We live in uncertain times. From political unrest to natural, or even man-made disasters to unexpected outbreaks impacting our health and well-being. Most would agree … nothing is more important than the health and wellbeing of our families, colleagues and employees.
Security and health scares are scenarios many mobility professionals have to plan for. The Coronavirus is merely a recent example of a health-related event with wide spread impact on the movement of people. How do we quickly identify which employees are in a particular location/ country? How do we quickly shift personnel out of a country? What will the impact on the local teams and business be if key talent needs to stop travelling, or return home, at short notice. These are key people related business issues that have to be addressed. Human Resource and Mobility Teams will be at the forefront of answering these key questions.
The unplanned repatriation of employees as a response to security or health concerns can also impact taxation, social security and payroll. The basic issue here is that payroll and taxes would have been set up in home and host countries based on certain planned assumptions.
Assumptions like the length of the assignment, the number of days to be spent in the home and host country and the qualitative links and connections the employee has in the home and host country. Examples of qualitative links include where the family is, where the home is and where centres of vital interest are. When an assignment is cut short, interrupted or even cancelled due to an emergency evacuation, or preventive measures, this will impact the set of assumptions upon which the original compliance was set up.
Tax residency of the employee drives both the level of taxes (income taxes and social security) due by the employee and the employer payroll reporting and payroll taxes. With tax equalisation, the employee tax liabilities due in the home and host shift to the employer so the changes in tax liabilities actually become an employer issue too.
Interruptions to the assignment may change the tax residency of the employee. Thus, the payroll taxes may also need to be altered and the individual may need to understand how their tax position and filing obligations have been impacted. When this aspect is left un-reviewed - underpayments (non-compliance) and overpayments (cash flow issues) can arise.
Similar issues can arise in the reverse too. A number of NGOs, medical aid agencies and charities often respond to humanitarian events by deploying expertise and resources to the impacted zones. For these employers, urgent impact issues apply as well. The key question to ask - are we deploying resources to a location that is triggering compliance obligations in that country?
What’s the key? Understanding the length of the assignment disruption period and where the employee is during this time is paramount.
The very nature of the cause of assignment interruptions means the situation is very fluid in nature. The exact period of assignment disruption is often unknown. So what should global mobility and HR professionals be doing in this area?
Employees leaving the UK to work abroad will typically break UK tax residence under the ‘Full Time Work Abroad’ test. This test requires that the employee, whilst working abroad, has a) no more than 30 UK workdays in a tax year and b) no more than 90 UK midnights in a tax year. Unexpected return visits to the UK may result in the employee exceeding these thresholds triggering UK tax residence. This, in turn, can trigger unexpected tax costs and reporting obligations (both at employer and employee level). Whilst reliefs should be available to mitigate this exposure (e.g. temporary workplace relief, foreign tax credits etc.) there is now significant added complexity to manage.
There are certain specific provisions linked to the duration of stay in Canada to note. A stay of more than 183 days in Canada could trigger tax residency and reporting and tax obligations. Non-resident employer certification is an area to look at too. This allows certain employers to be waived from payroll withholding if their employees’ stay in Canada meets certain conditions. If employees are unexpectedly in Canada because they are quarantined, it may put the certification in jeopardy. Employers may also need to consider unanticipated taxable benefits (temporary housing, moving costs etc.)
Monitoring movements is key. There are no exceptions defined for any kind of emergencies in the tax rules. The Budget on 3 February 2020 did however propose changes in the residency rule. 120 days of stay in India to trigger residency maybe the key test going forward instead of 182 days.
South African tax residency rules are complex. Many South African expats (working overseas will remain tax resident in South Africa). However, where a person has left SA permanently and become not tax resident a ‘Physical Presence Test’ applies. In these cases careful monitoring is needed to ensure that the allowable days present in SA is not exceeded. If these are exceeded then the person automatically becomes tax resident again.
There is a lot of going on when assignments get interrupted. The human aspects of employee welfare, communications are absolutely critical and will be front of all minds. That said, employees being in a location for an unplanned period of time can change compliance obligations too and this aspect also requires attention.
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