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Key Considerations for Expatriate and other Cross-Border Working Arrangements in a Time of Global Disruption

We are delighted to bring you a guest alert from David Yewdall, Employment and Business Tax Partner at leading accountancy and investment firm Smith & Williamson LLP, on the key considerations for international executive mobility and global home working as a result of the disruption caused by the COVID-19 pandemic. David is an expert in handling international employment tax matters in various jurisdictions, as well as UK domestic employer compliance issues.

We are now regularly seeing a direct impact on expatriate and other cross-border working arrangements as a result of the challenging circumstances arising from the COVID-19 pandemic.
The restrictions on travel have clearly led to some situations where employees, perhaps on overseas secondments or hired to/from abroad, have been unable to return home.  At the same time, with the widespread shift to more remote and home working, some people are considering whether it is still necessary for them to continue to live close to their employer’s office or whether they can in fact choose a different place of residence and continue to work from home from now on.
We have seen a significant increase in enquiries from clients whose UK employees are requesting not only to continue to work remotely but also to work from an overseas location. It is very important to understand that employers should not simply treat this as a personal choice with no impact for them.
There are many different aspects to think about when considering if such a request can be approved. These include:

  • Where the employee will be resident for tax and social security purposes
  • What the employer obligations are in terms of payroll/withholding compliance per country
  • Whether there are other compliance requirements/registrations per country
  • The impact on employee benefits and pension provision
  • If there a risk of creating a taxable corporate presence in the other jurisdiction
  • What are the wider HR implications in terms of fairness and opportunities for the employee population?

The areas to consider from the list above will be specific to the organisation and the individuals involved, but we are able to provide support in helping navigate the issues around these types of scenarios if you are receiving any requests from your employees.   

Here are two examples:
Client 1: Employee authorised by line manager to remotely work from Poland

A non-UK national CFO at one client, who was usually based in the UK, recently relocated to Poland in light of the circumstances driven by COVID-19. That individual has since been authorised to enter into a formal flexible working arrangement to continue working remotely. However, following the event, advice was sought surrounding this issue, and the following issues occurred:

  • Where the employee will be resident for tax and social security purposes
  • The employer was required to register in Poland (where there was no corporate entity previously) for social security, payroll and corporate tax purposes.
  • Additional costs are now being incurred on behalf of that individual in order to account for this additional administration, which is the responsibility of the employer.
  • Further work surrounding their UK occasional visits is now needed in respect of UK payroll, and as a result of double taxation occurring on the same source of income, UK shadow payroll and income tax compliance is now required for those occasional visits. 

This situation has resulted in a great deal of additional administration and costs to the company.
Client 2: Spanish employee relocating to the UK to work full time from home
A non-UK national, who was based in Barcelona, requested in light of COVID-19 to permanently relocate to the UK to be nearer their family. This individual subsequently started physically working in the UK and did not intend to return to Barcelona. Whilst this request was initially granted for flexible working purposes, upon understanding the long term additional tax, social security and payroll consequences of the relocation, the employer asked the individual to self-fund the additional costs of the administration themselves due to this request being a personal choice, including that of the employer obligations. Given the position of the employee, this arrangement was not feasible and resulted in them choosing to leave the company after the obligations were highlighted. There were also additional reservations surrounding corporate tax due to the sales role this individual held, which posed too great a risk for this arrangement to operate feasibly in practice.
If you would like to discuss any of these issues further, please contact David Yewdall at Smith & Williamson
For any employment law advice relating to global expatriate arrangements and cross-border employment issues, please contact our partners Merrill April, Beth Hale or David Fisher at CM Murray LLP, all of whom specialise in international employment law issues for multinational employers and senior executives.