The wonders of remote work
The ability to work remotely has become the new norm for employees. This could mean working from home, or even from a different location for example while on vacation, a concept often referred to as a ‘Workation’. There are also instances where an employee might be temporarily assigned by their company to work in a different country than their usual workplace or where an employee is hired to work for a company based in a different country from their residence.
It is truly exciting that companies can tap into global talent like never before, thanks to remote work methods. But with great possibilities come great responsibilities. It is essential for companies to stay alert to the potential pitfalls of remote work. Non-compliance with employment and tax laws can lead to serious repercussions for both employers and employees.
Tax challenges with remote work
Attracting the right talent becomes increasingly difficult. In the competitive landscape of talent acquisition, companies are ebracing change by transforming into Virtual Organisations or Flexible Workplaces, offering Flexible Workspaces and increasing the use of Digital Nomads.
Som examples of this are:
- Companies that have individuals working in many, and sometimes unknown, countries.
- Companies that hire one person to work abroad, where the situation over time changes to have many people working abroad.
- Companies that works with a person abroad who starts as an independent consultant, but over time becomes more closely tied to the company.
- Companies that hire HQ personnel in foreign local subsidiaries.
The above examples should lead to the question: when are tax considerations included in such processes? Or in practice; when should tax considerations have been included? When does the physical presence and activities of individuals result in a tax presence in the source country, and what should then be allocated for taxation in the source country?
Worth keeping in mind
When a Danish company sends an employee temporarily to work abroad, the company must ensure that a secondment contract is drawn up between the employee and the company. This contract should be in addition to the employee’s existing employment contract and should contain information about all significant salary and employment conditions agreed upon in connection with the secondment.
Seconded employees may be protected by the employment law legislation in the country where they temporarily perform their work, even if the companies have agreed otherwise in their employment contracts. The EU’s Posting of Workers Directive, for example, ensures that seconded employees who are sent to work within EU member states are entitled to the wage conditions that follow from the host country’s legislation and generally applicable collective agreements from the first day.
Mobile employees could end up costing a Danish employer dearly due to large tax and social security claims from foreign authorities. The employee’s work abroad could, under certain circumstances, trigger a tax liability for the employee and especially for the Danish company. This could mean an obligation for the Danish company to pay corporate tax abroad. The employee’s remote work abroad could also result in the Danish company having an obligation to withhold and report foreign tax and social security of the employee’s salary.
Hiring a person abroad to carry out work in their residence country can result in a complex situation when it comes to paying out salary and / or withholding tax from a Danish company, especially if hiree does not hold a Danish social security number (CPR).
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