International taxation was once the preserve of multi-national corporations and highly paid lawyers and accountants. However with the rise of remote working and the digital nomad it’s become a critical everyday issue for millions of people all over the world. A mistake could end up costing you a lot of money. So what do you need to know?
Taxation 101
It can be a complex issue at the best of times. But what if you’re a remote worker in Malaysia working for a company in Singapore which has its head office in the UK?
Who do you pay tax to? Will you be taxed triple? Do you need to file three tax returns? What happens with superannuation, pension fund contributions or employee entitlements?
The truth is it’s complicated. Especially as different countries have different tax regimes. Worker classification issues only add to the complexity. Are you an employee, a casual, a contractor or a freelancer? It all matters.
But there is a way through the maze. And some simple rules to remember about international taxation.
For example, here are a few simple rules to follow:
- Generally, you pay tax in the country where you primarily live and work—it defines your tax residency
- If you travel for work, generally you will also be taxed in your location of travel. However, you should check if your stay is short enough to qualify for an exemption, or if there is a tax treaty that allows you to avoid double taxation
- Some citizens have tax obligations no matter where they live. For example, US citizens have mandatory tax forms and tax credits they must complete each year
These simple rules are generally applicable no matter what your situation. But how might they apply to the two most common occupational scenarios in 2022: remote workers or digital nomads?
Remote Workers and international taxes
If you’re working remotely you only pay taxes to your country of residence.
If the company you’re working is a foreign entity, then they need to comply with the labor laws of the actual location where you, their employee, resides. And since you work entirely in your home country, your employer is responsible for paying you according to your local employment standards.
Digital Nomads and international taxes
If you’re a worker moving around the world, you pay tax to the country where you have the most significant residential ties. However, you’ll need to check tax residency guidelines for any country you’ve stayed in for an extended period. And you may need to file multiple tax returns.
When you file your tax return(s), you will generally report your worldwide income, which includes any income earned at home or abroad, to your country of residence.
Often, two countries may both consider you as a tax resident for the same period. However, in general if you spend less than half the year (up to 182 days) in a different country than the one you are tax resident, you will generally not have to pay taxes there; only in your country of residence.
However, you should consult your accountant and also get to know your countries’ tax treaties. Tax treaties are agreements signed between two countries to deal with double taxation. The treaty will enable you to determine which country you should be considered a tax resident of, and what tax exemptions or credits exist.
If a tax treaty doesn’t exist between your two countries, then there may be a risk of double taxation.
International taxation is a complicated issue
Remote worker taxes are sometimes difficult to find information about because they’re multifaceted, with a number of factors in play:
- The country you’re working from.
- The country your company is based in.
- The citizenship you hold.
- Your tax residency status
Each of these factors varies amongst remote workers and results in multiple combinations, so it’s always best to seek professional advice.
An Employer of Record (EoR) can simplify international tax issues
Many workers in these types of situations, however, will look for jobs in companies operating under an Employer of Record (EOR) arrangement. It’s simple, streamlined and safe.
An employer of record (EOR) is an organization set up locally that serves as your employer for tax purposes, along with responsibility of a range of traditional employment tasks and liabilities, including.
- Pay and tax administration
- Ensuring your employment contract meets local standards
- Foreign exchange and in-country money movement
- Insurance, local labor laws and regulations
- Arranging work permits and visas
For both remote workers and for companies operating or hiring internationally, an EOR arrangement streamlines the whole operation. For all parties involved. So do look into it.
Like to know more about international taxation or the advantages of an EoR arrangement for you, or your business if you’re planning international expansion? Then do not hesitate to contact us for more information.
