Expats urged to check four things – could you be held liable for tax fraud?

Spain: British expat questions enforcement of Covid passes

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Working expats were forced into difficult positions during the pandemic, and now as countries stabilise the regulations surrounding them, many may find themselves in the crosshairs of the law accidentally. Ema Boccagni, commercial director EMEA at ECA International spoke to Express.co.uk about the benefits, tax liabilities and warnings working expats should be aware of.

Remote working has taken the world by storm since the start of the pandemic, but for some it doesn’t simply mean skipping the morning commute. 

Many employees now find themselves working in a completely different country to where the company operates, and some even find themselves working internationally virtually rather than in-person.

Whether due to being in the wrong place at the wrong time when lockdowns began or choosing to seize the moment when the earth stood still, these working expats may need to keep on eye on evolving regulations to avoid accidentally incriminating themselves. 

Ms Boccagni said many countries are still understanding “how to deal with a person who is performing a service which benefits a company based in country A, while the individual is based in country B”.

She noted that ultimately it depends on the amount of time one will be spending in their second country. 

Anyone intending to stay for the long-term or have been placed on long-term assignments have a more straightforward process to deal with tax liabilities. 

Ms Boccagni explained: “The employee is usually located in the same location as their income is sourced and therefore liable to pay taxes on their assignment income exclusively in the host location. 

“This changes, however, if a UK employee undertakes a virtual assignment and is seconded to work remotely for the company’s affiliate in Germany, for instance. Their employment income should be subject to taxes in Germany – as the employee’s income is derived from a role they are performing for the benefit of the Germany-based entity. 

“At the same time, as the employee remains resident in the UK, they will likely remain liable to tax in the UK on the same income, presenting the employee with a requirement to pay taxes in both countries.”

She suggested people in this situation seek advice from their company’s HR team or global mobility team as they will need to investigate any double-taxation treaties to find a way for income tax to be paid in one country and credited in the other.

For employees that have been sent, whether virtually or in-person, to work abroad, their employer should generally compensate them for potential tax liability losses: “In order to deliver the same net salary, the company will need to tax equalise the employee.”

However, Ms Boccagni cautioned that the opposite could also be true if an employee is only taxable in one country with a lower tax rate than their home country and it would then be up to the employer whether to equalise their compensation or just tax protect and let the employee keep their gains. 

She added that those who choose to work in a different location to their place of employment may face a situation where their employer sees any potential tax liability as the employee’s sole responsibility. 

“However, in the interests of retaining crucial employees and avoiding any non-compliance issues (at both a personal and company level), a responsible HR function will seek to make the employee aware of the potential implications of choosing to work elsewhere from a tax liability perspective.”

As regulations around internationally working are clarified, Ms Boccagni shared some insightful things UK workers should look into before deciding to move or go an assignment abroad whether permanently or temporarily. 

She noted that “a good starting point” would be to check if their employers offers any sort of expatriate package. 

This is generally more common in larger organisations and can provide expats with added benefits aside from assisting with their income tax liability. 

She added: “Depending on the situation, benefits such as annual leave, sick leave, public holidays, maternity and paternity leave may either be governed by the UK – or the host country where they are living.”

These packages account for other issues or potential problems that come with working in another country such as:

  • Additional pay or leave to compensate for unsociable hours
  • Compensation for those sent on assignments that incurs family separation or other inconveniences
  • Daily allowances or provision for the difference in daily living expenses for short term assignments
  • Access to the company’s global mobility specialist
  • Allowances for an employees’ partner to visit them abroad in lieu of the employee returning home or company funded trips home.

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