Tax 

Remote work from abroad: Potential consequences for employers

In recent years, working from home has become a commonly used tool. The previously required benefit among employees has become a necessary tool for maintaining operations in many companies during the COVID-19 pandemic. Employees had to fundamentally change their working habits and adapt to the new situation overnight. Although working from home was not a novelty for everyone, the extent to which it started to be used at this time was unprecedented, and almost everyone had to adjust.

Now that the COVID-19 pandemic is on the decline, the demand for working from home is not subsiding; quite the contrary, employees would like to continue to take advantage of it. Companies offer their employees new options in the area of international mobility in order to meet the employees’ requirements as well as current trends on the labour market.

Various remote work options

It should be noted at the outset that remote work may have various forms in practice. It does not come out only in one model; remote work can have many variations and include elements of classic models of international posting of employees abroad.

One of the remote work options is the virtual posting, i.e. the employee is posted by their employer to work for another company (frequently within one corporation). The employee is not physically transferred to another country in the case of the virtual posting; the job activities make it possible to work remotely (this does not relate only to working from home, work can be done from the office of the legal employer).

A frequent form is the combination of holiday and work; i.e. the employee can extend the holiday and work partially from abroad from the place where he/she spent their days off.

Large international companies may also encounter the situation of not being limited by borders when occupying new job positions. Some positions can thus be occupied by proper foreign candidates who work full-time or partially from home; i.e. easily from abroad. In this case, the employee is employed by a company located in one country whereas the work is carried out from another one.

What should employers bear in mind regarding remote work?

Companies that have encountered this topic ask us whether the various remote work models have any impacts on them, or whether there are any risks and if so, in what areas. As it is a relatively wide-ranging issue, we always advise our clients to think about it in a more complex way before making any decisions. It is desirable to take the tax and legal issues, as well as social security and health insurance into account. Also, do not forget to handle the remuneration system, technologies, etc.

Even though working remotely from abroad brings about a number of duties for employers as well as employees, there is no reason to fear it and flatly reject it. It is up to every single employer whether, after considering all potential risks, to accommodate their employees and enable them to work from abroad and under what conditions.

What should employers prepare for? In the tax area, they should not underestimate the potential risk of forming a permanent establishment, the potential obligation to register for prepayments of income tax from employment (similar to a foreign taxpayer defined by the Czech Tax Act) and the related obligation to keep payroll records abroad in compliance with local tax regulations. It is crucial to follow respective double taxation treaties as well as the local legislation in the tax area.

On the part of the employer, it is important to note that working from abroad may have an impact on the tax residency. The employee becomes a tax resident in a different country than their legal employer is seated, which has a significant effect on the final tax burden. They may also be obliged to file tax returns in both countries. The change of tax residency has consequences also for the employer who should reflect in their payroll records that an employee does not have to be a Czech tax resident. The Financial Administration does not like any adjustments to taxable income done within the tax return rather than by correcting payroll records. In extreme cases, the employee’s income may be taxed two times.

Besides the tax regulation, it is important to follow the requisites arising from labour regulation (e.g. how to handle an employee’s injury during working hours abroad or how to terminate the employment, etc.) One must not forget the visa rules; is the employee required to have a work permit when working from home abroad?

Last but not least, the issue of social security and health insurance cannot be omitted. As a result of working abroad, the employee’s residence for the purposes of social security and health insurance may change. If an employee should be insured in a country, where the work is performed and not in the country of their employer’s seat, the company is obliged to register for the purposes of social security and health insurance in the given country and to pay the relevant premiums in the correct country. A change in residence for the purposes of social security insurance has a subsequent impact on the possible payment of benefits from the social system (e.g. sickness benefit, unemployment benefit, maternity benefit, etc.), but also on the payment of old-age pensions in the future. Payment of health insurance affects in which country the employee is entitled to full health care. In the EU countries, the coordination rules clearly define the conditions for determining the correct social security system. Uncertainty may arise in the case of non-EU countries with which the Czech Republic has not concluded a relevant international agreement.

Working from home abroad has also its technology requirements. Employees working remotely need a high-quality remote connection, access to internal databases, data security, etc.

If you are considering any of the options of working from home abroad, it would be useful to determine internal rules that enable and deal with potential risks in advance. We will gladly support you in tax advisory, social security and health insurance, as well as in the preparation of convenient technologies. To learn more details about the topic, join any of our webcasts where we cover the tax aspects of remote work and much more.

Visa rules for remote work from abroad

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Visa rules for remote work from abroad
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