Sometimes you have to travel for work. This is not unheard of. In fact, roughly 4 million Americans travel for work every day. The problem with this, however, lies in the fact that you sometimes have to travel abroad. This means that you’re going to a different country to earn money, a country that has a different IRS jurisdiction. You might even get an income in a foreign currency.
So, where do you pay your income taxes in this scenario?
What if you are a remote worker? You’re staying at home, but the company paying you is registered abroad, so who gets taxed?
The worst-case scenario is one where you are double-taxed, but there are usually agreements between countries to avoid it.
With all of this in mind and without further ado, here are some tax implications of remote work for business travelers.
1. Your permanent residence matters the most
First of all, it’s important to establish one’s permanent residence. Sure, the place where the company is registered matters, as well, but when it comes to remote workers, it’s all about where they live.
If this weren’t the case (if it was just about the location of the employer), every company in the world would register in Antigua, Bahamas, or Monaco, and no one would ever pay a dime in income taxes.
Still, how do you determine a permanent residence? You can’t just declare it (since… well, Bahamas again), which means that there are some criteria that you have to pass. Most commonly, you’ll have to do a physical presence test. How long did you spend in the country?
A domicile is usually seen as your permanent home, which means that the place where you intend to return and remain is usually seen as your permanent tax residence, as well.
Suppose you have some sort of residential ties, like renting a place somewhere, having a spouse with a permanent residence there, or owning property (like a car). In that case, this might be enough to qualify you for a permanent tax resident of an area.
Lastly, in some rare scenarios, even a self-declaration should work. Just keep in mind that you’ll usually have to offer some sort of evidence (at the very least, intention).
2. 183-day test
Standard remote workers seldom travel unless they’re digital nomads. People sometimes go on a trip and bring their laptop in order to keep working, but just because someone worked two weeks from a tropical beach somewhere doesn’t mean that they now have to pay taxes there, as well.
This is why most countries go by something known as a 183-day test. Simply put, if you’ve spent more than 183 days in one year (within twelve months, it doesn’t have to be January the 1st to December the 31st), you’re usually obliged to pay taxes in that country.
Now, these 183 days are just a general guideline, and the rules may apply to different countries. The thing is that these rules always happen as a result of bilateral negotiations.
It’s also important to understand the importance of counting days and actually writing down each of these days. Full days and partial days may not be counted the same in the place where you’re at. Partial days are days on which you arrive or depart. If you’re in the country on several different occasions, these partial days can add up, which will give you more leeway before you reach that day-183.
According to specialists at Global Tax Network, multiple-year considerations, tax treaties, and even special provisions should be taken into account.
All in all, the situation is more complex than just counting days.
3. Special types of income
Now, sometimes remote workers will be paid in company shares. At other times, they’ll use their funds to buy real estate in order to supplement their income with rent. In both of these cases, the location (of the company whose shares you’re getting or a property that you’re renting out) will matter quite a bit.
Even if you never left your country, but you have shares in a foreign company, and these shares are paying dividends, you’ll probably have to pay taxes in that country. Even if you spend just a few days in a foreign country, while there, you buy a property that you’ll rent out or equipment that you’ll rent out, you’ll be eligible to pay income taxes in a foreign country.
There are also some activities that automatically trigger these tax rules and regulations. You have to be very careful with this and research the subject matter long before you engage in any of these activities.
4. Double taxation
This is what happens when you fall under two tax jurisdictions. Generally speaking, it happens in two major scenarios. The first one is a scenario where you are taxed on the same income by two different countries. The second one is the so-called corporate double taxation. This happens when the company is taxed (as an entity), and then, when the income is distributed, the recipients get taxed as individuals.
Expatriate employees, for instance, while you’re still working for a local company, may have to go abroad on a business trip. While you are still receiving a salary in your home country, you have an income while at a target location (and you’re there for longer than 183 days). In this scenario, it’s not impossible for the target country to try to tax you, either.
Remote workers may also be subjected to both their own country and the country of their employer (without actually leaving their home country). This is often not talked about, and it’s just one of many pitfalls of remote work.
The last example is multinational corporations. These issues are always complex.
The bottom line is that tax treaties and exemptions exist to avoid double taxation to a degree where working abroad would be financially unsustainable for anyone who doesn’t plan to relocate permanently.
Wrap up
The bottom line is that if you are a remote worker, a business traveler, or both, you must study the tax laws of all countries you’re visiting. Second, you have to be exact when tracking the number of days you spend in each country. Most importantly, you should definitely seek professional help.