There are many reasons your business might consider hiring in or transferring current employees to a country where your company currently does not have a presence. Perhaps you are expanding into a new geographical market, have identified a talented individual you want to bring onboard, or have a key employee you want to retain who needs to move overseas.
Whatever the rationale, there are important employment-related issues that you need to consider each time you plan to hire in a new jurisdiction.
Permanent establishment risk
In short, you could create a corporate tax presence of the entity that you use to employ individuals within the jurisdiction they are working from. For example, if you use a company incorporated in the UK to employ an individual who lives and works in Germany, there may be a risk that you will create a taxable presence of the UK company in Germany as a result. Check the permanent establishment risk with your accountants or your tax counsel, who may advise that it would be better to incorporate a local subsidiary.
Immigration
You will need to check that employees have the legal right to live and work in the jurisdiction that they are working from.
Applicable law
Individuals are likely to benefit from the protection of the employment laws of the country that they are working from, such as mandatory minimum holiday time, benefits and termination rights. For that reason, you will need to establish a local law-compliant employment contract to ensure that you are properly protected (for example, in respect to your confidential information and intellectual property) and fulfill your legal obligations as an employer.
Payroll obligations
Having an employee work in a particular jurisdiction is likely to trigger obligations to register as an employer and run payroll in that country. That position can be complex (and the rules relating to income tax and social security contributions may be different), so you will want advice from lawyers or accountants in that jurisdiction.
Insurance and benefits
You should confirm what mandatory minimum insurance and benefits you need to put in place for employees working abroad. For example, employers in the UK are required to have employers' liability insurance in place with a mandatory minimum level of coverage and to automatically enroll employees into a pension scheme that meets certain compulsory minimum requirements.
Stock options
If you plan to grant stock options (or other equity incentives) to employees working abroad, local tax, securities, exchange control and employment laws are likely to apply. This is also the case if employees have already been granted stock options that may continue to vest and/or be exercised while they are abroad - the cross-border tax implications can be particularly complex.
For these reasons, seek local law and tax advice for the jurisdiction in which you are considering hiring to ensure that the expansion is established and structured in a compliant and effective manner.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
