Over the previous months, the spread of COVID-19 has shown little evidence of slowing. We are now looking forward for the new vaccine and hoping for what we used to know as “normal”, to return. However, while the virus spread continues, the work from home trend will continue consequently, many employers planning to let employees work from home permanently.
Of course, everybody is welcoming this move, as the possibility of remote working provides the chance to explore opportunities to work from anywhere.
And that’s how the concept of digital nomads started to be increasingly popular. What are digital nomads? They are location-independent people who apply technology in order to perform their career.
It is quite well-known that working from foreign countries while travelling on a tourist visa is illegal. Most of the visa laws are not yet set up to deal with the modern nomads who are living and working remotely around the world. However, there are several countries that have launched so-called “digital nomad visas”, “remote work visas”, or “freelancer visas”, for example: Barbados, Bermuda, Estonia and Georgia.
There are many employees that have chosen to work from home in a different state than where their employers were located. As a result, there are new tax consequences that must be considered: a person that works from a different state than the one in which their employer is located will create a tax presence in that particular state, meaning that there will be additional tax burdens.
Countries around the world use the 183-day threshold to determine whether someone is a tax resident and if they could be taxed as one.
Keep in mind that crossing the 183-day threshold could result in potential double taxation and the remote worker considered as being a tax resident can be tax subject for income from all sources, depending on the state’s income tax regulations.
Beside the income tax, the remote employees should consider the social security liability. This depends on whether a social security agreement has been concluded between the host country and the country of employment or not.
If there is no social security agreement between the base country and the host countries, double liabilities will arise.
In case of short-term relocations, if there is a social security agreement between the country of employment and the ‘host’ country, social security contribution will normally be paid in the base country and there should be no such liability in the host country where the remote work is being performed.
In practice, many companies reject the remote work requests from their employees as they are actually avoiding all the administrative hassle with their tax registrations in other countries and of course, prudentially, avoiding the risk of a permanent establishment consideration. Maybe now it is a good moment to change this setup and open your horizons. Employer of records is a new concept which will help companies use talents from all over the world without any hassle or any tax risk.
Andreea Gheorghe, Regional Manager Romania & Moldova Nestlers Group
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