Remote work has become the norm for many employees and professionals. Along with the growth of the ‘gig’ economy, which surged during the Covid-19 pandemic, the most remarkable change is the flexibility and mobility of remote-working employees who can crisscross the country and cross global borders without taking a day’s leave.
While it’s now entirely possible for employees and independent contractors to remain productive while travelling across international borders, this trend may be problematic from a tax and immigration law perspective.
Flexibility to fly – but not so fast
There is no doubt that the benefits of remote working include flexibility. One can work from home, a coffee shop, another province or even across borders.
Certain trends include employees who travel to foreign countries for personal reasons such as a holiday or to visit family, and decide to extend their stay and work remotely.
Others with citizenship or permanent residency in another country may decide to travel between SA and the foreign country and perform their employment duties wherever they find themselves.
However, employees and their employers may be blissfully unaware of the fact that there are several serious tax and immigration implications of working in foreign jurisdictions.
Tax warnings to heed
Personal taxes: Where a tax resident of one country performs income-generating activities in another jurisdiction, one must consider the principles of international taxation. Generally, where a person physically performs employment duties in another country for extended periods (more than six months in a 12-month period), both that country and their country of residence will have a right to tax that income, resulting in double taxation. Extended presence may also trigger tax residency in the foreign country, further complicating the individual’s tax obligations considerably.
Corporate taxes: Beyond the individual tax implications, employees may create complications for their employer as well. Depending on the nature of the activities conducted by the employee and their designation, they may create a taxable presence for their employer in the foreign country, potentially dragging a portion of the company’s profits into the foreign country’s tax net.
Tax Consulting SA’s master mobility specialist Tanya Tosen says that in some cases it is advisable for SA employers to reconsider the individual’s contract if they are working abroad.
Consider your options
“Where the employee intends to remain in the foreign country for an extended period, it may be advisable to terminate the individual’s permanent employment contract and renegotiate their services as an independent contractor,” says Tosen. “Provided the substance of the relationship supports this, it severs the link between the employer and the employee, therefore shifting the tax liability from the employer to the individual.”
Independent contractors working abroad would also have to consider the following:
- Their rate of taxation;
- Their tax implications while still working for an SA-based firm; and
- Whether they still meet the tax residency test, making them liable for tax in SA and in the foreign country.
Remote working may be illegal
Tosen warns that immigration rules must be strictly adhered to. She suggests investigating the country’s restrictions on the right to work while visiting.
Where you are present in another country on a visitor’s visa, you are generally not permitted to work in that country.
Where you remotely perform your South African employment duties in that country, you are in contravention of the terms of your visa.
Corporate reputational damage
Again, these implications extend beyond the individual.
Businesses are at risk of suffering serious reputational damage if employees opt to work remotely abroad without understanding and complying with all the tax and immigration rules.
If, for example, you choose to relocate to the United Kingdom, Portugal, or Switzerland, but do not possess permanent residency or a work visa that allows you to work in your new temporary home country, you are falling foul to the country’s laws and working illegally, albeit for an SA firm.
This can create serious brand damage for the business, which may find its expansion plans in that country hampered if a foreign government holds the incursion against it when making future decisions.
Seek professional advice
It’s absolutely vital that businesses and employees seek professional advice when navigating this new territory of remote working across international borders. While we are now more flexible than ever, the decision to work in a foreign country remains one of considerable gravity, as it triggers a cascade of tax and immigration implications.
Jean Du Toit is head of tax technical at Tax Consulting South Africa.