The content includes:
- Tax and social security implications
- Immigration implications
- Intellectual property, confidential information and restrictive covenants
- Employment law and data privacy implications
- Employers of record
- How to minimise the risks
Tax and social security implications
If an employee is only working overseas temporarily, from a UK perspective, the UK employer should continue to deduct income tax under the PAYE system in accordance with the employee’s PAYE code. Matters start to become more complicated where a stay becomes extended, or even indefinite. Employers should always bear in mind the figure of 183 days in a country in a 12 -month period – this is generally the tipping point for tax residency, often together with employer obligations to operate withholding (see further below). Even before this threshold is reached, there are traps for the unwary.
If it is anticipated that the employee will be working overseas for at least a complete UK tax year, they may apply to HMRC for a No Tax PAYE code which, if issued, will authorise the employer to pay the employee without PAYE deductions. In addition, the employer should continue to deduct employee national insurance contributions (NICs) and pay employer NICs.
It is important to consider whether the employee’s stay in the host country – regardless of duration – creates risks of income tax or social security liability in that country, or even the risk that you (as the employer) are regarded as having created a “permanent establishment” there for corporation tax purposes. In order to understand the position, it will be necessary to establish the rules in place in the relevant host country. We briefly outline the issues below.
Income tax may be payable in host country
The starting point is that the host country has primary taxing rights over the employment income that the employee earns while physically working in that country. However, if there is a double tax treaty (DTT) between the UK and the host country, the employee may be exempt from income tax there if certain conditions are satisfied including:
- The employee is not a tax resident in the host country under the DTT. If the employee is tax resident in the UK and in the host country under each country’s domestic law, their residence status is determined in accordance with the DTT by reference to their personal circumstances.
- The number of days the employee is present in the host country over a 12-month period (however briefly and irrespective of the reason) must not exceed 183 days.
The UK has a DTT with most countries, including all 27 EU countries and most other major world economies. In practice, this means that a short stay abroad in many locations is not going to result in the employee becoming liable for host country income tax.
Remember, though, that employees who have already spent other periods in the host country in the same 12-month period (e.g. visiting family) may reach the 183-day threshold sooner than you think. Also, the full details of the conditions can differ from DTT to DTT, particularly the period over which the 183-day test must be satisfied.
In addition, the employer and/or employee may still have obligations in the host country even if the DTT applies. For example, the employer may need to register with local authorities as an employer and/or report on the income that is being paid to the employee. It is therefore important to understand the local position.
If the employee does become subject to tax in the host country but remains UK tax resident, they will remain subject to UK income tax on their worldwide income but should be able to obtain credit for some or all the tax they pay in the host country. They will, however, need to complete the appropriate tax declarations, which could be a complex process. You will need to decide the extent to which you are willing (or not) to help the employee with this.
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