As coronavirus (COVID-19) continues to spread around the globe, many companies are beginning to issue travel bans on their staff—or certainly banning non-essential travel. Companies are also working to determine next steps for mobile employees who are on extended business trips or longer-term assignments. These employees may find themselves stranded in a location other than their Home country or their company may be trying to evacuate them from a “hot area.”
This week, I spoke to two clients on these very issues—one who was encountering a real-time situation and the other who wanted to discuss several “what if” scenarios.
The first client had an employee visiting the UK from Hong Kong for business purposes. As a result of the client imposing a travel ban to and from Hong Kong, the employee was now “stuck” in the UK. In addition to the client assisting the employee with the emotional anxiety of the situation, they also wanted to explore practical issues with respect to UK payroll, tax, and social security for this employee. We concluded to monitor the tax situation. If the employee is required to remain in the UK for an extended period, we will review UK domestic tax law and tax treaty provisions to help minimize any UK tax implications for both the client and the employee.
The second call was with the Human Resources Director of a global company who wanted advice on what companies and employees need to consider due to the current travel concerns. We discussed the tax implications of various scenarios based upon the typical travel patterns of their employees.
Mobile employees are not only impacted by the stress of an unknown situation created by a travel ban but may also be affected by tax implications associated with a rapid change in plans that requires temporary residence in a new country. Below are a few steps to take to address the global mobility tax and social security risks when travel bans occur.
Location, Location, Location
The obvious question is “where is your workforce?” Do you have access to travel data or real-time tracking applications? If the employees are in a safe location, does the company keep them there? If they are not safe, do you evacuate and relocate them to somewhere else? If you do move them, where do you relocate them? An extended stay in a country that is not their Home country can and often will create immigration, (e.g., can a national of the Home country be relocated to a new Host country for example?), tax, and social security issues for both the employee and the company. Bottom line, the first step in this process is to identify the location of your mobile workforce.
Payroll & Taxes
If your employee finds themselves stranded outside their Home country, you should first consider the domestic tax rules of the non-resident location and second, any international double tax treaties between the Home and Host countries.
Domestically, you will need to determine if the employee will be subject to income and/or social security tax. The number of days the employee is present and works in the new location, the activities they are conducting, and/or how much employment income is attributable to those work duties will impact how the employee is taxed under domestic tax rules. If the employee is taxable, the local entity may have a payroll reporting obligation and the employee may need to file a Host country tax return.
Once the domestic rules are reviewed, you should then consider the employee may be exempt from tax in the Host country under a double tax agreement between the Home and Host countries. The employee and/or the company may still need to file a tax return to claim the exemption. Even when a tax return isn’t required, the company should consider any corporate obligations to report the individual in the Host location (e.g., business traveler reporting in the UK).
Note that in some countries, a tax authority may grant a period of residence due to unforeseen circumstances as exceptional and not count these days as taxable. At the time of press, no such announcements have been made. Some countries have extended the filing deadline for 2019 individual income tax returns. For example, Japan has extended the deadline for filing a 2019 return from 15 March 2020 to 16 April 2020. We recommend keeping in contact with your mobility tax services provider to stay up to date.
Lastly, as you determine whether there is any payroll reporting and tax withholding required, you should also consider what compensation is reportable. Is reporting limited to basic salary? What about any incentive payments or awards that are about to be granted while in a Host location? Will this have an impact on the current and future reporting for your employees?
Social Security & Access to Support Services
Often following very different rules to income tax, social security rules should be considered carefully to determine if social security taxes are due in the Host location. There is a network of bilateral social security agreements (totalization agreements) which are not as extensive as income tax treaties. If a totalization agreement is available, then a Certificate of Coverage between the Home country and Host country should be obtained or amended if one is already in place. The totalization agreement helps to avoid social security tax being payable in both countries and outlines how benefits are paid.
Other considerations include medical access, insurance, employment law, and housing. What assistance in these areas is the individual entitled to in the Host location? Some countries limit the extent to which certain benefits are given. If this is the case, does your travel insurance cover this scenario? What about access to local medical services? Can you easily identify what is available should medical assistance be needed?
Policy & Business Continuity
If having worked through the Home and Host country combinations, you have determined that there will be immigration, tax, and/or social security issues, one of the final things to review are your policies that relate to travel, mobility, and tax. The additional costs associated with the kind of events we are seeing right now could be substantial if, for example, an employee’s Home location is Hong Kong and they now find themselves taxable in the UK. Does the company anticipate that the employee will pick up any additional taxes? Has this been communicated to the employee? Based on our experience and recent survey data, most companies tax equalize their mobile employees and help with filing income tax returns simply because the last thing they want their employees to worry about is their tax status.
A business continuity policy should also consider aspects such as:
- Can the employee work from their new Host location?
- Does this create a corporate tax risk such as a permanent establishment or nexus in the new location?
- Financial services companies may also need to consider registering trading activities with the local authorities to meet local regulatory requirements if their employees will be trading in the new Host country.
Lastly, what business continuity plans do you have in place to ensure your business continues to operate as usual if the Home and Host locations are critical to your operation?
The health and safety of your employees is of paramount importance and critical to the continued success of your company. It is essential for the company to provide timely communication and support to employees in moments of crisis such as this.
Given the scale of the current world health event, the related travel bans, and the potential impact on your global business operations, we recommend reviewing your business continuity policies, determining the locations of your mobile employees, and starting the communications now to help reduce anxiety and minimize significant additional costs to the company. For everyone’s sake, we hope this situation concludes itself just as quickly as it started. However, the time to act is now to ensure your mobile employees receive the support they urgently need.