Bruce Stanley, International tax consulting partner discusses some key tax points to consider if you are hiring an employee who will work overseas.

22nd December 2020

2020 was a momentous year in many ways, whose impact will be felt for a long time.

The pandemic provided a myriad of challenges for business but as Einstein noted, “in the midst of every crisis lies great opportunity”. And perhaps the most significant change adopted by employers as they addressed the disruption caused by Covid was the widespread emergence of remote workers.

Whilst there are jobs that cannot be done remotely, the development of paperless offices and technology has meant that the possibility to do so is growing all the time. In the modern world where the importance of a good work life balance has gained emphasis and overpopulated metropolises result in unwieldy commutes, the opportunity to work from home is increasingly attractive.

This new dynamic has benefits, but also risks for employers, particularly in the context of a global workforce and those remote workers whose home is in a different country.

The ability to work from anywhere literally opens up a world of possibilities. Employers are no longer looking exclusively at their local area for employees or required to consider the cost of relocation expenses should they wish to go further afield. With internet access an Irish employer can have employees working in the four corners of the globe, all connected, capable of looking at the same screen, instantly communicating and working on the same page.

Despite the potential benefits this offers, there are some key tax points to consider if you are hiring an employee who will work overseas. For example:

Payroll
  • Do you need to operate a local payroll in the country where the employee is located?

  • Are they entitled to a PAYE exclusion order or do you need to include them on your Irish payroll?

  • Can you pay them gross or do taxes need to be deducted at source?

  • Have you considered their employment rights in their country of residence?

VAT / Sales Taxes
  • Do the activities of the employee create a local VAT or sales tax charge?

Corporation Tax
  • Do the activities of the employee create a permanent establishment?

  • Will the local jurisdiction look to attribute profits to the employee?

  • Will you get a tax credit for any foreign tax paid under a Double Taxation Treaty?

  • Do you need to consider Transfer Pricing rules as a result?

In addition to the tax implications, the local immigration and employment law would have to be considered. An employee working in Timbuktu is subject to the employment laws in Mali irrespective of the location of their employer’s head office.

In the last 150 years the world has shrunk dramatically. The way business operate has changed beyond recognition as innovation and change continues impact all our lives on a daily basis. The most successful businesses have been the ones that embraced change and the opportunity to engage a global mobile workforce is certainly an interesting prospect. If you are considering taking this step its important to make an informed decision and be aware of the legal and tax implications associated with internationally based employees.

If you would like to discuss this or any other international tax matter please contact our team and we’d be delighted to help.