Employees who have found themselves working from home for the previous year have fast become empowered and found a greater voice to dictate their preferred working patterns. Employers are quickly quantifying the benefits of a more permanent remote working approach, with potential cost reductions and productivity increases among other benefits.

At a recent BDO roundtable event to discuss international remote working, the discussions identified that talent retention and attraction are key incentives to adopt such policies. Staff wellbeing and maximising productivity were also common considerations.

Separately, whereas both employers and employees may have traditionally suffered from geographical immobility in hiring or finding a job, remote working offers the ability to increase diversity, whether from hiring outside the major cities within the UK or from overseas. For example, a business may find that the best candidate for the job is based in Dubai, and may be comfortable in offering a contract should travel to the UK be limited. However, companies need to carefully consider other factors such as whether remuneration will be adjusted for location, legal issues and whether the employee will be insured for injury overseas.

How we can help

Whatever the stance of your business towards international remote working, it is important that a robust internal policy is formalised to guide the business with its approach to sanctioning continuing or approving future international remote working requests. This will help ensure that the business can be pro-active in reviewing their business priorities and checking on the implications of any potential decisions to ensure that unintended compliance consequences are avoided.

Please reach out to one of our Global Employer Services Partners so that we can discuss how we can support your business.

Read our recent article from the FT where we discuss further the tax implications for someone working abroad during lockdown.

You can also read our full guidance on the tax risks of international remote working.