20th October 2020
With travel restrictions impeding movement across borders, it’s perhaps unsurprising that we’re seeing more contractors working remotely from their home country. In fact, there’s been a general uptick in people remaining overseas while employed in different destinations as the limitations of where you work from are removed as a result of the pandemic. However, this does present a number of tax compliance concerns that are certainly coming to the fore now.
Banks call staff back from overseas
Earlier this month a number of London’s top banks called staff back from their international holiday homes as they feared a potentially hefty tax fine for those working remotely across borders. According to reports from the Financial Times, executives across a number of large US and European banks – including Citi Group and Credit Suisse – have asked staff who have seen out lockdown in Mediterranean holiday villas or their home country to return to the UK, even if they aren’t required to be in the office.
The main reason cited by those taking this action is the length of time that these individuals have been working overseas while being managed and paid in the UK. The concern is that these workers could be seen to have a permanent establishment in the destination they are currently based. If this is deemed to be the case the individual and potentially the employer could be liable to pay taxes in the destination.
While some banks have taken the approach to call on staff to return ‘in order to meet tax and compliance requirements’, one senior manager at Credit Suisse allegedly took a different approach, by simply reminding the team that “the tax liability will be their own. That’s usually enough of an incentive without ordering them home”.
There is, of course, also the looming threat of staff being stuck overseas due to imposed lockdowns which could have a significant impact on tax determinations of those that are left stranded in another destination while working for London’s banks. Should this be the case, some employers have made it clear that the liability will lie with the individual. Deutsche Bank, for example, stated that employees would “have to cover any additional employment tax and deal with any issues themselves if borders close again.”
Remote working regulated in Spain
In a move to adapt to remote working and normalise work-from-home, the Spanish government has passed a law to regulate what it refers to as ‘distance work’. Under this legislation, working from home will be viewed as regular employment and if it accounts for at least 30% of the working day for the individual, employers will be required to compensate the individual and provide the equipment and tools in the same way that they would those in the office.
Much of the reasoning behind this move is to ensure that those working remotely have access to the same rights as those attending a place of work in person. The legislation does, however, state that distance work is considered ‘reversible’, meaning that should the employee wish to return to a physical workplace they can.
Is remote working really the future?
Remote working and contracting is clearly a trend that will remain in place for the time being, but we certainly don’t expect this to permanently remain in place. For businesses utilising the skills of these expert professionals, one of the key drivers of employing contract professionals is the fact that the skills simply aren’t available in-country. In fact, we already have numerous experts lined up ready to move overseas for contract work once travel restrictions allow it and projects re-open.
We know that for contractors themselves, the majority will be keen to once again move across borders for work. Many of the benefits for contractors seeking international opportunities stem around the variety of work and ability to travel and experience new cultures and make global connections. As such, it’s highly unlikely that we’ll see a permanent shift towards remote working for contractors.
The importance of compliance for contractors working remotely
The above are just a few examples of the regulatory changes and challenges that have become prevalent since the pandemic. For contractors working remotely, the move by businesses to allow this will certainly have been welcomed to prevent work from ‘drying up’ and projects from being halted indefinitely.
However, as we’ve mentioned previously, working remotely across borders does present a compliance challenge that contract professionals need to be aware of. As with all tax legislation, there are nuances for each individual case based on the destinations you’re operating. But, there are some common challenges to consider such as the potential for dual taxes.
And while you may perhaps be working remotely on a temporary basis, if the timeframe for this is extended or your circumstances change, you could be at risk of non-compliance with tax regulation in both your home country and the jurisdiction that the work is being delivered for.
The potential fines and criminal charges that contractors could face due to a simple mistake in what can only be described as an incredibly complex compliance landscape make it highly crucial that individuals seek expert advice.
Contact us today to find out how 6CATS International can help with your current and future assignments.