The global COVID-19 pandemic has dramatically accelerated remote working, particularly for certain branches. It seems clear that it is a trend that will remain, even after pandemic situation. In fact, legislation is already adapting to that method. Working from home has certain advantages (but also disadvantages). Mainly reducing travel time to zero, which can be very attractive in large cities and/or for certain jobs. It may even allow not having to live in the same country as before, but continue performing the same job, same category, for the same company. This already implies an international tax issue. Mainly because the worker's country of residence may not coincide with the country where the job is performed. That's why today, we will talk about international taxation of home workers.
How would International taxation of home workers work?
The main topic is to determine the tax residence. Also, if applicable, to apply for the corresponding double taxation agreement. This agreement, if available, will give us a clear criteria regarding where the remote worker is considered resident. This aspect can raise disputes. Particularly, in the first year of adopting this method, as it is a period focusing on more than one country of effective residence.
Once the country of residence for tax purposes is clear, then it will be necessary to determine whether, depending on the type of income received from work (self-employed, employed, professional work, civil servants, diplomats, etc.), the legislation of the country and the corresponding agreement oblige to pay tax in one territory or another. This may be as a resident or non-resident. Moreover, the methods described in the agreement itself to avoid double taxation must be applied. State of alarm and travel restrictions represent further issues. As the taxpayer may be forced to pay tax as a resident where he or she did not intend to stay.
Binding consultation V1983-20
This happened, for example, to the Lebanese couple in the binding consultation V1983-20, in addition to the fact that Lebanon does not currently have a double taxation agreement with Spain). All this may result in prejudice for a double taxation. This may happen in those cases where the taxpayer’s country of origin also considers him or her a resident by virtue of its own laws.
Therefore, if as a taxpayer you intend to perform home work from another country, it is recommended to have a clear insight about taxation. Moreover, if, as a company, you are going to have a remote worker performing in another country, you may be required to pay withholding taxes in that country.
International taxation spreads different criteria on each particular case. We should analyse carefully the methods applicable. We at Carrillo Asesores International Department will be delighted to clarify the doubts you have with regard to your specific case.