In brief

More companies are considering the implications of employees working abroad. These considerations have always been relevant for business travel or long-term assignments, but these are now also relevant for employees that wish to work from a different country to their employer. As companies assess and adapt to these requests, the tax landscape is also changing across various countries. Some of the most recent developments in this area include specific visas for digital nomads, beneficial tax treatment for employees and easing employer compliance. If you would like more information about the developments in cross-border remote working from France, South Africa, Spain and the UK.

In more detail

As companies grapple with employee requests to work outside their home country and try to balance the wish to be flexible with the risks associated with cross-border remote working, the tax, social security and employment landscape in this area continues to change. Some of the recent updates are:

  • France: The French Draft Finance Bill for 2023 plans to modify the withholding tax obligations for foreign employers of French tax residents and thus ease remote working employer compliance. From January 2023, the employer's obligation to operate French withholding tax on salaries taxable in France would be replaced by withholding the French personal income tax, as estimated by the French tax authorities based on the most recently declared income, directly from the employee's personal bank account.

This new process is designed to facilitate compliance with French tax obligations by employers hiring French tax residents who are not subject to the French social security system. The current system of withholding by the employer can be complex because there would be tax withholding obligations in respect of a portion of the employees' activity carried out in France but no social security obligations. Such complexity could constitute an obstacle in the context of remote working. The employer would also be subject to a specific annual reporting obligation of the French source salaries paid to their French tax resident employees.

The proposed rules would apply to employers who are residents of an EU Member State or in another State or territory which has concluded an administrative assistance agreement with France to combat tax fraud and tax evasion. Parliamentary discussions on the French 2023 Draft Finance Bill are expected to be finalized by the end of December 2022.

  • SA: South Africa announced in early 2022 that they would be introducing a digital nomad visa. This visa has not yet become active, but the proposed implementation date is indicated as May 2023. A digital nomad visa legally allows visitors to work remotely for a foreign company and receive foreign income for an extended period of time. The nomad visa can apply for a period of between three months and one year. Other details, such as processing times and cost of the visa are still currently unknown.
  • Spain: In the post-pandemic race to attract digital talent, the Startups Act (which is currently in bill form and is expected to be passed shortly) will significantly improve the Beckham Act (which established a specific tax regime applicable to inward expatriates), making relocation to Spain more competitive and attractive for workers, entrepreneurs and companies in the technological sector. Planned to be effective as of 1 January 2023, the following changes are envisaged for individuals relocating to and working remotely from Spain:
  1. The required period of prior non-residency in Spain is reduced from 10 to five years, which will allow expatriated Spanish talent to return to Spain earlier than expected.
  2. The new regime's scope of application will refer not only to employees and directors with a shareholding of less than 25% but also to: i) the so-called "digital nomads", who work for a foreign company and provide their work remotely from Spain through the exclusive use of technology; and ii) directors of emerging companies, irrespective of what stake they hold in their startup company.
  3. The expatriate's spouse or partner, and children generally under the age of twenty-five, may also benefit from this special regime.
  • UK: The Office of Tax Simplification (OTS) has just closed a call for evidence on hybrid and distance working. This asked for evidence on the latest trends and policies that companies are introducing and/or developing with respect to cross-border workers. It also asked about the challenges and compliance issues that companies face. The OTS intends to conclude its review before the end of 2022, prior to it being disbanded. Any further actions will be taken on by HM Treasury and/or HMRC.