18 months into the pandemic, many employees that were stranded outside their country of employment, due to border closures or lockdowns, have continued to work remotely from overseas. Some reasons for this include a desire to stay close to their families, live in their home country or achieve a better work-life balance. Whilst the rise of remote working has been made possible by advancements in technology, it is a new and unexpected challenge for many businesses.

Even though remote working has, in many cases, enhanced employee productivity and job satisfaction, there are several factors that employers must consider before authorising remote working arrangements or extending them to additional workers.

 1. Ensure employees have obtained the correct work permits

If employees are working overseas, it is crucial that the correct visas and work permits are obtained. While it may seem easy for an employee to work remotely from an overseas jurisdiction, if found to be infringing local immigration rules, there could be serious financial and reputational implications for both the individual and the business.

2. Consider withholding tax and social security obligations for the employer

Overseas jurisdictions will often require the employer to run a payroll in that country to report and pay local tax and social security contributions. Whilst there is a potential that the individual may not ultimately have any tax liability, the administrative obligations regarding reporting and withholding may remain, followed by a time delay in securing tax repayments. From an employer’s perspective, this can lead to increased costs, an added administrative burden, and staff dissatisfaction.

 3. Consider double deductions of tax and personal tax obligations for the employee

If an employee is liable for monthly tax deductions in their new country of residence as well as their original place of work, this may cause them significant cash flow problems. In some cases, it may be possible for the employer to reach an agreement with HMRC to claim advance foreign tax credit relief. This will help to reduce or extinguish the UK tax liability by the amount of foreign taxes paid each month. In addition to tax on their employment income, working abroad may also inadvertently expose an employee to tax on their worldwide income and wealth.

 4. Consider social security obligations

The social security position should be assessed carefully to determine where contributions should be paid by the employer and the employee. Generally, contributions are payable where the individual lives and works. In situations where the remote working arrangement is permanent, employer and employee social security contributions should be payable in the work location. However, this can be particularly challenging in temporary remote working scenarios and a determination will have to be made based on the country combinations, the existence of social security agreements, and the possibility of obtaining Certificates of Coverage. In worst-case scenarios, contributions could be due in both jurisdictions, with the individual ending up with fragmented records in multiple countries.

5. Remember ‘Permanent Establishment Risk’

When working overseas, the employee may inadvertently create a Permanent Establishment Risk for the company in the other jurisdiction. The activities carried out by the employee may expose the company to corporate tax and sales tax (VAT) liabilities and reporting obligations in the overseas jurisdiction.

 6. Research the impact of overseas employment laws

If an employee is expected to work overseas permanently or for an extended period, their employment contracts may need to be revised to reflect the laws of the other jurisdiction. Employers need to be aware of the employment laws surrounding events such as dismissals, terminations, disputes, and maternity leave that apply to their globally remote workforce as these could be different to the corresponding UK employment laws. 

 7. Maintain data protection and security away from the office

When working outside of the office, the general security risks posed to company data and equipment may be greater. This is especially true when working overseas in unfamiliar territory. Local data protection laws must be fully understood and upheld by both employees and employers to protect all parties.

 Compliance requirements vary by country and are often dependent upon the circumstances relating to the employee’s stay. While global remote working requests should be handled individually, advance planning can help employers protect their reputation and financial position. Some additional costs may be unavoidable, but if all factors are dealt with thoroughly and responsibly, workforces will be able to enjoy the benefits of remote working long into the future, while mitigating the risks associated with non-compliance for their employers.

About the author: Sanjukta Ray is an employment tax and global mobility manager at accountancy firm, Menzies LLP.