Checklist: Employment, immigration and tax considerations when dealing with cross-border working

This checklist was produced as part of a joint know-how initiative between Eversheds Sutherland and Lexology Pro.

Introduction

This checklist provides in-house counsel, private practice lawyers and human resource professionals with an overview of the key employment, immigration and tax issues employers should be aware of when requiring or permitting their employees to work overseas.

This checklist addresses the following steps:

1. Employment law issues
2. Immigration issues
3. Tax issues
4. Employer’s response to employee requests to work overseas

Step 1 – Employment law issues

Step 2 – Immigration issues

Step 3 – Tax issues

Step 4 – Responding to employee requests to work remotely from another country

Explanatory notes

As a result of the covid-19 pandemic, remote working has become far more widespread. In the past, when employees worked in another jurisdiction it was usually as part of an international assignment initiated by the employer. Now it is often the employee who asks whether they can work remotely from another country, as they have experienced that they can do their job from anywhere as long as they have the right IT equipment and access to the employer’s systems.

Both employer-instigated international assignments and employee requests for remote working in another country give rise to a complex set of employment, immigration, social security and tax requirements which must be considered by employers. It may be tempting for employers to take a template approach to such cross-border working but this often proves costly and risky in the long run. This is a complex area and employers should seek legal advice in relation to specific scenarios; however, this checklist sets out general principles that will apply in many jurisdictions, with some country-specific examples. Complexities in this area include the following:

• cross-border working touches upon the laws of at least two countries, sometimes more, leading to a large number of possible combinations of jurisdictions;
• the employee’s nationality may impact on their immigration and tax status; and
• the reasons for, and duration of, international remote working vary significantly.

Step 1 – Employment law issues

When an employee who is ordinarily based in one country (home country) spends time working overseas in a different country (host country), there are a number of employment law issues that arise. This is the case whether the overseas working period is instigated by the employer or the employee.

1.1 Which country’s employment law applies?

The question of which national law applies is relevant to the contractual rights and obligations of the employee and employer, any applicable statutory rights and the jurisdiction in the event of a dispute between the employer and employee.

1.1.1 Contract law

The starting point when considering applicable law is to look at the contract of employment and establish whether or not there a choice of law clause. If there is, this will determine the contractual law that applies (ie, the law that applies in the event that any contractual provisions require interpretation). A choice of law clause can be particularly important in relation to key contractual provisions such as restrictive covenants, whose legal status varies in different countries.

If the contract of employment has no choice of law clause, the applicable law will be determined according to the conflict of laws rules that apply in the relevant jurisdictions. For example, in the EU, the Rome Convention on the law applicable to contractual obligations (593/2008/EC) provides that the default law will be determined by:

• the employee’s habitual place of work; or
• if the employee has no habitual place of work, by the employer’s place of business; unless
• the employee has a closer connection to another country.

1.1.2 Jurisdiction

It is more difficult for employers to use a contract of employment provision to determine the issue of jurisdiction (ie, which country’s courts would determine any employment dispute). Jurisdiction will be determined by considering the facts against any applicable laws. For example, in the EU, the Brussels I Recast Regulation on jurisdiction and the enforcement of judgments in civil and commercial matters (1215/2012/EU) provides that when an employee makes a claim against an EU-domiciled employer (or a non-EU-domiciled employer with a branch agency or establishment in the EU) the following matters will be relevant to determine jurisdiction:

• where the employer (or any relevant branch, agency or establishment) is domiciled; or
• where the employee’s habitual place of work is; or
• if the employee has no habitual place of work, where the employer’s place of business is located.

Where more than one country has jurisdiction, the lis pedens rule applies, meaning that the first party in time to issue proceedings at court secures the jurisdiction of the court in a particular country.

The jurisdiction for any employment dispute can impact upon a number of key matters for employers, including the mechanisms for dispute resolution, the duration of any claim, potential penalties and cost implications.

1.1.3 Statutory rights

Employers should be aware that a contractual choice of law clause will not prevent an employee from becoming entitled to the statutory rights that apply to employees in the host country. In most countries, statutory rights such as wage and hour laws are compulsory rules that apply to anyone providing services locally, including any remote worker who is temporarily working in a host country under an employment contract governed by the laws of a different country.

1.2 Consider the structuring options for an international assignment

Taking into account the various employment law issues identified above, employers should give careful consideration to how to structure any international assignment. Options include those listed below.

• The employee remains employed in their home country and enters into an amendment agreement with the employer in relation to the international assignment.
• The home country employment contract continues, but the employee also enters into a contract of employment with a local host entity or an international host company within the employer’s group (known as dual employment).
• The home country employment contract is suspended and the employee enters into an employment contract with a local host entity or an international host company for the duration of the international assignment.
• The home country employment is terminated with a promise of re-employment after the international assignment, and the employee enters into an employment contract with a local host entity or an international host company for the duration of the international assignment.

Which employment model works best for an international assignment will depend on a number of factors, including:

• the duration of the international assignment;
• whether or not the host country requires employees to have a local employment contract;
• the extent to which the employee wishes to maintain benefits such as a pension scheme in the home country;
• the extent to which the employer is concerned about the risk of employment-related claims in the home country and the host country;
• whether or not the employer has a legal entity in the host country (if not, there are various professional employer entities established in many jurisdictions which might be utilised).

Step 2 – Immigration issues

Immigration law is developing at a fast pace and employers dealing with overseas working arrangements must ensure that they have up-to-date information about the immigration laws that apply in the countries in which they are operating and/or placing employees.

Employers should keep in mind the following principles:

• any person who is not a national of the relevant country will need to hold the appropriate immigration permission to live and work in that country (subject to exceptions such as the freedom of movement applying to EU citizens); and
• each jurisdiction has its own immigration rules and procedures.

Failure to obtain correct immigration permissions can have significant implications for employers and employees, including those listed below.

• Civil and/or criminal sanctions – these may be imposed on the employee and/or the employer and vary by jurisdiction. Fines are more regularly enforced; however, criminal sanctions do exist in many countries.
• Potential restrictions on the employer – for example, the revocation of an employer’s position as an employment sponsor to non-country nationals.
• Detention/deportation of the individual by the authorities.
• Operational impacts – this may include future restrictions on the individual’s travel elsewhere. In some jurisdictions failure to obtain immigration permissions can also lead to business closures.
• Reputational risk – for example, in the UK, civil penalties for illegal working are listed on the Home Office website, which can lead to adverse media and public attention.

Whether responsibility for obtaining immigration permissions lies with the employer or the employee is fact-specific and the factors listed below will be relevant.

• Whether the employer asked the employee to work abroad or the employee asked for permission to work abroad.
• The contents of any employer policy in relation to responsibility for immigration permissions, including any allocation of responsibility for obtaining a visa.
• The purpose of the employee’s visit – for example, an employee visiting the UK under a remote working visitor visa would be acceptable, providing the remote working was not the primary purpose of the employee's visit.

In order to carry out an assessment of potential immigration issues when an employee is to spend a period working overseas, employers should consider the factors highlighted below.

2.1 Could the period of overseas working have an impact on the employee’s right to work for the employer?

Before agreeing to any period of remote working abroad, employers should establish whether the employee is currently working for them under a work permit (ie, they are not a national of the home country). If this is the case:

• the work permit may be withdrawn if the employee is absent from their main place of residence for a certain period of time;
• a change to the employee’s remuneration/job role may impact on the validity of the work permit;
• there may be mandatory notification requirements to the authorities; and
• any work-related conditions to the work permit will need to be reviewed in the context of an assignment request;
• employers should check whether there are there any sanctions imposed on the host country by the government of the home country. If so, the employee may face difficulties in re-entering the home country at the end of the overseas assignment.

If the employee is not a resident of the home country and is planning on making an application for indefinite leave to remain, permanent residence or citizenship, absence from their main place of residence may impact any application.

2.2 Is the employee permitted to work without limitation or do they benefit from preferential treatment in terms of a right to work?

Bilateral agreements or treaties may apply to enable the employee to work overseas, for example:

• EU/EEA/Switzerland – EU, EEA, Swiss nationals and their family members do not require a work permit to work in the EU, EEA or Switzerland;
• Oceania – Australian and New Zealand citizens do not require a work permit to work in Australia or New Zealand;
• South America – citizens of participating Mercosur sovereign member states and associated member states are granted the right to reside and work in another member state for a maximum period of two years. Some member states also have established simplified work and residence permit processing times; and
• Eurasian Economic Union – citizens of a member state do not require a work permit to work in another member state.

Employers should check whether there are any registration requirements in relation to bilateral agreements or treaties.

2.3 Are there any family circumstances which would give the employee the right to work?

If the employee has a spouse, partner or children who are country nationals, or a spouse or partner with a work visa in the relevant country, this might give the individual the right to work in that country.

2.4 Does the employee qualify as a business visitor?

Whether or not an employee qualifies as a business visitor will depend on the requirements of the host country which they will be visiting for work purposes. Employers should keep in mind the practical matters listed below.

• In some circumstances a visitor visa may be required in advance of entry to the country.
• An electronic visa waiver process may apply – for example, ESTA in the United States or ETIAS (for the EU/Schengen Area, anticipated to start from 2026).
• Certain nationalities may be considered higher risk and subject to more restrictions.
• Employers must ensure that the activities of the employee fit within a permissible activity for business visitors in the applicable country. The following are unlikely to be permissible:
  • setting up work and residence in the jurisdiction on a permanent or regular basis;
  • carrying out productive work that is not compatible with a business visit – for example, actually producing goods for the employer to sell.
• The more frequently an individual travels in and out of a country the more likely they are to be stopped and questioned by authorities. It can be helpful for employers to provide employees who are utilising business visitor visas with a bilingual letter setting out the purpose and duration of their visit, which can be provided to authorities in the event that they are stopped.

2.5 Does the host country offer a digital nomad visa and if so, does the employee qualify for this?

The concept of digital nomad visas is fairly new but a number of countries have these in place. If there is a digital nomad visa that might apply, employers must consider the requirements for it – for example, there may be a requirement for permanent residence in the country for the duration of the visa, which will not work for an employee who needs to come and go.

Estonia issued the first digital nomad visas in 2020. More recent examples include the Bahamas, Barbados, Bermuda, Brazil, Costa Rica, Croatia, Estonia, Georgia, Greece, Iceland, Malta, Mauritius, Panama, Romania, the United Arab Emirates, Spain and Italy.

2.6 Will the individual need a work visa and if so, will they meet the requirements to qualify for one?

The rules around work visas vary significantly from country to country but the issues listed below may be relevant.

• Requirements in host country – in some cases visa requirements include a level of control over the employee by the employer, which may be difficult if the employer does not operate in the host country. Employers should consider:
  • Is a local contract of employment required in the host country?
  • Does the employee need to be paid in the host country?
  • Does the employer have sufficient control over the employee in the host country to act as the sponsor to the work visa?
  • Does the employer have a licence in the right jurisdiction to sponsor the individual in the host country?
• Employers should consider the following practical considerations:
  • What are the timescales for the working visa? If the visa will not be in place in time, can the individual work remotely in their home country until the visa is in place?
  • What are the requirements for the visa? These may include health checks, local language checks and criminal record checks.
  • What documentation is required from both the employer and employee? Documentation may need to be legalised in the relevant embassy.

Step 3 – Tax issues

There are a number of tax issues for employers to be aware of in relation to international working. As with employment law and immigration considerations, employers should be aware of the tax issues below whether the period of international working is instigated by the employer or the employee.

3.1 Income tax considerations

The general principle is that employees are required to pay tax in the country where they are performing their duties, unless the performance of their duties is purely incidental to their presence in the country. An example of duties that might be considered purely incidental is an employee who occasionally checks their work-related emails whilst abroad. This general principle technically applies even if the employee only does one day of work in a different country.

For example, if an employee based in France spends five months in the UK on secondment, income tax must be paid in the UK for those five months. However, it is likely that the French authorities will also tax this income, meaning that employees working on an international basis leads to a risk of double taxation.

In order to alleviate this burden, double taxation treaties have been established, the majority of which are based on the Organisation for Economic Co-operation and Development (OECD) Model Tax Convention. A double taxation treaty has a number of impacts:

• it establishes tax residency for the employee, and if the employee is a tax resident in both countries it provides tie-breaker provisions;
• it allocates taxing rights between the countries; and
• it provides relief for any double taxation in the event that the employee does become subject to tax in the host country and remains subject to tax in the home country on their worldwide income.

In order for an employee to be income tax exempt in the host country under a double taxation treaty, in most cases the employee must not be present in the host country for more than 180 days in any 12-month period. This is therefore a helpful exemption for employees who are asking to work abroad for limited periods; however, it is not helpful where employers are sending employees abroad on secondment for more than a six-month period.

Employers should be aware of the following practical issues:

• the exact requirements of a double taxation treaty will vary between treaties and in some cases there may be requirements for employers to register with and report to the host authorities even in the event a treaty applies; and
• the relief method for employees who are subject to double taxation varies between countries and may be either on an exemption basis or a credit basis, in which case the employee may be required to pay tax and then reclaim it through submitting a tax return. Employers will need to consider the extent to which they will take responsibility for taxation issues in cases where employees have requested to work overseas.

3.2 Social security contributions

The general principle for social security is the same as for income tax (ie, it is payable in the country where the employee is performing their duties). This can create problems for employees who are only in the host country for a short period of time, as they are required to pay into a system which they may get no benefit from if they do not stay in the host country.

Exceptions to the general social security position have therefore been developed. For example, EU Regulation No 883/2004 on the coordination of social security systems applies between EU member states and also to the UK by virtue of the UK and EU Withdrawal Agreement. The regulation establishes the detached worker exemption, which provides that where an individual from an EU country or the UK works in another EU country or the UK for less than 24 months (and is not replacing another detached worker) no social security obligations will arise in the host country.

Employers should keep in mind the practical points listed below.

• Social security exemptions are not automatic and for overseas working between the EU and the UK an A1 certificate in the home country is required. Best practice is to apply for an A1 certificate in advance of the overseas visit; however, retrospective applications are possible.
• When dealing with overseas working outside of the EU, employers must check for any reciprocal social security arrangements with the applicable country. Reciprocal arrangements applicable in the UK can be found on HMRC’s website.
• If there is no reciprocal arrangement with the host country, employers must check the local laws in the host country and seek local advice.

3.3 Permanent establishment risk

If an employee will be spending a period of time working overseas and the employer does not already have a permanent establishment (PE) in the host country, there is a risk that the employee’s presence working for the employer in the host country could create a PE. A PE is a fixed place of business, as defined in many tax treaties, that can have the following implications for the employer:

• reporting and withholding obligations in the host country; and
• liability to pay corporation tax on any company profits in the host country.

Whether or not a PE will be established will depend upon local laws in the host country, which are usually based on OECD rules. There are two broad ways in which a PE might be established:

• there is a fixed place of business in the host country through which the business of the company is carried on (Fixed Place of Business PE); or
• there is a dependent agent who has the authority and habitually uses it to bind the company in the host country (Dependent Agent PE).

It is possible for an employee working overseas from a home office to create a Fixed Place of Business PE; in particular, if the arrangement is permanent or long-term, and if the employee uses the home address for company business such as meetings and correspondence. It is also possible for an employee working overseas to create a Dependent Agent PE if their role carries the authority to enter into contracts on behalf of the employer and they do so whilst working in the host country. Employers should be mindful that in some countries the requirement for binding the company may be satisfied by concluding the main terms of an agreement, with the contract then being returned to the home country for signature.

Step 4 – Responding to employee requests to work remotely from another country

Many employers receive requests from employees to carry out their duties remotely from another country, whether on a short-term, long-term or permanent basis. Employers should give careful consideration to the various employment, tax and immigration issues such requests raise, and should take specialist advice from local experts in the home and host countries.

4.1 Options for employer response

For employers who wish to have a general approach to such requests the following table sets out three common responses employers adopt.

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