In the past, determining tax collection jurisdiction was a fairly easy matter. The majority of enterprises were local, and even those that worked internationally had to register locally in order to do business. Those conglomerates that operated globally were so few in number that they could have easily been reviewed on a case-to-case basis. 

Today, however, things are different.

A lot of people work remotely for employers in other countries while drop-shipping businesses outsource delivery, and even the smallest vendors can sell to people across the globe. 

This is why this is more confusing and important than ever. Here’s a brief rundown of some of the most important issues for mobile workers here. 

Tax Challenges for Remote Mobile Workers

1. Understanding tax residency

The first thing you have to determine is which country actually has the right to your income. This is the task of determining tax residency.

In the modern world, this is even more important, with remote workers being employed by foreign companies (often on another continent). This is the way that an individual is subjected to local taxes on their worldwide income. 

Now, in most cases, this is not just determined by your permanent residence (where you’re registered). If that were the case, every individual or enterprise would be registered in Barbados, or a similar tax-free country, and no one would ever pay a dime in taxes. 

Every country has a different rule; however, one of the most common approaches is the so-called 183-day rule. This implies that if you spend more than 183 days in a certain country (within 12 months), that country is entitled to your income during your stay there.

The duration of the visit is not the only criterion. Physical presence, permanent home, center of vital interest, and even the location of an individual’s domicile can be used to determine one’s tax residency.

Keep in mind that while this is something that you can research on your own, it’s something that a tool specialized for mobile workforce management will make a lot easier. 

2. Double taxation issues

Mobile workers often have to face the challenge of overlapping jurisdiction. This means that they have to pay taxes both in their home country and the country where they’re currently residing. This is especially troublesome for those who travel for work.

On top of this, the 21st century gave birth to a new breed of mobile workers – digital nomads. People working remotely aren’t tied to a location. This is especially the case with freelancers and specialists in industries like digital marketing.

They can relocate or even constantly travel the world without having to change jobs or suffer from a loss of income.

The problem with this is that determining tax residency is difficult, and they’re often subject to double taxation.

The key thing to understand is that these people often don’t make decisions based on what’s most tax-appropriate. Instead, they just love working from a beach (with a cocktail in their hand). By the time they start researching the tax law of the country they travel to, it’s often too late, and they have to improvize. 

The key to solving this issue lies in more than just doing the research. You must also study tax treaties.

Countries establish bilateral treaties about taxation all the time and, as long as you research one between your permanent residence and the country you’re visiting as a mobile worker, you should do just fine. 

3. Permanent establishment risks

As an enterprise, you could impose the taxes on your employer. This way, if you hire a person from abroad, you could subject them to corporate taxes in your own country.

This is especially the case if their work requires them to come and visit from time to time. Sure, this is not as common in the 21st century but it still happens.

This is also affected by the nature of work. Some core business activities trigger PE.

For instance, selling goods or services directly to customers in a foreign country, manufacturing or assembling products in a foreign country, or even maintaining an office (a physical presence) abroad. 

Therefore, if a permanent establishment is a problem (creating a new tax requirement that you could do without), you might avoid engaging in these activities. You can avoid it while there or when doing business with people from that location. 

The most effective way of mitigating the effects of permanent establishment is to limit your time spent in this country. Previously, we’ve mentioned a limit of 183 days; however, this is just a broad international norm, not a rule or a law. You need to do your research to get a definitive number or duration. 

4. Payroll reporting requirements

The administrative work surrounding payroll reporting for mobile workers can be split into two categories:

• Employer responsibilities: The employer may be responsible for registering with the local tax authorities in the country where their remote workers are based. If the remote worker’s salary is based on local tax laws, the employer must withhold income taxes. They may also be required to make all social security contributions. Lastly, they probably have to make regular payroll reports to local tax authorities. 

• Remote worker compliance: Not everything is the responsibility of the employer. Local tax filing, tax residency status, double taxation relief, and similar issues are the responsibility of the remote worker. It is their job to get on top of these things, and the government bodies that regulate tax usually provide enough materials for one to get informed on the subject matter. 

Regardless of where you stand on this spectrum, there are a few universally helpful tips. For instance, tax software is incredible these days, and you definitely want to start leveraging it to the best of your abilities.

Second, you need to keep records of everything. Today, when all the storage is cloud-based, and the amount of storage space is so monumental, there are no excuses for ever deleting any tax record.

Lastly, you should definitely seek professional advice (at least a quote). 

Wrap up

Ultimately, just because you’re working for someone abroad, this doesn’t mean that you no longer have to pay your taxes. What they say about death and taxes still applies and just like death, taxes are still inevitable. Moreover, with all the tools and resources available for mobile workers, the excuse that you didn’t know is weaker than ever.