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Updated on January 25, 2024
Working remotely has become the norm for many organizations. Several employees would like to take this opportunity to work from abroad.
Hybrid work, or even full-time teleworking, is becoming more prevalent, so employers need to be flexible and open to change.
What about employees who are considering this opportunity to work remotely from another country? How can this affect your organization?
Some of your employees may think that teleworking from abroad, while keeping the same job in Canada, will not affect you as an employer, but they are wrong. Such a decision by one of your employees could result in legal, social security and tax obligations for the organization.
Steps and tax obligations
First, it is important to communicate with your employees and let them know you need to be notified if they are planning to work from another country. You can take proactive steps and issue internal guidelines for your teleworking employees and include measures for those who wish to relocate abroad.
Then, you need to validate what these impacts will be on your entity and what steps you will need to take with the employee and, possibly, with the other country. Depending on the type of work and the relevant tax treaty, the employee newly set up to telework could create a permanent establishment and, thus, a taxable presence for the company in the country where the employee is working from.
If you give one of your employees the option to work remotely outside Canada, either temporarily or permanently, you need to understand that there may be tax implications for the company.
Here are a few questions you need to answer.
Will my organization have tax obligations?
- Does my employee’s home office become a branch in the foreign country?
- Is there an applicable tax treaty?
- Will my organization have new tax obligations in the foreign country?
- What types of taxes are there in the other country: Sales taxes? Business tax? Will my employee’s presence trigger an application of these taxes?
- Will my business have new source deduction obligations (taxes, benefits) in the other country?
- Is there a social security agreement between Canada and the other country?
What are my year-end filing obligations?
- What are the organization’s compliance obligations?
- Since my employee is abroad, do I have tax obligations in Canada as well?
Other regulations to consider:
- What labour laws govern the employer-employee relationship?
- Will disability, injury and medical insurance coverage apply outside Canada?
As new teleworking policies come into effect and acceptance of telework from abroad changes, you need to integrate tax planning into your policy development to ensure that more flexible work arrangements do not create tax complications and risks. There are risks for both the employee and the employer in allowing an employee to telework from abroad.
As an employer, you need to think about these issues and manage the tax and legal implications for an employee teleworking from abroad. Tax planning will help avoid unpleasant surprises and even create opportunities for both the employee and the employer.