Other tax compliance requirements in countries of operation of employees (freelancers)

As working remotely continues to spread globally, many companies recognize the advantages of affordable, qualified specialists all over the world.

However, having staff on board working remotely may end up triggering tax compliance concerns for a foreign employer in the country of their presence. In many countries, a legal entity’s compliance is based on the concept of a fixed place of business — a Permanent Establishment (or “PE”).

Permanent Establishment criteria may vary in different jurisdictions and may even be transformed into a concept of digital Permanent Establishment.

In addition, rules of personal taxation are changing, due to expansion of remote staffing. The most common principle is that income from employment is taxable only in a country where the employee or freelancer is a permanent resident (e.g., based on a 183-day rule).

However, new ideas such as the economic employment concept have been adopted recently. For example, if an employee, e.g. a tax resident of a contry A, performs work in a country B for a B-located company, economic employment arises and personal taxes would need to be paid in country B.