Do your employees fancy living in one country and working in another?
It might be that they work for you in the UK, but are desperate to live the good life in France. Or maybe you’ve given them an international assignment but it’s not practical for them to drag their family along.
Thanks to the marvels of modern technology, changing views on work/life balance and more flexible working practices, international commuting is now a reality for in-demand workers including experienced executives and particularly highly-skilled individuals.
Lee Hamilton, partner at accountancy firm Blick Rothenberg, says international commuters are a small but growing tribe. “I think that companies allow international commuters where they see the value in hiring a particular skill set that is not available locally and the individual does not want to relocate from their home country. Whilst it is not yet commonplace, it is certainly on the increase.”
Others agree. Clare Coley, consulting manager for PwC writes: “I believe that with Brexit, flexible working, business cost management and operating model changes, coupled with the ease of travel, the number of employees commuting across international borders is set to increase dramatically over the next few years.”
But whilst such an arrangement can benefit both the employee and employer, working in a different country than the one you live in can create tax, national insurance and corporate issues (as well as consequences beyond the financial cost). Here’s some concerns your company should consider, with some real-life examples from Lee Hamilton:
Who pays expenses?
If the commuter arrangement is driven by the business’s needs, then it will often pick up the travel and hotel costs. On the other hand, if the arrangement is driven by the personal wishes of the employee then they would likely cover the costs.
Lee’s example: “I am working on a case where an individual is moving to Northern France and will commute back to the UK. The move was driven by the individuals desire to live in France. As such, the company is not reimbursing any expenses associated with the cost of him coming to and from the UK.”
Will your cross-border commuter increase your tax burden?
Businesses must consider whether an employee’s presence in a particular country makes them liable for corporate tax there. This varies country by country.
Lee’s example: “Take the example of an individual who is employed by a UK company but lives and works partly from home in Ireland and partly at the employer’s offices in the UK. This potentially means that the UK company would have to pay corporate tax in Ireland on any profits deemed to be generated in Ireland.”
Also, depending on the rules of the country in which the international commuter is living, the employer may pay a ‘withholding tax’.
Lee’s example: “Where a UK company with no presence in Spain hires a Spanish resident individual to work in the UK but that employee also does some work from home in Spain, they are likely to trigger compliance obligations in Spain. This may include being required to register in Spain as a non-resident employer and to operate tax withholding on the employee’s salary in Spain. This would apply, even where the UK company pays the individual from a UK payroll.”
What about national insurance?
Many employers assume that they would simply operate PAYE and National Insurance contributions when they employ an individual via a UK Company but the individual lives outside the UK. This isn’t always the case and the costs can be huge.
Lee’s example: “I recently advised a London-based business who were very surprised to receive a demand for over Euro 100,000 from the Swedish tax authorities in respect of underpaid social security. They had no presence in Sweden but had hired an international commuter to work in the UK. Due to the individual working part of their time from home in Sweden, they triggered a Swedish social security liability for the UK company.”
What about personal tax?
The country in which the international commuter is resident will almost always seek to tax any income that the individual earns worldwide.
At the same time, even where the individual remains non-resident in the country that they are working, this country will normally also apply a tax charge to the individual’s employment income.
Get it right and reap the rewards
For companies that prepare properly for employing international commuters, the result can be a more flexible and agile workforce. “Organisations which can facilitate and embrace their employees’ willingness to commute across international borders or work virtually can transform their local talent pool to a global talent pool,” says Coley.
Businesses working with FairFX can take the hassle out of expenses and focus on the things that matter most. Find out more about how we can help your business by clicking the link below.