What is non-resident employer status – and why does it matter? What is non-resident employer status – and why does it matter?

What is non-resident employer status – and why does it matter?
04 Dec 2017

The US, and other nations around the world, have established tax treaties with many countries, which may come into play when considering what locations make sense for international expansion. One potentially useful option involves adopting non-resident employer status as it can offer tax savings for your employees and save the hassle of filing your team’s income taxes related to overseas employment.

Find out more about the basics of non-resident employer status below:

What is a non-resident employer?

A non-resident employer is any business that is permitted to operate in a third party country outside of their home market. It is a status accorded to employers that do not have permanent residency within their target country and that work with non-resident employees. The biggest benefit gained from having international employer status is the income tax savings generated for non-resident employees.

How can a non-resident employer hire employees overseas?

Some countries with tax treaties are now making it easier for employers to operate internationally without establishing a legal entity. Cases in point are Canada in relation to the US.

In January 2016, the Canada Revenue Agency issued employer certification Form RC473, Application for Non-Resident Employer Certification. Once approved, it provides authorisation from the Minister of National Revenue for foreign employers to operate in Canada. They can also work with qualifying nonresident employees.

In addition, approved non-resident employer status means that foreign employers are no longer required to withhold Canadian taxes from salary, wages, and other remuneration paid to qualifying non-resident employees. One of the biggest perks here is that all qualifying non-resident employees are covered by a single employer application Each non-resident employer certification is also valid for up to two years.

How do organisations qualify as non-resident employers?

Businesses can gain non-resident employer status if there is an established tax treaty between their domestic and target country. They must also obtain certification from the relevant country’s government department.

What information must organisations file as nonresident employers?

Non-resident employers need to file information about employees and their original place of residence. Employees must also reside in a country that has a tax treaty with the country in which their employer is currently operating.

It is also important to note that, while organisations may not have to withhold income tax as in the Canadian example, they will most likely be responsible for other employee withholdings. For example, in Canada, non-resident employers are still responsible for Canadian Pension Plan contributions and Employment Insurance premiums. Another option for international employers is to set up a Foreign Subsidiary as a Service (FSaaS). Using FSaaS services can reduce risk, cut time to enter a foreign market by 95% and save the business more than 50% in expenses compared to creating a subsidiary on their own.

“The biggest benefit gained from having international employer status is the income tax savings generated for non-resident employees.”

 

Ben has over a dozen years of experience in helping companies expand overseas. Building on his experience as a Certified Public Accountant, leader of an interim finance executive firm, and having global partnership responsibilities at an international services firm, Ben has become a recognised thought leader on international back office operations. He frequently speaks on international business panels and travels globally to present on topics such as international employment, permanent establishment, global payroll, and expatriate assignments. He is a graduate of the University of Notre Dame and is passionate about helping companies succeed globally.

The US, and other nations around the world, have established tax treaties with many countries, which may come into play when considering what locations make sense for international expansion. One potentially useful option involves adopting non-resident employer status as it can offer tax savings for your employees and save the hassle of filing your team’s income taxes related to overseas employment.

Find out more about the basics of non-resident employer status below:

What is a non-resident employer?

A non-resident employer is any business that is permitted to operate in a third party country outside of their home market. It is a status accorded to employers that do not have permanent residency within their target country and that work with non-resident employees. The biggest benefit gained from having international employer status is the income tax savings generated for non-resident employees.

How can a non-resident employer hire employees overseas?

Some countries with tax treaties are now making it easier for employers to operate internationally without establishing a legal entity. Cases in point are Canada in relation to the US.

In January 2016, the Canada Revenue Agency issued employer certification Form RC473, Application for Non-Resident Employer Certification. Once approved, it provides authorisation from the Minister of National Revenue for foreign employers to operate in Canada. They can also work with qualifying nonresident employees.

In addition, approved non-resident employer status means that foreign employers are no longer required to withhold Canadian taxes from salary, wages, and other remuneration paid to qualifying non-resident employees. One of the biggest perks here is that all qualifying non-resident employees are covered by a single employer application Each non-resident employer certification is also valid for up to two years.

How do organisations qualify as non-resident employers?

Businesses can gain non-resident employer status if there is an established tax treaty between their domestic and target country. They must also obtain certification from the relevant country’s government department.

What information must organisations file as nonresident employers?

Non-resident employers need to file information about employees and their original place of residence. Employees must also reside in a country that has a tax treaty with the country in which their employer is currently operating.

It is also important to note that, while organisations may not have to withhold income tax as in the Canadian example, they will most likely be responsible for other employee withholdings. For example, in Canada, non-resident employers are still responsible for Canadian Pension Plan contributions and Employment Insurance premiums. Another option for international employers is to set up a Foreign Subsidiary as a Service (FSaaS). Using FSaaS services can reduce risk, cut time to enter a foreign market by 95% and save the business more than 50% in expenses compared to creating a subsidiary on their own.

“The biggest benefit gained from having international employer status is the income tax savings generated for non-resident employees.”

 

Ben has over a dozen years of experience in helping companies expand overseas. Building on his experience as a Certified Public Accountant, leader of an interim finance executive firm, and having global partnership responsibilities at an international services firm, Ben has become a recognised thought leader on international back office operations. He frequently speaks on international business panels and travels globally to present on topics such as international employment, permanent establishment, global payroll, and expatriate assignments. He is a graduate of the University of Notre Dame and is passionate about helping companies succeed globally.

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