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If employers send employees abroad, or if they wish to work in a country other than the USA, various tax and non-tax details, such as health insurance or social benefit programmes, must be checked. In addition, the employer must pay close attention that the work of the employee does not become a permanent establishment and thus create tax liability for the company.
In workplace environments that must now include COVID-19 remote work arrangements as well as specific employee’s alternative work arrangements, employers need to understand the tax consequences of employees working in another state or a foreign country. The remote work arrangements may be requested by the employee for personal reasons, where the employee will be responsible for his/her personal tax requirements. Where the relocation is for the benefit of the employer, the employer will accept the consequences and costs of the assignment. However, the employer must be aware of the potential additional obligations and costs it may face when approving an employee-requested remote workplace outside the US, explain the consultants from Marcum LLP*.
While the foreign remote work location places additional tax burdens and costs on employees, most of these will not affect the employer (as would be the case if the employer required relocation). The employer may still be subject to additional requirements and costs to comply with local country rules for having their employee working in the foreign country, including income tax withholding requirements, employer payroll taxes, and registration requirements (for withholding and remitting taxes under the local country rules). Non-tax considerations may include the provision of health coverage outside the United States, immigration requirements, or other employee benefit programs in the affected countries.
In the case of relocation, check carefully whether this involves the setting up of a permanent establishment.Douglas Nakajima, International Tax Co-Leader, Marcum LLP*, Philadelphia, USA
The employer should ensure that the employee working outside of the US does not raise Permanent Establishment (PE) exposure for the employer. Generally, the PE standard is what allows the foreign country to impose income taxes on any business profits asserted to be associated with the US employer’s business activity in that country. A PE may be a fixed place of business or a place of management, an office, or an employee with the authority to conclude contracts. If the employee serves as an officer of the company, performing his/her designated management duties, there is a stronger argument for the finding of a PE in that country.
As the employer will not provide the employee with an office in the employee-requested arrangement, the place of business is unlikely to be an issue, However, as the employee may be a company officer with the authority to conclude contracts, and he/she may be expected to continue to exercise authority on a regular basis, a PE exposure may be raised. Removing or limiting the employee’s title and role can strengthen a position that there is no PE. Tax treaties with the US may provide exceptions where, despite the maintenance of a fixed place of business, there is no PE. This exposure needs to be reviewed.
Although employers may want to retain employees seeking a foreign remote workplace, before approving the arrangement, the potential tax consequences must be understood, and a clear written understanding of the respective costs and obligations raised
Douglas Nakajima, International Tax Co-Leader, Marcum LLP*, Philadelphia, USA
Email: douglas.nakajima@marcumllp.com
* Marcum LLP is the exclusive associated partner of ECOVIS International for accounting, tax and audit in the United States of America.
The OECD model convention for the avoidance of double taxation defines the conditions for establishing a business unit. Company law in Croatia regulates the establishment procedure and tax monitoring for companies from non-EU or non-EEA countries when they open a branch office.
Doing business in more than one country through some form of business unit is an increasingly common business model for many foreign companies seeking to expand their markets and, as a result, achieve more profit.
The Company Act sets out the procedure for the establishment and registration of a branch office of a foreign company/sole proprietor. Under the provisions of the act, an entity established in a non-EU or non-EEA country may only establish a branch office in Croatia if it has been registered in the country of its registered office for at least two years. The basic act of establishing a branch office includes a notarised decision on the establishment, as well as the application for the registration of a branch office which, among others, defines the company, the registered office of the founder and the subsidiary, subject matter/activity, authorised representatives etc., explain the Ecovis experts.
We will clarify the individual procedural steps and the tax consequences with you when you set up a branch office in Croatia.Kristijan Novak, Head of Accounting, ECOVIS FINUM, Zagreb, Croatia
The obligation to keep business records and to record the resulting business changes is defined in the Accounting Act and the General Tax Law. Together with the accounting standards, these form the basis for determining the business performance in the reporting period and for the preparation of financial statements for public disclosure and income tax declaration. Subsidiaries of foreign companies whose founder is established in the EU/EEA must submit the accounting documentation of the founder in Croatian with a certified translation, while other subsidiaries (whose founder is established in a third country) must submit all the documentation prescribed by law. If their delivery of goods and services exceeds HRK 300,000 (approx. EUR 40,000) in the previous or current calendar year, they are also liable to pay value added tax, notwithstanding the fact that subsidiaries of foreign companies do not have legal personality.
Kristijan Novak, Head of Accounting, ECOVIS FINUM, Zagreb, Croatia,
Email: k.novak@finum.hr
In Colombia the withholding tax rate for dividends or participations paid to non-residents is at 10% of the value of the payment. For many of those affected, this caused astonishment and unrest, as taxes on dividends were previously not paid in Colombia.
With the introduction of Law 1819 in 2016, which was modified in Article 51 of Law 2010 of 2019, the receipt of dividends by shareholders or participants of Colombian companies was, for the first time, considered a taxable event. Colombia chose a system of withholding at source on payments or credits on account made to the non-resident partner or participant.
Businesses not resident in Colombia must pay withholding tax on dividends.Giovanny Tellez, Legal Advisor, ECOVIS Colombia SAS, Bogotá, Colombia
The 10% rate is applicable when there is no Double Taxation Avoidance Agreement (DTAA) in place. Where there is a DTAA, the applicable rate would be the one established in the agreement and the withholding may even be reduced to 0%, depending on the residence and nature of the beneficiary.
In Colombia, resources distributed by branches or permanent establishments to the main company are treated in the same way as dividends. Therefore, when distributing profits, a Colombian branch of a non-resident company must withhold 10% at source if there is no DTAA.
It is also relevant to verify if the company or entity distributing the dividends has paid taxes on its profits. If not, it is possible that the withholding is increased up to the amount of the tax not paid by the company distributing the profits, explain the Ecovis experts.
This usually occurs with income that is exempt for the partnership, but which cannot be distributed as “income not constitutive of income or occasional gain” in favour of the partners. In this case, the 10% withholding would be applied once the deduction of the unpaid tax is made on behalf of the partnership, as established in Articles 48 and 49 of the Colombian Tax Statute.
Giovanny Tellez, Legal Advisor, ECOVIS Colombia SAS, Bogotá, Colombia
Email: infocolombia@ecovis.co
