Resilience sector insights - Mobility tax

One of the challenges faced by clients is in successfully managing their internationally mobile employees (particularly those who wish to work remotely overseas). Those employers who manage this ineffectively are more at risk of failing to comply with tax compliance regulations. Compiling an analysis of how companies can stay within their tax and social security obligations in respect of these employees enables companies to further understand where their capacity for mobility is, and therefore know their tolerance to mobility risk. This analysis starts with knowing where each employee is working from and being able to document this effectively. Through the establishment of effective mobility policies (and implementing tracking technology to track tax and social security risks), companies can better manage their movement of people and align these policies to continue attracting key talent and retain them.

Mobility plays a strong role in the success of recruitment and retention. As technology develops, and since the rise of hybrid working, more and more companies are offering opportunities to employees to work overseas. Companies may look to use their mobility data and policies to benchmark against competitors. It’s important to use this data – not necessarily to offer what competitors are offering – but to balance offerings between what they are being offered elsewhere, to what you’re able to provide within the company’s risk tolerances.

The last 3 years have taught us just how quickly things can change beyond our control, and so understanding how mobility will move in the next few years is difficult to predict. One way to be prepared for future challenges is to stay future-focused in data gathering and monitoring. Companies who know and understand the tax and social security risks associated with the countries their employees currently work in, and those where there is opportunity to work in, are in a much better position to adapt policies and offerings according to global changes. Companies can map their processes and policies to updated data and monitor for upcoming risks or opportunities.

Some companies want to provide opportunities to their employees to work overseas or have personnel in specific countries. To facilitate this, some Companies have engaged these individuals via Employers of Record (EOR). EOR’s act as the individual’s legal employer and manage the compliance obligations in respect of this employee (payroll, taxes, benefits etc.).

Under an EOR model the Company enters into a triangular co employment contract signed by the Company, the employee and the EOR. The Company has an agreement with the EOR where it pays the PEO a fee for dealing with the compliance obligations (in addition to providing it with the funds for the employee’s remuneration and employer social security costs). However, the Company continues to be responsible for managing the employee’s day to day work and delegating them tasks.

Although this could work on a small-scale basis, companies could find this resulting in a difficult situation further down the line were the tax authorities to enquire into this arrangement and issue penalties for non-compliance.

The EOR does not eliminate the risk of the Company creating a tax presence in the country the employee works in, it acts as a shield against these risks.

If the company was looking to strengthen their presence in another country, it could be better to consider setting up permanent offices to mitigate the risks associated with using EOR companies (especially if it has more than one employee working remotely in a country where it has no tax presence).

Another thing to consider with this, is that some other organisations and businesses don’t look to work with companies whose employees are contracted through PEO’s. By setting up a workforce in this manner, it could limit your options and possibilities later down the line.

Being able to implement the technology and analysis needed for mobility assurance can be very resource intensive. This is especially true at the beginning of the process, where companies may not have their mobility data documented or have any of their risk tolerances established yet. Once implemented, there is maintenance required throughout the year to ensure that information and guidelines are kept up to date alongside legislation and workforce changes. This is to ensure that the data is a true reflection of reality.

If companies can invest time into keeping track with trends in the workforce and with changes in tax and social security regulations, it will help enable them to be equipped for any possible mobility challenges over the next few years.  

We provide advice and guidance to support organisations who have employees working overseas or who travel overseas frequently to help them:

• Grow their business
• Manage their tax and immigration compliance
• Understand and adhere to multi-country compliance obligations
• Streamline their mobility processes and policies and to understand how to navigate and manage their risk tolerances to employee mobility
• Integrate technology solutions into their processes to manage tax and immigration compliance risks

In parallel we can also support organisations reflect on the risk exposure that mobility introduces from a geopolitical, business, and personal perspective, to ensure wherever and whenever your people are mobile your organisational risk exposure is understood and managed.

If you would like to understand more about managing your mobility associated risk exposures, please contact us for an initial conversation.