The pandemic has pushed many employees to work from home. Some have already started going back to the office, but others want to take remote work a step further and work from another country. But before okaying this type of request, the employer must understand the tax implications involved.
Tax issues called “nexus” or “permanent establishment” will cause difficulties for the employer.
A Permanent Establishment – What Exactly Is It?
A permanent establishment is a tax connection to another country, and it’s a big concern for companies that have online employees working overseas.
If an establishment has a business in another country, then that business might owe sales taxes and income in that country. Several different factors can influence whether or not a permanent establishment has been created:
• How long are they staying
• Status of Visa
• Are they contracting, or are they permanent?
• Are they facilitating income, or are they a recruited employee?
Additionally, factors like nationality, where the employer is located, and where the employee wants to work can also impact determining permanent establishment.
Also, each country has its own procedures for a nexus and permanent establishment. What is okay for a permanent establishment in one country might not apply in another country. Because of this, employers need to understand the domestic tax and employment laws of the nation that the remote worker is in. Regular monitoring of tax situations is necessary because tax laws quickly change in every country.
To make expectations clear to everyone involved, employers can create a contract or a letter of agreement. A remote worker must be aware of the implications and what is expected. For example, who takes care of the visas, insurance, and travel expenses?
How will their presence abroad affect other non-tax issues and benefits, such as paid leave, retirement savings, severance, healthcare, and insurance?
The foreign country’s benefits and rights must be evaluated. Remote workers will be subject to different rules when it comes to work hours, overtime pay, paternity and maternity leave, health insurance, sick leave, and so on. Your company may have to abide by those rules, even if it isn’t incorporated there.
Your company must have a remote working policy or plan in place that addresses these concerns as they arise. For example, a number of companies only allow remote employees in countries where an office is already established. In addition, remote employees can be classified as independent contractors instead of employees; however, this can be a complicated procedure.
The Global Mobility Policy and How It Works For You?
Mobility strategies that support your business are essential to effective global mobility management. Mobility policies must be aligned closely with their current business and employee structures to be relevant and successful. Still, the policies must also be capable of delivering consistent (and fair) results for comparable assignment situations.
Due to the varying array of barriers from one geographical location to another, a best practice is to create a suite of unique, tailored policies that align with your distinctive company culture (and make sure that they align with your overriding business visions and company values, too).
Additionally, your policies should reflect the stage of international expansion at which your organisation is currently at. When it comes to practices and policies “the right thing” depends not only on your company culture but also on what level of international expansion you’re in when it comes to mobility policies and practices.
Global HR professionals often assume they have a solid mobility policy, so they’re automatically doing the “right thing.” The business could just be starting to send out ex-pats if it is still in the early stages of global expansion. As a result, “right policies and practices” for them will differ greatly from “right practices and policies ” for an experienced global company with a well-established global workforce. This is where an Employer of Record (EOR), such as Playroll, comes in.
For most organisations global expansion is a long-term strategy, but what is an Employer of Record (EOR), why should an expanding company use one, and how does it help worldwide growth? The path toward success is overflowing with risks, delays, and costs. Global expansion is a mighty challenge, yet the difficulty and complexity have not prevented start-ups from scaling their operations internationally.
They have powered expansion by identifying the obstacles that limit their expansion and deploying a solution. For most, this solution has been an Employer of Record service, which removes the complications and risks of the entire process by becoming a simple step in a business plan.