11 June 2024

Olena Chilton, senior manager - global employer services / expatriate tax at BDO, explains how to provide flexibility to employees working overseas while ensuring management of the associated compliance risks

Since the Covid-19 pandemic, employers have seen a sharp rise in their employees wishing to work flexibly, including working remotely from a different country. Allowing staff to work abroad is seen as a benefit to them and can also offer advantages for the business – such as the ability to attract new talent, save on operational costs, increase productivity and improve staff retention. However, allowing employees to work overseas brings a complex web of compliance risks, both for the individuals and their employers. This article aims to provide a roadmap for

the issues to consider and to ensure compliance when employees work from overseas locations.


The compliance risks

The first step in managing the risks involved is to understand the landscape. Different countries have varied tax and social security laws, employment and labour law regulations and immigration requirements. It is crucial to have a solid understanding of these nuances to avoid any potential pitfalls involved.

Income tax: Depending on the host country’s domestic tax rules, the employee may become liable to income tax in the overseas jurisdiction. If such liability arises, the individual is likely to be required to file tax returns in the host country. The basis on which income tax liability is determined will depend on the individual’s tax residence in the host location, as well as other factors. In some circumstances, the employee may remain a tax resident in their home country while triggering tax liabilities in the host country. In such cases, it needs to be determined if a Double Taxation Agreement exists between the two countries and whether an exemption from income tax might be available provided certain conditions are satisfied. If exemption under the Double Taxation Treaty is not available and the same source of income becomes taxable in both jurisdictions, a foreign tax credit would need to be claimed to eliminate the burden of double taxation.

The situation would get even more complicated and result in cash flow issues where payroll / withholding at source is required in both countries in real time (e.g. monthly) whereas applicable foreign tax credit and associated tax refund could only be claimed through filing of a year-end tax return, typically sometime after the end of a tax year. There are often significant complexities involved in dealing with the interaction of tax liabilities

arising in the home and host country, depending on the circumstances and the length of the international working arrangement, and professional support would be required.

Social security: Similarly to income taxes, social security may become due in the host country. There are reciprocal social security agreements in place between many countries which will determine where the social security contributions are due, based on the employee’s circumstances. This may have an impact on the individual’s entitlements to the benefits linked to social security contributions in their home country but could also be costly for the employer if they become subject to overseas employer social security charges (e.g. some European counties employer social security contributions are considerably higher that UK National Insurance).

Registration and compliance: Employees working abroad for their home employer may trigger a requirement for the home employer to register with the overseas authorities and operate a form of income tax and / or social security withholding. The registration and withholding operation may be costly and administratively burdensome and potentially result in a cash flow issue to the employee as mentioned above.

Employment / labour law considerations: Local labour laws may dictate specific contract terms, benefits, and rights that are different from the home country’s regulations. Employees’ employment contracts may need to be re-drafted to take into account the host country’s labour law requirements. Certain situations may become complex and costly in situations like employee’s redundancy or termination.

Permanent Establishment (PE): Employees working overseas may give rise to a risk of creation of a PE for the home country employer. This, in turn, can lead to corporate tax exposure and compliance obligations in the host country.

Immigration: Immigration compliance is another critical aspect when employees work abroad. Employees may require specific work visas to legally undertake employment in a foreign country and working on a ‘wrong’ visa could lead to severe penalties for both the employee and the employer. As such, ensuring that employees have the right to work legally in the host country is paramount. Corporate Criminal Offence (COO) UK businesses can be considered to commit a criminal offence if they have not taken reasonable steps to ensure that overseas tax liabilities are met. Therefore, employers that allow their staff to work overseas need to be comfortable COO is not being committed.


Establishing robust policies

To manage compliance effectively, it is essential for employers to establish robust policies to navigate the complex landscape of international remote working while wishing to offer flexibility to their workforce. Such a policy should serve as a framework to manage the legal, tax and operational challenges which arise when employees work across different jurisdictions.

A policy ensures a clear understanding of the respective responsibilities of the employer and employee. It ensures that those working overseas are not disadvantaged in terms of their employment rights and protections.

A policy should also safeguard the company’s intellectual property and sensitive data, including confidential client information. It should set out the expectations for data security and the use of technology, which is particularly important when employees are accessing company networks from various global locations and dealing with client data.

Finally, an International Remote Working policy can help employers attract and retain talent by demonstrating a commitment to flexible working arrangements. It shows that the company is proactive in supporting its employees’ desire for greater flexibility and a better work-life balance, which can enhance job satisfaction and loyalty and improve productivity. Establishing an International Remote Working policy is a strategic move that helps employers manage risk, ensure legal and tax compliance, protect their business interests, and support their employees, regardless of where they choose to work. It is essential for employers allowing their employees to work overseas to have a robust International Remote Worker’s policy in place.


Partnering with experts

Sometimes, the best course of action is to seek external expertise. Partnering with experts can provide invaluable insights into the specific compliance requirements and assist with all the aspects surrounding International Remote Working: tax filings, operating of a ‘shadow payroll’ withholding in the host country, drafting / updating of employment contracts to satisfy requirements of the host country labour laws, implementing an International Remote Working policy, thus ensuring that your organisation remains compliant.



Managing the compliance risks associated with employees working from overseas locations is a complex but manageable task. By understanding the compliance landscape, establishing robust policies, leveraging technology, providing training and partnering with experts, an organisation can navigate these challenges successfully.

Remember, compliance is not just about adhering to laws; it’s about safeguarding the reputation of your organisation and the well-being of your employees. With a proactive and strategic approach, organisations can turn compliance management surrounding International Remote Working into a great opportunity, but a seamless process must be introduced that brings benefits to both the organisation and their employees. 


This article featured in the July - August 2024 issue of Professional.