As the coronavirus (COVID-19) continues to spread across the world, globally mobile employers and their employees face many business complications as a result of one of the most significant pandemics in recent history. The coronavirus has tested the adaptability and agility of business organizations as they combat the increasing disruptions faced by their employees–both domestically and abroad. The safety and well-being of employees are paramount, and swift measures may need to be taken to relocate employees based in affected areas, shift to remote work arrangements, or in some cases employees should return home.
It is imperative for employers with globally mobile employees to weigh whether it makes sense to delay future assignments or extend current assignments to allow assignees additional time to fulfill their business purpose. Some key issues that companies should consider include:
Employees may have relocated to unexpected jurisdictions. It is crucial for companies to monitor the location of their global workforce, support their employees in light of travel restrictions, and assist with possible immigration requirements. Companies should become aware of visa renewal policies for employees who must stay longer than anticipated.
Unplanned individual tax filing
Individuals may find themselves working from an unexpected location as a result of the pandemic. For example, they may be working remotely from home, from a less-affected jurisdiction outside the country in which they normally work, or from a third country location where they were on a business trip and cannot return home. Regardless of the situation, employees who have relocated in response to the virus should be mindful of triggering unexpected tax residency and/or individual income tax filing in the new work location. Appropriate tax planning may be required to minimize unintended host country income tax liability due to a short time period spent working in a particular location.
In addition, relocating employees to another country may create double taxation as certain countries will tax income that is paid locally, even if the individual is physically working in a different jurisdiction. These situations could significantly increase an employee’s tax burden as well as the complexity of their tax situation.
Navigating relief provided by local taxing authority
As a result of the pandemic, certain countries have already announced extensions of time to meet tax obligations and other relief. While there may be more country-specific announcements to come, a best practice should be to prepare to meet normal deadlines unless there are significant difficulties in doing so.
Corporate tax risks
If an employee relocates to a jurisdiction outside of his or her regular host country for an extended period of time, the employer should examine whether the activities of this employee will result in tax filing and payment obligations in the new country. This could occur if the employee’s activities constitute a taxable presence. Even work conducted remotely can trigger a taxable presence resulting in tax filing and payment obligations. While treaties may provide relief where the employee’s activities do not constitute a permanent establishment, companies must analyze the facts and circumstances of each situation against local laws, and employers should develop a mitigation or compliance strategy as appropriate. In addition, COVID-19 may change the way companies carry out business and send goods into other countries. As a result, multinational companies may need to review their current corporate structure, supply chains, existing intercompany agreements, along with tariff and other customs implications.
Social tax implications
Individuals who have been displaced from their normal work location and are working from a different jurisdiction could trigger an unexpected social tax liability (e.g., taxes paid to support retirement, health care and other social programs administered locally) because social tax liability generally arises in the location where the work is performed. As such, companies should be aware of the applicable country’s social tax obligations, so they can take the appropriate steps to meet the employer and employee local compliance and payment obligations, including having in place appropriate documentation (e.g., certificate of coverage).
In addition to the income and social tax obligations that may apply, employers should also be aware that they may be required to run payroll and withhold tax for their employees working in new locations depending on local law. For example, leave accrual policies and worker protections may vary significantly from country to country. Local labour laws and procedures may also need to be considered in situations where employers are requesting that employees work from home or another location. Companies should ensure local labour laws and procedures are followed in order to minimize possible claims against the employer. If an employee is required to work from a third jurisdiction, a review of local health insurance coverage may also be required to ensure the health and safety of the employee. Companies should consider how to support employees who contract the virus during a foreign assignment and how to process health insurance claims and otherwise provide support to sick employees.
As the spread of the virus poses unexpected challenges to global employers, careful consideration of the needs of the business, employees and customers should be evaluated in order to determine how best to carry out their business operations with as little disruption as possible. Understanding the latest rules and carefully assessing risks will allow companies to adapt and respond quickly to ensure employees are supported and costs contained. Companies that establish and communicate their COVID-19 support policies clearly and quickly will help keep workers safe and productive, and will distinguish themselves in the marketplace during this crisis, creating intangible value that will last long beyond the COVID-19 pandemic.
If you have questions, please do not hesitate to contact us. Our professionals are ready to support employers and their teams through the global mobility challenges posed by COVID-19.