As a result of Covid-19 travel restrictions employees are now working from home under varied arrangements around the globe. This Insight looks at the international employment tax, social security and corporate tax considerations of employees’ varied working from home arrangements due to the Covid-19 crisis.
This category applies either to individuals that were in their home countries when travel restrictions commenced or who repatriated to be with their families before the travel restriction applied.
Needless to say, the first thing an employer needs to do is to check that the individual is safe and able to access health care in their home country should the need arise (e.g., if they are in the EU, will their EHIC (European Heath Insurance Card) suffice?). Once the employer has been able to establish that, and the employee’s ability to work remotely, then from a tax perspective the employer would be advised to indicate that the individual can work temporarily from home until health concerns are alleviated and restrictions to travel back to their normal country of work have lifted.
It can be anticipated that, while many individuals may find it a struggle living under lockdown, there will be not insignificant numbers that realise that they can work just as well remotely, and they may wish to have future conversations about working at home from abroad. In these scenarios, we would recommend considering the costs and implications in detail once the lockdown has finished.
So what could be the tax and social security consequences of this temporary working arrangement? The important consideration here is that the arrangement is temporary and of unknown duration. Seeking some tax guidance is sensible, but an employer should be looking for overview and pragmatic guidance, not extensive guidance in every case unless they have a number of people in that location.
Some tax authorities have already issued guidance. France, Luxembourg and Belgium have already introduced concessions for cross-border workers for income tax purposes. These mean that days working in the individual’s home country due to Covid-19 will not count towards day count limits normally used to establish if a tax liability on employment income arises in the home country.
While there has been no guidance at EU Commission level, the Belgian and German governments have announced that for periods during which a worker normally contributing to the social security of another member state has spent in their territory due to Covid–19, these temporary periods will not be taken into account in determining whether there should be a social security liability in their state. It will be interesting to see if other EU member states follow suit.
Key to many of these measures is that they are based on the understanding that the individuals will return to their normal place of work when restrictive measures cease to apply.
From an employer perspective, when an individual is working from home in another jurisdiction there can, depending on the jurisdiction, be obligations for the company to register as a foreign company to pay withholding tax in that territory. Here, we would say in general terms (and must stress this cannot be quoted as advice) that this could be a premature step. The individual may have returned to their normal workplace before a registration is complete, new tax measures may be released in due course to relax an obligation, and for this temporary period of international crisis, most territories would not be looking to enforce that a payroll needs to be registered.
If circumstances were to mean a home working arrangement would go beyond two to three months, this approach may need a re-think.
Not having tax withheld in the country does not mean that income tax will not be due, and employers are advised to communicate to employees that they will be responsible for settling any personal tax obligations arising from their temporary working arrangement overseas.
From a corporate tax perspective, and this applies to the home worker categories below as well, this is more likely to be an issue where the business has key decision makers working in other jurisdictions and it could be preferable if someone other than that employee is signing off on legal agreements. While potentially a challenge in the current environment, employers would certainly wish to seek specialist advice if the employee is pursuing business opportunities in their home country.
Equally, businesses would be advised to take specialist guidance if there are individuals whose role requires them to travel to attend board meetings and take key corporate decisions overseas who are not able to travel to fulfil these commitments in the overseas territory. The Irish tax authorities have announced they will disregard for corporation tax purposes an individual’s presence in Ireland due to Covid-19 travel restrictions, for a company for which that individual is an employee or director. Again, it will be interesting to see if similar relaxations are issued by other tax authorities.
This category covers individuals somewhere on the spectrum between the company wishing to bring them back to their home country due to a duty of care, and the company accommodating the employee’s request to return home to be with their loved ones.
The UK tax authorities have issued guidance that for tax residency purposes it is possible to disregard days of presence in the UK if you “are asked by your employer to return to the UK temporarily as a result of the virus.” If an employee is to rely on this for their days of presence not to be counted, one can expect that HM Revenue & Customs (HMRC) could ask to see evidence that the company requested the employee’s return to the UK The same concession applies if an employee is quarantined, following guidance to self-isolate, unable to travel due to official government advice, or unable to leave the UK due to international border closures.
It is important to note that in a UK tax year there is a limit of 60 days that can be disregarded due to exceptional circumstances. The work days spent in the UK will also still be counted for the purpose of the 30 work-day limit that applies for the working overseas test. This is the main part of the non-residency rules that individuals seconded overseas rely on. In other words, it may still be necessary to obtain guidance that the individual’s time in the UK will not re-establish their UK tax residency.
The other limitation of HMRC’s guidance is that it does not mean that the individual will not be liable to UK income tax for the period they are in the UK, as the concession does not apply to days of presence in the UK for the purpose of a double taxation agreement.
From a UK perspective, if further guidance is not issued by HMRC in the next few days, employers should seek advice on whether they cease to apply No Tax (NT) codes and put individuals back on pay-as-you-earn (PAYE) for the period they are in the UK Unfortunately, the answer will depend on the facts and circumstances of each case.
We have raised with colleagues in the US the question whether there is a need to assess if US withholdings should be applied where individuals are working back in the US, switching them from hypothetical tax to actual tax if they are tax equalised. This then leads to the additional complexity of whether the individual could be re-triggering a State tax liability.
The UK and the US are by no means alone in terms of having to consider the tax implications for outbound employees temporarily returning home.
There have been some suggestions tabled to the UK tax authorities that they should go further in the relaxations, such as the Australian Taxation Office’s (ATO’s) concessions. The ATO guidance to overseas resident individuals who are in Australia temporarily due to Covid-19 is that they will not become Australian tax resident providing they usually live overseas and intend to return there as soon as they are able to.
Moreover, the ATO have stated that working in Australia for less than three months due to Covid-19 will not result in an individual’s being assessed for Australian tax. The guidance is currently silent on superannuation contributions so these could still be due.
Employees whose overseas secondments have been delayed would simply be kept on home country withholdings. However, the situation is more difficult where new hires from overseas have had to start their new role in their home country before they can relocate. The position here could depend on whether there is a business entity in their home country. With the potential exception of the US, individuals cannot generally be liable to income tax and social security on earnings in the other jurisdiction until they have relocated and started work there.
If the business does have an entity in the employee’s home territory, employers would be advised to try and arrange for their pay to be delivered from that territory (then cross-charge the costs between the entities) or have their pay shadowed through the payroll in their home country. If there is not a business entity in that territory then it would be advisable to seek some practical guidance from your tax advisers as to what would be appropriate from an employment tax perspective. If the individual will have a key decision maker role in the organisation then guidance should be sought on the corporate tax aspects as well.
At time of writing of this article, the UK government has issued its guidance “Financial support for businesses during coronavirus (COVID-19)” (originally released 23 March 2020), but has not responded to questions posted by professional bodies and institutions, so some grey areas remain. Employers are seeking clarification on whether the scheme is accessible for inbound secondees who do not pay UK national insurance contributions, outbound secondees who are on NT codes, inbound employees on modified PAYE schemes that the company is settling the tax burden for, and so on.
So far we understand that all UK businesses can access the relief if they had a PAYE scheme at 28th February 2020, a UK bank account and have, or will have, furloughed employees who were already employed before this date. Based on the information available at present, it would appear that any individual that was on a UK PAYE scheme prior to 28th February is eligible, regardless of whether they were having UK tax or national insurance contributions deducted through the payroll, and regardless of where they reside.
It will be important to follow any new guidance that is issued, and employers will need to lodge a claim via an online HMRC portal.
Other governments have released details of similar schemes, and it is notable that the demands of the crisis mean that countries have not been able do this in an internationally coordinated manner. From guidance that is currently available, an individual that is on a UK PAYE scheme appears to be eligible to be included in the UK CJRS. If that employee (and the employer) are paying social security contributions in France, for example, as the individual resides and habitually works more than 25% of their time in France, it appears that they may be eligible for inclusion under the French activité partielle scheme.
Unlike the UK scheme, whereby the individual cannot work while they are furloughed, the French scheme covers a scenario of reduced working hours. It would be prudent, when a business is considering furloughing a cross-border worker, that it reviews the entitlement to both their home country and host county schemes. One assumes that an employer is not intended to claim under the scheme of more than one jurisdiction. As there are employment law considerations, legal advice is recommended in this area.
While at present we can only speculate on the post Covid-19 global mobility landscape, two trends that can be anticipated are:
Andrew Kelly
andrew.kelly@bdo.co.uk