Stephen Metcalf, Senior Executive of Kreston Reeves Private Client Team, says that after months of foreclosure and forced home labor, the need for a change of scenery is understandable. But working from another country can change the tax landscape too, if you’re not careful.
Generally speaking, employment income is taxed in the country where you work, while at the same time an individual’s worldwide income, including employment income, is taxed in the country of residence. If you are going to your French holiday home only for the summer, it is likely that you will remain a resident of the UK. But, depending on how long you stay, and given that many of us probably won’t be returning to the office anytime soon, you may also be considered a French resident for tax purposes. The UK, for example, may consider a visitor to be UK tax resident if they stay for as little as 46 days. It would be wise to check the rules for tax residency in France.
In normal times and for many people, your place of work and your place of residence are one and the same. When this is not the case, the prospect of being taxed twice presents itself.
There is a double taxation treaty between France and the UK which determines which country has taxing rights and indicates how double taxation relief might be granted. This will bring some comfort but is complicated and in some circumstances the timing of payments and tax breaks can still cause significant cash flow issues.
Social security must also be taken into account. These contributions are due in the country in which you work, however it is possible in the case of temporary workplaces for your employer to request to continue paying social security in the country of residence.
Another complication for your employer is that your activities may have implications for corporate taxation. If your function involves important management decisions, such as entering into significant contracts, the French authorities may decide that company profits should be taxed locally, arguing that a permanent establishment has been created. In the case of banks, this could represent a considerable administrative burden.
Overall, it’s no surprise that your employer is warning you about this, as it can cause headaches for you as an employee and for them as an employer.
Liz Cuthbertson, Private Client Tax Partner at Mercer & Hole Accountants, says with the return of overseas travel and school vacations upon us, it’s no wonder that people with vacation homes overseas want to take the opportunity to fly and work since their home abroad for a while. In doing so, there are potential tax traps to be avoided for both the individual employee and the employer.
The individual probably does not want or intend to become a tax resident in an overseas country. Local tax residency rules will determine the individual’s residence status for tax purposes in the overseas territory. The employee should generally expect residency to be determined by the number of days he or she spends in the overseas country in a year.
Understanding the local rules and the application to your job is essential. It is possible to be resident in more than one country and if the individual is also a UK tax resident, he or she may have reporting and tax obligations in both countries. If there is a double taxation treaty it can give relief to the UK for tax paid overseas, but not without having the burden of filing taxes in more than one country and increasing complexity. .
The employer should also verify that the employee’s actions will not cause the UK employer to have a ‘permanent establishment’ or a branch abroad, for example, if the employee or other officer signs contracts. and foreign agreements such as letters of engagement and other commercial contracts. The potential risk is that a “permanent establishment” may be created and, if so, the overseas country will seek to tax the profits attributable to it. This may or may not increase the overall corporate income tax depending on tax rates, the availability of a tax treaty, and overall reliefs, but it will certainly add additional layers of complexity to business reporting in both. country.
HM Revenue & Customs has issued guidelines covering situations where people work in places and circumstances that are not the norm due to restrictions related to Covid-19. She felt that a permanent establishment in the UK would not be acquired after a short period of time, as permanence is required.
However, whether or not a permanent establishment abroad is established depends entirely on the laws and interpretation of the overseas country. All in all, I would say that it is better to be cautious than to risk unexpected unwanted results. Consulting in the UK and overseas is recommended.
The opinions in this column are intended for general information purposes only and should not be used as a substitute for professional advice. The Financial Times Ltd and the authors are not responsible for any direct or indirect results of any reliance on responses, including any loss, and disclaim all liability to the greatest extent possible.
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