working remotely from another country canada

Tax authorities the world over have “ intensified their focus” on transfer pricing. For example, a company may opt to pay more for goods or services provided by divisions located in a high-tax country (rather than paying less for goods or services provided by divisions located in a low-tax country) because that could reduce its overall profits and therefore the tax on profits. However, businesses may use transfer pricing to reduce their overall tax burden. Typically the profit of the PE will be based on the nature of the employee’s work (e.g., marketing, research and development, etc.).Īs companies of all sizes expand globally, they need to maintain transfer pricing compliance concerning their international activity. Tax authorities will then use transfer pricing methods to determine the level of profit, or taxable income, of the PE. In this case, the local tax authorities may be entitled to levy taxes on the PE (in addition to any payroll taxes). In the case of remote work, an employee based in one country may create a permanent establishment (PE) for their employer in another country. A transfer price is a price applied by a company to goods or services transferred within the company (i.e., an intercompany transaction). Transfer pricing may also come into play. This brings us back to setting up shop in another country.Īs with states in the United States, each country has its own rules regarding when a person is considered a resident for payroll and employment tax purposes, and when they establish nexus for their employer. (It’s not lost on anyone that Airbnb stands to benefit if other companies allow employees to work from anywhere, even temporarily.) Others, like Airbnb, are embracing the benefits of remote work. Some companies, like the one I work for, are encouraging rather than requiring employees to return. In fact, the Indiana Department of Revenue issued guidance saying, “If the person remains in Indiana after the temporary remote work requirement has ended, nexus may be established for that employer.”Įmployees are trickling back to the office now that stay-at-home orders have ended. Some states emphasized the temporary nature of the more lenient policy. Indiana, Massachusetts, Mississippi, New Jersey, Pennsylvania, and Washington, D.C., were among the first to announce they wouldn’t treat working from home as a nexus-generating activity if the arrangement was temporary and due to COVID-19. But after the pandemic hit, several states temporarily waived the enforcement of certain nexus laws. Ordinarily, having an employee working remotely in another state would likely give your company nexus with that state. Unfortunately, every taxing authority defines “substantial” differently.

As a general rule, the connection must be substantial. Nexus is a connection that enables a taxing authority to impose a tax obligation on an individual or business entity.

So, what tax tangles will you need to unravel if you allow employees to work abroad, or do so yourself? Reviewing how remote employees can give you a tax obligation in another state is a good place to start.

Chesky noted that “most companies don’t do this because of the mountain of complexities with taxes, payroll, and time zone availability.” As CEO Brian Chesky explained in an email to employees, “Permanent international moves are much more complex, so we won’t be able to support those this year.”Įven having employees in different countries temporarily can create tax complexity. But decamping permanently to another country isn’t an option, at least for now. Starting September 2022, they’ll also be able to work abroad in over 170 countries for up to 90 days a year (per location). It will likely create a world of new tax obligations too.Īirbnb employees can now live and work from anywhere in their home country, without it affecting their salary. They don’t have to: A growing number of companies, including Airbnb, have told employees they can “live and work anywhere.” Some employees went back to the office after government stay-at-home mandates were lifted, but others may never go back.

Working remotely from another country canada