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The past year has witnessed a huge remote working experiment for many of the world’s businesses and their employees as a result of Covid-19. And, for many, these new working practices have become hugely complex depending on where in the world business owners and employees have suddenly found themselves. Almost overnight, people are in uncertain territory regarding issues involving employment law, tax, social security
and pensions, to name just a few.
The rules concerning residency in a country – and therefore liability to pay taxes there – are complex and vary from jurisdiction to jurisdiction.
In Europe, spending at least half the year in one country is usually a key test, although other factors can be considered such as where the family home is located.
With the way the tax year falls – most run by calendar year, although in the UK it is April 6-April 5 – it could result in people being resident in two countries simultaneously and therefore paying tax in both jurisdictions, but out of the same income.
For those working for companies in low tax domiciles, such as the Gulf states, many have found themselves stuck in other countries with higher tax rates. Unsurprisingly, this has caused anxiety about how much tax they would now have to pay. While many countries have double tax treaties in place that override local laws, as ever the devil is in the detail and this has
to be closely checked.
There are also circumstances where a company may be considered liable for tax in another jurisdiction. For example, in the case of an owner-managed business, or one managed by a single director, if the owner/director happened to be stuck in another country but was still able to run the business from there, he/she would be liable for tax in that jurisdiction. In the UK, for instance, a businessperson is considered taxable if key decisions are made in the country – meaning they are liable for Corporation Tax on all income and gains worldwide. A double tax treaty could help, but it depends on the agreements between the two taxing authorities involved.
In addition, some countries have brought in emergency tax measures related to Covid-19, which again varies between countries. These will need to be investigated to find out if help is at hand. In the UK, HMRC has allowed non-UK residents to stay an extra 60 days in the country under ‘exceptional circumstances’ such as being forced to quarantine.
For any employees who find themselves in these circumstances, it is recommended they keep records of all their movements, as well as issues such as when borders were closed, dates for cancelled flights, any doctor’s appointments and any other documents that could be relevant to a tax claim.
But it isn’t just with tax where potential complications occur. An employee working remotely can be entitled to the employment rights in the country they are residing in, which could be more generous than those where the business is based – for example, in terms of minimum days of annual leave.
The employer is legally obliged to honour these rights or the employee could start legal action against them. This also complicates matters if the business wants to terminate the employee’s employment and local legal advice should be sought.
Likewise, health and safety laws can vary between jurisdictions and all employers have a duty of care to their employees to provide a safe place to work. A risk assessment should be undertaken for any employee working in a different jurisdiction that considers local health and safety laws.
Regardless of the pandemic, the trend for working remotely and across jurisdictions has become more common in recent years. This will now accelerate going forward.
Covid-19 has shown that working at home is not only feasible but can also be more productive. With a high-speed internet connection, it is possible for employees to carry out their jobs as they do in the office. This also includes holding meetings via online conferencing facilities, sharing and storing documents securely via cloud-based systems and communicating and collaborating with colleagues via telephone, email and messaging apps.
As a result, issues such as employment law, social security and tax will need to become more defined in future and businesses and their advisors would do well to keep on top of these often complex problems to avoid any unwanted complications and costs.
In the following pages, nine IR Global members, including Rebecca Torrey, discuss the huge complexities involved with remote working and how that affects businesses and their employees in different jurisdictions.