As a remote worker you might work from home in the same city where your employer’s business is located or you might live and work in a different country entirely from where your employer is located.
Regardless of your location, the fact that you’re able to fulfill your work online can bring tax issues with it. Tax laws are complex and often difficult to navigate, but with the right knowledge and preparation, you can avoid unnecessary headaches and financial liabilities. In this post we’ll dive deeper on how to navigate tax issues as a remote worker.
The general rule of thumb in international taxation is that a remote employee is taxed in the country where he / she exercises their working activities from and not in the country of their employer’s business location. In other words, the country where you’re a tax resident determines the extent of a remote worker’s tax liability. This status is linked to the place one physically resides most of the time in or simply put the place you call home.
The only exception to this general rule of thumb applies to US citizens because US citizens will not only owe taxes to their country of tax residency but they will also owe taxes to their country of citizenship at the same time.
However, countries often have bilateral tax treaties in place to prevent double taxation and to clarify tax residency rules. These tax residency rules are necessary to determine which country you have stronger connections to so that only one country can tax you.
Where the complications arise related to the taxation of remote workers is due to the fact that employers need to be aware of local employment laws where the remote employee resides as well as social security contributions, payroll taxes and withholding taxes. The responsibility of complying with the local laws wherever remote workers are located lay normally with the employer.
More often than not employers outsource these added complexities when employing remote workers, and instead hire them through an Employer of Record which is a company that hires employees on behalf of other companies whilst making sure that local employment and tax laws are complied with.
Nonetheless, occasionally you’ll also find an employer that actually won’t allow an employee to work remotely unless they agree to continue paying all their taxes and social security contributions into the same system that the employer is located in. Usually this solution is the preferred one especially where remote employees are only moving abroad or moving interstate for a short period of time.
Lastly, some employers will only allow for remote employees to move overseas or interstate if they perform their work as an independent contractor. In many cases these independent contractors would then have to register themselves as a self-employed person locally or even have the flexibility to set up tax-efficient business structures. However, they may also have additional reporting requirements and may need to pay their own self-employment taxes and social security contributions wherever they’re located. This puts the compliance obligations back onto the remote worker.
Employers need to weigh all different options into consideration when allowing an employee to work remotely. Not only does the location of the remote employee play a big role on the added filing and taxing requirements but even the tasks and position of a remote employee will influence an employer’s decision on what solution to adopt without adding a huge compliance load and added tax burden on their business.
It’s important for remote employees to understand all added compliance requirements that fall on an employer when hiring them as well as being aware of the local tax obligations that they need to comply with.
As a remote employee, it’s essential to track not only your income but also your expenses diligently. More often than not remote employees are allowed to deduct home office expenses or coworking expenses. Other tools such as laptops, computers and apps designed for remote employees can also be tax deductible expenses if they’re directly related to your employment.
Lastly, one of the most important things for a remote employee to do is to keep accurate records of all taxes paid, payroll deductions, any potential withholding taxes and social security contributions made. Keeping detailed records can help ensure that you avoid any tax penalties and also keeps your employer happy that you’re doing the right thing on your end.
As you would have realized now international taxes can be complex. Therefore, don’t hesitate to seek the guidance of a tax expert and remember to stay informed and proactive as to the best approach to your remote employment whilst enjoying the benefits of a remote work lifestyle.
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NOTICE: The content of this article is not to be considered as a legal opinion or tax advice. Wanderers Wealth does not hold itself out as a legal or tax advisor. If you want to receive a legal opinion or tax advice on the matter in this article please contact us directly and we will refer you to a legal practitioner.