Technology now enables us to work away from the usual office setting. That situation ramped up hugely during the COVID pandemic. We are now left in a position where remote working, or some form hybrid working, is very much the norm. In some situations, the employee may even be working in a different country than where their employer is based.
By Tom Annat – Senior Tax Manager
What does this mean in terms of tax? Is there a possibility of paying lower taxes, no taxes at all or indeed could taxes increase? Are there other factors to consider? We have looked at some of the pertinent issues below.
Is paying less tax legal?
It is very important to check the entry requirements of the country you intend to work in. For example, are you required to hold a specific VISA to work in that country? Many countries now offer VISAs (work permits) to so called digital nomads, which enables people to work remotely, usually for a fixed period of time.
Whilst you may have the relevant legal documentation in place to work in another country, does your employment contract allow it? It is very important to check with your employer that you are allowed to work in another country, as you could end up in breach of your employment contract.
Will I no longer be a UK tax resident?
It depends. You will need to assess your position against the UK statutory residence test (SRT) to determine whether you fulfil the criteria to be non UK resident. The rules can be complex.
Will I be tax resident in another country?
Again, it depends. Like the UK, other countries have their own rules when it comes to determining tax residency. Quite often the rules will be around some form of day counting but there can be various other factors used to tie you to a particular country for tax purposes. It is possible to not trigger tax residency in several countries if you are only present for a short period of time. It is important to take local tax advice in the country you intend to work in.
Will I pay tax in the UK and the country/countries I work in?
If determined by the SRT that you are non UK resident, then you would not be subject to UK tax on your earnings, so long as do not have any days physically working in the UK. The location in which employment duties are performed will usually have primary taxing rights.
Whether you pay tax in another country will depend on local rules. Some countries do not levy income taxes on earnings, whether you are resident or not (the UAE for example). Other countries may only apply income tax on earnings if you are tax resident under their domestic rules. Some countries may have special rules for remote workers which exempt them from local taxes. The position will vary from country to country.
Is there any relief from double taxation?
The UK has double tax agreements with more than 130 countries. These agreements are in place to assist with issues around taxing rights and to eliminate double taxation. A double tax agreement may allow a deduction in the UK for tax suffered on foreign earnings. However, to benefit from a double tax treaty, you need to be a tax resident in one of the countries concerned. In complex cases, this could create a double tax issue for a ‘digital nomad’.
Are there any other employer related issues to consider?
Another important reason for ensuring you have permission to work in another country is the concept of corporate residency. It is possible, in some circumstances, that an employee could create a corporate tax issue for the employer in the host country. Moreover, the employer could have local tax filing obligations around income tax and social security contributions.
What about national insurance contributions?
The national insurance contributions (social security) position internationally is usually unrelated to taxation. The position will depend on the location of the employer, employee and any reciprocal agreement.
Next steps
For any enquiries regarding the above, please contact Tom Annat.
