Cross-border workers need greater tax transparency

The Covid pandemic has made working from home commonplace and even now, some businesses have continued with remote operations because it makes financial sense. Coupled with this, some countries have been offering extended visas to attract so called nomadic workers who choose to live for long periods abroad and work remotely. A lot of these people are self employed, but many aren’t and cross-border working is on the rise everywhere. According to data provided by Airbnb, 20% of bookings in Q1 of 2023 were for a month or longer, whereas 3 years previously, it was just 10%.

The Office of Tax Simplification (OTS) , an independent advisor to the UK government, is reviewing the current situation and in the course of this has questioned 60 organisations about their current working patterns and issues. They found that hybrid and remote working are very popular and in some industries where there are shortages of workers, flexible policies make recruitment much easier. Fewer people in the office also mean business overheads can be reduced, with a lower requirement for office space.

One of the biggest issues to consider relates to taxation and how cross border workers should be taxed. The OTS review has highlighted a need for greater clarity and simplicity and raised many concerns for employers. This is possibly why the current numbers engaging in cross border working are still low. In large companies, 10% of employees are working across a border whereas in smaller organisations the figure ranges between 2 and 5%. There was a suggestion that if tax policy was clearer, it could be a very attractive recruitment perk.

Where the tax becomes complicated is when employees working overseas are required to pay income tax and social security locally in the jurisdiction where they are living temporarily. Some countries have avoided this by creating nomadic worker living packages, for example, Bali, Caribbean Islands, Mexico, Iceland and countries in the EU such as Italy, Germany and Malta. These schemes are available to entrepreneurs and employees of non-local organisations. Depending on the location, allowing employees to work from another country can trigger an income tax and social security liability for the employee and possibly a local corporation tax liability for the employer. In regions where defined schemes exist this is less of a risk, but each country has different rules. It can be very complicated for companies to keep up with all the regulations and in some instances, means that double taxation occurs. There is also a lot of paperwork involved in registering for tax in other countries without a defined policy, which is something that SME employers should bear in mind.

Broadly, in countries with no specific scheme in place to prevent an overseas tax presence being triggered, an employee can typically work cross border for 30 days a year or less without needing to worry about the tax implications.

In its official report, the OTS recommended that better international co-ordination, facilitated through the OECD, will be necessary to simplify cross-border working and reduce instances of double taxation. They have suggested a blanket policy where anyone working for 60 days or less in another country should not trigger any tax or social security payments. This is being recommended for workers coming to the UK as well as other international jurisdictions.

If you are interested in becoming a cross-border worker or want to offer this flexibility to employees, it would be worth conducting a tax review before plans are made. Understand beforehand whether you might be at risk of double taxation and any other impacts on your future tax liabilities.

For more information or to have a personal tax review, contact us via partners@rjp.co.uk.