Working overseas: beware of the pitfalls

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With the opening of our borders we are seeing a real and expected surge in people heading overseas. Where this has some work element built into it, you need to stop and think about some tax and other compliance issues to prevent any nasty surprises.

There are a couple of main scenarios where work might be undertaken offshore and cause you some issues – you might have employees who are itching to see friends and family overseas for an extended period so ask to work from offshore while they are away, or you or your staff might be taking the opportunity to meet customers, drum up sales, and connect with offshore business partners you haven’t met before, or haven’t seen for a long time.

Employees working overseas

Most employers I talk to are on the receiving end of requests from employees who are able to work remotely to work from overseas – sometimes these are asking for forgiveness rather than permission as the employee is already overseas working without the employer’s knowledge.

Employers generally are keen to accommodate requests for offshore remote working given the difficulty in retaining staff that we are all seeing. With the ease at which we can log in from anywhere in the world these days you could be forgiven for thinking this is a great solution.

However, there are a few things to think about before you say ‘yes’ to these requests. For example, does the employee have the right to work in the country, will the employee be taxable there and will you have PAYE type obligations there, and could the fact you have an employee in another country mean that your business becomes subject to income tax or GST/VAT in that country?

The answers to these questions will vary from country to country and often the amount of time the employee wants to work in a country may dictate whether or not you (or the employee) will have tax obligations there.

The key message is – be prepared. Do some homework and seek advice if you need to. The last thing you want is for you or your staff to run into trouble with the local immigration or tax authorities.

Overseas business travel

If you or your staff are embarking on offshore business travel, the same issues as above are relevant, but you may be visiting many locations which increases the homework you need to do.

On the flip side, if you are only in a country for a short time this should reduce the possibility of tax issues arising, but you will still need to think about whether you need a visa to conduct business there.

When you or your employees travel for work, you will incur a range of costs including airfares, taxis and rental cars, hotels, meals, and incidental expenses. You might also decide to add on a holiday during a work trip or take your partner or family along for the ride.

When it comes to working out which costs are deductible to the business, and which are not, you’ll need to be clear about what the costs relate to and check that you’re treating them correctly.

Inland Revenue has had a real focus on what it considers “private” expenses in recent times, and in line with this has recently released a draft Questions We’ve Been Asked, Deductibility of overseas expenses, which sets out some guidelines on what is deductible and what isn’t.

The rule of thumb is that if there is no private element to the travel, or it is only incidental, then the costs should be deductible and there should be no PAYE or FBT in relation to employee travel.

However, if the costs relate to both a business and a private expense (for example an employee adds a holiday to the business trip, or you take you partner or family with you) you will get a different outcome.

If the costs relate to your staff then you will likely have a PAYE or FBT liability for the private component of the costs.

Related: Employee travel expenses: How to treat them

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Andrea Scatchard
Andrea Scatchard
Andrea Scatchard is a Tax Partner at Deloitte, based in the Bay of Plenty. She can be contacted on ascatchard@deloitte.co.nz

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