While remote working is now construed as the new normal, the desktop revolution comes with its own challenges to building new and successful work environments and structures. A key aspect that has not been often addressed is the tax implications of remote working and the complexities around it.
Historically, physical presence is what drove tax exposure. When a person lives in one country and works remotely for a company in another jurisdiction where would their liability to income tax be? Similarly, employers having their employees in another jurisdiction can affect their corporate tax exposure, payroll issues and VAT implications. As of now, the answer to these questions is still a work in progress as it remains a controversial issue with several different viewpoints and explanations.
Nevertheless, businesses should ensure to obtain professional advice as there is no formula for this at the moment and each situation has a different fact pattern that may affect the businesses tax exposure. Since COVID-19, the diversification of the workforce and working from home arrangements has rapidly increased and while some arrangements are temporary, the long-term changes will need to be closely monitored and managed in order to limit liabilities.
The most prominent questions business may address are:
- Is the income resulting from their work applicable for income tax in the resident jurisdiction?
- How is the place of performing work reported?
- How is VAT claimed from expenses like internet and energy?
- Is there a tax agreement between the two jurisdictions that may clarify the tax position?
In a world where remote working is here to stay, businesses should proactively reach out for professional advice to tackle these challenges early on as it may affect their business planning.