Remote and overseas work has started to become the norm rather than the exception within many sectors.
We regularly get enquiries from UK employers, who want to leverage the expertise of talented professionals overseas.
However, choosing to do this raises some important questions about your obligations as an employer.
If you are considering hiring an overseas worker, there are several potential consequences for both you and your employee that must be considered in the short, medium and long term.
Why working overseas isn’t simple
While it may seem like all an employee needs are an internet connection to work from anywhere, the reality is more complex.
Hiring a person to work overseas for your UK company can trigger various tax, social security, and legal consequences that need to be carefully considered:
Income Tax
If a person physically carries out their work duties overseas, the country they are in will likely seek to tax the income they receive for those duties, subject to double taxation agreements.
Equally, HM Revenue & Customs may have questions about your payroll and how it is managed and taxed if someone you employ is based in another county.
Tax residency
The rules vary from one jurisdiction to another, but it is not uncommon that if a person works in a different country they will be subject to tax on the income gained in the UK, unless they spend time in various countries, or experience a substantial secondment to one country or another.
The tax residency rules are extremely complex throughout the world, and what tax your employee may have to pay and where can vary based on a number of different conditions.
To determine their tax situation, you need to consider:
- Whether theywill acquire tax residence in another country.
- Whether they will break UK tax residence rules if they spend time here.
- If they are resident in both countries, whether they are a treaty resident.
A person’s risk of becoming tax resident in another country increases significantly if they spend more than six months (183 days) there. However, even shorter stays can trigger tax residency under certain conditions.
Double tax agreements
These agreements can protect an employee from being taxed in both the UK and the country where they reside.
Typically, if you spend less than 183 days in the other country, work for a UK-resident employer, and your remuneration is not borne by a permanent establishment in the other country, you would generally only be taxed in the UK.
Social security
Social security, or as it is known in the UK National Insurance, obligations are separate from income tax and need to be considered independently.
Even if your employee is not taxed overseas, they may still be liable to pay social security contributions there.
As an employer, you may also have social security liabilities in all of the countries that they are based.
Therefore, it is really important to conduct detailed research and seek professional advice if you intend to hire a person that is working overseas and continue to run their salary through your payroll.
Bilateral or multilateral agreements (like those between EEA countries and Switzerland) can protect you and your employee from dual social security contributions.
Similarly, an A1 certificate may be necessary to protect you and your employe3 from social security obligations in other countries.
Other consequences
Working overseas can have various implications for a UK employer, including:
- Payroll Withholding: Employers may need to comply with local payroll withholding requirements.
- Corporation Tax: The presence of employees overseas can potentially create a ‘permanent establishment,’ affecting the employer’s corporation tax liabilities.
Hiring overseas – Be prepared
For detailed advice tailored to your specific circumstances, consult with our experienced team. Ensuring compliance with both UK and foreign regulations is crucial to a successful overseas working arrangement.
