Remote Work Abroad Could Quickly Turn From Dream To Tax Nightmare

Let’s pretend for a second that the pandemic is a thing of the past and companies are keeping their promise of allowing remote work from anywhere in the world for a few months out of the year. Now, imagine a Londoner, a New Yorker, and a Hong Konger get together somewhere in Brazil. They all make the same $100,000 salary and have been approved to work remotely from Brazil for two months. Once they have finished business in Brazil and head home, who would owe the most in taxes?

That is the one question staff and employers have been trying to determine while discussing post-pandemic work arrangements. Although there is still a lot of uncertainty, the job market is tightening in many countries. Firms, startups in particular, are eager to entice new talent with remote-work options.

A decade ago, Uber, Facebook and Instagram were able to differentiate themselves from Wall Street firms by offering free lunches, kooky office setups, and casual dress codes. Now companies all around the world are formalizing and extending their COVID-era flexible work options; many with liberal limits on where employees can commute from and how long they are able to do it for. Many believe that this is a valuable lifestyle being offered that might be one of the only ways to hire good people.

Many companies are turning to outside firms to help with a remote workforce. These firms help with different human resource functions. Payroll startup Deel has seen a surge in demand within the last year for its services of managing staff abroad with a mixture of software, local accounting experts, and foreign exchange hedging. Work-from-anywhere policies present risks for staff and companies where governments are educating themselves with cross-border commutes and are in dire need of tax revenue. Many employees that work abroad, even for a few weeks, may find themselves liable for taxes overseas even though many countries have double-taxation agreements in place which avoid excess taxation. These policies, however, only apply to federal taxes, not city or state obligations that are common in the U.S or social-security liabilities common across Europe.

All things considered, the New Yorker may face the highest bill, while the Londoner may see no change. Although, this assumes that all three can fill out their Brazilian taxes on time and according to regulations. He also warns remote workers of the possibility of filling out multiple tax forms for different countries and losing benefits from tax treaties between jurisdictions.

It is estimated that the New Yorker would be paying $1,648 more than they would have if they stayed in New York. This is because Brazil’s flat tax rate of 25% for non-residents is higher than the U.S. federal tax rate of 24% and the state of New York, as well as New York City, does not provide tax relief for Brazilian liabilities. The Hong Konger may owe $1,334 for working two months in Brazil due to higher tax rates as well. Luckily for the Londoner, the 40% U.K. tax rate for their salary is higher than Brazil and the U.K. could provide full relief for the Brazilian taxes paid.

Talley’s team of tax professionals provide comprehensive tax compliance and consulting services so you can preserve, enhance, and pass on your assets and wealth to the next generation. We welcome the opportunity to discuss the current options available for you. For more information, contact us today.