Paddle, a London-based startup with about 130 employees in the U.K., is also shifting to allow employees to work from anywhere including abroad, according to senior people partner Alison Owens.
The company will manage its employees abroad via a professional employer organization, which manages certain human resources functions for firms. It recently brought on its first employee under such an arrangement in Spain.
‘Nasty Situations’
Many companies are turning to such outside firms for help with a remote workforce. Payroll startup Deel has seen demand surge in the last year for its services managing staff abroad with a mix of software, local accounting experts and even foreign exchange hedging. “Hundreds of companies are coming to us a day,” says Dan Westgarth, chief operating officer. “It’s operationally intensive.”
That strikes at the challenges of work-from-anywhere policies. Untested at scale, such perks come with big risks for staff and companies at a time when governments are wising up to cross-border commutes and in dire need of tax revenue.
“There can be some quite nasty situations out there,” says tax adviser Salter.
Employees who work abroad even for just a few weeks may find themselves liable for taxes in overseas jurisdictions, he says. Many countries have double-taxation agreements in place to avoid excess taxation.
But such agreements may only apply to federal taxes and not city or state obligations that are common in many parts of the U.S. or social-security liabilities common in Europe.
Cash flow could also become a problem if countries promise refunds but only after you’ve paid in multiple countries, Salter says. And firms that allow too many employees to work from the same foreign country could find themselves obliged to pay local corporate taxes.
His best advice? Consult carefully with your firm and avoid taking advice from “the person in the pub.”
“A lot of times you hear this myth that if I don’t spend 180 days in a country I’m safe. That’s nonsense and is very, very dangerous,” he says.
With all these issues in mind, Salter calculated the obligations of that hypothetical Londoner, Hong Konger and New Yorker working for two months in Brazil, taking into consideration the different reciprocity rules between these jurisdictions.
The New Yorker could end up paying $1,648 more than if he’d simply remained in New York for the two months. That is largely because Brazil’s 25% flat tax rate for non-residents is higher than the U.S. federal rate of 24% and because New York State and New York City don’t provide tax relief for Brazilian liabilities.
The Hong Konger could owe an additional $1,334 for working two months in Brazil because of the latter’s higher taxes.
For the lucky Londoner, the 40% U.K. tax rate for her salary is higher than Brazil’s and the U.K. could provide full relief for the Brazilian taxes paid.
As for Miotto, the iOS developer, he says he is watching his tax status carefully. His firm gave him the option to either live in the U.K. and become a tax resident there, or to work as a contractor based in Italy. He chose the latter, which has meant greater clarity on his tax status because he has been working in EU countries and didn’t have to grapple with Brexit uncertainty.
However, he is looking to go further afield. Thailand, Indonesia and South Africa are all on his list in the months ahead. If expert guidance is any indication, he’ll need to keep a very careful eye on his tax records.
This article was provided by Bloomberg News.