With the world opening back up after the pandemic, cross border business visits are back on the increase.
Perhaps for some in HR and payroll, the reduction in short-term business visits was a relief. It has always been a tricky and time-consuming area to deal with, particularly for those employers who have many business visitors across numerous countries.
One of the biggest challenges for employers is knowing where employees are working at any given time. With modern travel, employees can leave their country of employment, do a few days work overseas and then return before HR/payroll are even aware they had gone. For employers with tens, hundreds and sometimes thousands of business visitors, this can be a real challenge. That said, even with only a few business visitors, unexpected compliance obligations can be triggered.
Some employers have invested in technology to track employees and others use the data provided by their corporate travel provider. There are also those who use more primitive spreadsheet tracking methods (often very effective when done well, though they can be labour intensive).
So, why bother with all of this?
Given the challenges of tracking business visitors, this is not an unreasonable question. Beyond any management, health and security reasons for knowing where your employers are working at any given time, the simple fact is that business visitors can unintentionally trigger a host of employer compliance obligations overseas, including immigration/visa issues, tax, social security and payroll.
Whilst the specific payroll and tax rules will differ from country to country, in this article I explore the fundamentals from a tax and payroll perspective, to provide context to the payroll aspects of international business visits whichever country people are working in.
Why do business visitors trigger tax and payroll?
At first, it may sound a little counterintuitive that an individual can be employed in a country, resident in that country and paid from that country, and yet trigger an overseas tax and payroll obligation because they work a few days in another country.
Why is this?
Under the rules of most tax levying countries, non-resident individuals are normally subject to income tax on the income they earn in respect of the days they physically spend working in another country, irrespective of the location from which they are employed and paid. This makes sense as, if income tax were based on where an individual is employed and paid, then most of us would want to be employed and paid in a tax-free country like Bermuda!
So, for example, if you are an employee resident in France but go and work in the US for a month or two, then the US tax authorities have the right to impose income tax on income earned in respect of those duties in the US, even though the income is being paid from an employer in France.
Wouldn’t this get very complex, with employees working in multiple countries?
Yes, indeed it would. However, thankfully, that’s where the double tax treaty network comes in. Under the OECD double tax treaty network between developed countries and the UN double tax treaty network between developed and developing countries.
Under most treaties, there are provisions that can exempt short term business visitors from triggering a tax liability in the country they are visiting, provided that they meet certain core conditions. Whilst the specific terms can differ from treaty to treaty (and so the relevant treaty should be reviewed), these conditions are broadly that:
- The employee should not spend more than 183 days in any 12-month period in the country they are visiting;
- The employee should not be paid any remuneration from or by an employer that is resident in the country that they are visiting; and
- The cost of the employee’s remuneration should not be borne by a permanent establishment (i.e. broadly a deemed corporate presence or branch) that the employer has in the country the employee is visiting.
These terms are hugely important for business visitors because it is these terms that prevent business visitors from triggering a tax liability wherever they go. However, care is required because there are nuances that can trip up employers and employees.
For example:
* The “183 day” test above counts all time spent in a country (i.e. not simply working time). So, where an employee spends the weekend in the country that they are working or takes a holiday there during the relevant period, this would also normally count to the 183 day threshold.
* Many countries adhere to what is sometimes known as the ‘economic employer concept’. In summary: where tax authorities can show that the employee has, in effect, become economically employed by a company in the host country they are visiting, this would scupper any treaty exemption. For example, an individual was employed in Australia via an Australian employer but visited the UK for four months and the UK subsidiary of the Australian company bore the “risk and rewards of the business visit” (often evidenced by a recharge of remuneration costs from the Australian to the UK Company), then this would likely scupper any claim for treaty exemption in the UK.
There are a number of other such nuances and complexities, not least because every country will interpret the treaty conditions in their own way, though there is broad consensus. Irrespective, the key message is that the area should be treated with care. Often employers will simply focus on the “183 day test” and are unaware of the additional conditions, nuances and complexities.
Where does payroll come into this?
The second complexity in this area is that where an employee triggers a tax liability, this does not necessarily mean that a payroll is required overseas. For example, where the home country employer has no corporate presence in the country in which the employee is visiting, it may be impossible to register a payroll. In such cases, the usual solution is for the employee to file a tax return in order to settle any tax due.
However, some countries (such as India and Spain) have specific rules that normally require a payroll to be registered in the name of the foreign employer, irrespective of whether that foreign employer has a corporate presence in that country).
So, after confirming the tax position, the question of how tax should be settled (either via payroll or some other means such as the employee filing a tax return) should be determined.
Unfortunately, it does not end there.
Some countries, such as Canada and the UK, require any ‘host employer’ (e.g. a subsidiary company which the employee is visiting) to undertake reporting obligations, irrespective of whether exemption is available under the double tax treaty or not. In the UK, a Short Term Business Visitors Agreement is required in order that PAYE can be relaxed in cases where exemption is possible under the double tax treaty. If a UK host employer has no agreement, this means that the employer may be deemed to be in breach of the PAYE rules (a PAYE compliance failure), even where no tax is ultimately due under the double tax treaty).
Whilst there is no space to explore here, employers should also be aware that the rules for social security withholding are normally completely separately from tax. Whilst it is generally true that no social security is normally required where there is a tax exemption, this may not always be the case (depending on the specific countries involved). Where tax is due (and an exemption is not possible under the double tax treaty), it is possible that a social security liability will also be triggered, though exemptions may be possible with the right documentation for intra EU business visits and visits between countries that have a reciprocal social security agreement.
What should employers do?
The way employers tackle this will depend on a range of variables including the frequency of business visits, the number of business visitors and the countries to which business visits are being made.
For employers with many business visitors, software is available to both track employees and flag where there may be a tax liability. However, care should be taken since such online solutions are unlikely to be able to definitively confirm the position and action required. Such solutions will of course mean additional costs.
For employers with a handful of visitors, smaller-scale solutions may be more appropriate. For example, if a German company has a few business visitors going to France only each month, then this would likely warrant the position in France being considered in some detail and the position definitively determined. In this way, the German employer will have some comfort that, provided certain parameters are met, no tax compliance obligations should be triggered in France (in this example).
The overriding message is that business visitors should not be ignored because they can unintentionally trigger some serious and costly employment tax and payroll obligations.
Author: Lee McIntyre-Hamilton
Lee has over 23 years of experience in international mobility, expatriate tax and employment tax. He works with a diverse range of international organisations, from small owner-managed businesses to large multi-national corporations and non-profit organisations. Lee delivers coordinated, joined-up global mobility tax, international social security and payroll advice across many territories globally. He is a published writer on international tax matters, notably the Tiley & Collinson UK Tax Guide.
Contact Lee: lee@globalpayrollassociation.com
With the world opening back up after the pandemic, cross border business visits are back on the increase.
Perhaps for some in HR and payroll, the reduction in short-term business visits was a relief. It has always been a tricky and time-consuming area to deal with, particularly for those employers who have many business visitors across numerous countries.
One of the biggest challenges for employers is knowing where employees are working at any given time. With modern travel, employees can leave their country of employment, do a few days work overseas and then return before HR/payroll are even aware they had gone. For employers with tens, hundreds and sometimes thousands of business visitors, this can be a real challenge. That said, even with only a few business visitors, unexpected compliance obligations can be triggered.
Some employers have invested in technology to track employees and others use the data provided by their corporate travel provider. There are also those who use more primitive spreadsheet tracking methods (often very effective when done well, though they can be labour intensive).
So, why bother with all of this?
Given the challenges of tracking business visitors, this is not an unreasonable question. Beyond any management, health and security reasons for knowing where your employers are working at any given time, the simple fact is that business visitors can unintentionally trigger a host of employer compliance obligations overseas, including immigration/visa issues, tax, social security and payroll.
Whilst the specific payroll and tax rules will differ from country to country, in this article I explore the fundamentals from a tax and payroll perspective, to provide context to the payroll aspects of international business visits whichever country people are working in.
Why do business visitors trigger tax and payroll?
At first, it may sound a little counterintuitive that an individual can be employed in a country, resident in that country and paid from that country, and yet trigger an overseas tax and payroll obligation because they work a few days in another country.
Why is this?
Under the rules of most tax levying countries, non-resident individuals are normally subject to income tax on the income they earn in respect of the days they physically spend working in another country, irrespective of the location from which they are employed and paid. This makes sense as, if income tax were based on where an individual is employed and paid, then most of us would want to be employed and paid in a tax-free country like Bermuda!
So, for example, if you are an employee resident in France but go and work in the US for a month or two, then the US tax authorities have the right to impose income tax on income earned in respect of those duties in the US, even though the income is being paid from an employer in France.
Wouldn’t this get very complex, with employees working in multiple countries?
Yes, indeed it would. However, thankfully, that’s where the double tax treaty network comes in. Under the OECD double tax treaty network between developed countries and the UN double tax treaty network between developed and developing countries.
Under most treaties, there are provisions that can exempt short term business visitors from triggering a tax liability in the country they are visiting, provided that they meet certain core conditions. Whilst the specific terms can differ from treaty to treaty (and so the relevant treaty should be reviewed), these conditions are broadly that:
- The employee should not spend more than 183 days in any 12-month period in the country they are visiting;
- The employee should not be paid any remuneration from or by an employer that is resident in the country that they are visiting; and
- The cost of the employee’s remuneration should not be borne by a permanent establishment (i.e. broadly a deemed corporate presence or branch) that the employer has in the country the employee is visiting.
These terms are hugely important for business visitors because it is these terms that prevent business visitors from triggering a tax liability wherever they go. However, care is required because there are nuances that can trip up employers and employees.
For example:
* The “183 day” test above counts all time spent in a country (i.e. not simply working time). So, where an employee spends the weekend in the country that they are working or takes a holiday there during the relevant period, this would also normally count to the 183 day threshold.
* Many countries adhere to what is sometimes known as the ‘economic employer concept’. In summary: where tax authorities can show that the employee has, in effect, become economically employed by a company in the host country they are visiting, this would scupper any treaty exemption. For example, an individual was employed in Australia via an Australian employer but visited the UK for four months and the UK subsidiary of the Australian company bore the “risk and rewards of the business visit” (often evidenced by a recharge of remuneration costs from the Australian to the UK Company), then this would likely scupper any claim for treaty exemption in the UK.
There are a number of other such nuances and complexities, not least because every country will interpret the treaty conditions in their own way, though there is broad consensus. Irrespective, the key message is that the area should be treated with care. Often employers will simply focus on the “183 day test” and are unaware of the additional conditions, nuances and complexities.
Where does payroll come into this?
The second complexity in this area is that where an employee triggers a tax liability, this does not necessarily mean that a payroll is required overseas. For example, where the home country employer has no corporate presence in the country in which the employee is visiting, it may be impossible to register a payroll. In such cases, the usual solution is for the employee to file a tax return in order to settle any tax due.
However, some countries (such as India and Spain) have specific rules that normally require a payroll to be registered in the name of the foreign employer, irrespective of whether that foreign employer has a corporate presence in that country).
So, after confirming the tax position, the question of how tax should be settled (either via payroll or some other means such as the employee filing a tax return) should be determined.
Unfortunately, it does not end there.
Some countries, such as Canada and the UK, require any ‘host employer’ (e.g. a subsidiary company which the employee is visiting) to undertake reporting obligations, irrespective of whether exemption is available under the double tax treaty or not. In the UK, a Short Term Business Visitors Agreement is required in order that PAYE can be relaxed in cases where exemption is possible under the double tax treaty. If a UK host employer has no agreement, this means that the employer may be deemed to be in breach of the PAYE rules (a PAYE compliance failure), even where no tax is ultimately due under the double tax treaty).
Whilst there is no space to explore here, employers should also be aware that the rules for social security withholding are normally completely separately from tax. Whilst it is generally true that no social security is normally required where there is a tax exemption, this may not always be the case (depending on the specific countries involved). Where tax is due (and an exemption is not possible under the double tax treaty), it is possible that a social security liability will also be triggered, though exemptions may be possible with the right documentation for intra EU business visits and visits between countries that have a reciprocal social security agreement.
What should employers do?
The way employers tackle this will depend on a range of variables including the frequency of business visits, the number of business visitors and the countries to which business visits are being made.
For employers with many business visitors, software is available to both track employees and flag where there may be a tax liability. However, care should be taken since such online solutions are unlikely to be able to definitively confirm the position and action required. Such solutions will of course mean additional costs.
For employers with a handful of visitors, smaller-scale solutions may be more appropriate. For example, if a German company has a few business visitors going to France only each month, then this would likely warrant the position in France being considered in some detail and the position definitively determined. In this way, the German employer will have some comfort that, provided certain parameters are met, no tax compliance obligations should be triggered in France (in this example).
The overriding message is that business visitors should not be ignored because they can unintentionally trigger some serious and costly employment tax and payroll obligations.
Author: Lee McIntyre-Hamilton
Lee has over 23 years of experience in international mobility, expatriate tax and employment tax. He works with a diverse range of international organisations, from small owner-managed businesses to large multi-national corporations and non-profit organisations. Lee delivers coordinated, joined-up global mobility tax, international social security and payroll advice across many territories globally. He is a published writer on international tax matters, notably the Tiley & Collinson UK Tax Guide.
Contact Lee: lee@globalpayrollassociation.com