The Covid pandemic has seen an increasingly mobile workforce up sticks and work from warmer climates. Often encouraged by new ‘work from home' visas, digital nomads and their employers may find they leave a complex and long-lasting tax footprint.
Antony Smith, our Director in the Private Client team explains.
“We have seen a large number of countries from Barbados, The Bahamas, Mauritius, Dubai, Estonia and even Iceland introduce new classes of visas to encourage ‘digital nomads' to work ‘tax-free' for up to two years. This is on top of already popular programmes to attract high-earning mobile workers offered by Portugal and many other European countries.
“And with home and remote working now the norm for many people, the attraction of packing bags and taking the family for a year or two working from a beach or a beautiful new location is understandable.
“But such a move could leave both the individual and their employer with an unplanned tax footprint.
“Employers will need to consider where the individual is considered tax resident and that is not always immediately clear depending on how long they remain overseas. Should an individual be non-UK tax resident they will likely be subject to income tax and social security in the local jurisdiction, however a UK payroll may still be required to calculate their pay in the normal way. Employers therefore may have to register and run a payroll in the country where the employee is tax resident along with the shadow or hypothetical payroll in the UK.
“Individuals may also find their tax position changes if they buy property or bring into the country considerable sums of money. Many of these countries will, outside of these special digital nomad visas consider an individual to be tax resident if staying for relatively short periods.
“A move overseas, albeit temporary, many also attract local employment rights, health and safety considerations and, of concern to employers, issued around data management and confidentiality.
“Employers will also need to keep a watchful eye on whether there is a risk of that digital nomad creating a permanent establishment for that business. If a permanent establishment is established, all profits attributed to that establishment could be subject to local corporation tax and wider reporting obligations.
“This is more likely where an individual has a sales or business development role, or where they can negotiate and complete deals on behalf of their employer, with the risks increasing the longer an individual stays in a country.
“Individuals and their employers should always take advice before making a move to work overseas for any length of time.”
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