Guide to Remote Working in APAC
GUIDE TO REMOTE WORKING IN APAC
Contents
Introduction3 Australia7 People's Republic of China ("PRC")9 Hong Kong12 Japan15 New Zealand18 Singapore21 Thailand25
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Introduction
With COVID-19 continuing to cause travel disruption in many locations, employers are increasingly having to respond to scenarios where employees are stranded or unwilling to return from overseas as planned and therefore are working overseas for extended periods of time. The migration to remote working has also become a worldwide response to the COVID-19 pandemic, prompting increasing numbers of employees to request working overseas for extended periods to allow an escape from COVID-related restrictions within their work location and/or so they can travel and visit families. While employers are keen to support wellbeing and explore new ways of working, this has also come with challenges as allowing employees to work outside their place of employment may lead to various risks and issues and trigger compliance obligations for employers. Knowing the relevant risks and issues and accordingly defining parameters of remote working arrangements will enable employers to appropriately scope and address the risks and issues.
In our Guide to Remote Working in APAC, we discuss some key common issues across 7 jurisdictions in APAC related to employees working remotely outside their normal place of employment on a non-permanent basis.
Before examining the legal landscape in specific jurisdictions, we have outlined below some general high level considerations and risks for employers.
Key considerations
Determine eligibility: Establish clear objective eligibility criteria for remote working outside the place of employment and the duration for which remote working applications will normally be considered in order to ensure consistency and minimise the risk of claims of discriminatory treatment. Criteria may include the nature of the employee's position, whether the employee holds a visa or right to work in the requested location, whether job duties can be performed remotely, the employee's seniority or tenure, how many days the employee has spent in that location in the applicable tax year, how many other employees have requested to work from that location, whether the employer has a corporate presence in that location, the availability of supporting technology, whether data privacy and cybersecurity
issues can be addressed, performance issues, whether any regulatory or licensing issues apply etc. Employers should plan a process for receiving and considering such remote working applications to ensure consistency of approach and response.
Set expectations: Another key issue is setting expectations. It is prudent to make clear in writing to employees that, even when they are working abroad, their employment remains with the home employing entity and there are no changes to their original employment terms and conditions unless otherwise specified or agreed. It is also advisable to remind employees what the expectations are, including but not limited to the ways of working (e.g. working hours, work deliverables, availability during business hours, response time, working time tracking requirements). It should generally be made clear to employees that the remote working arrangements are temporary or subject to a fixed period and that the company reserves a right to terminate such arrangements at its sole discretion to the extent permitted under applicable law. It is also prudent to agree upfront what will apply if the employee does not, for any reason, return on the agreed date e.g. will the employee be required to go on unpaid leave, which party will bear any expenses or costs relating to flight bans etc.
Know where your employees are located and put guardrails in place: It will be critical for the business to monitor headcount in locations where employees are permitted to work. Various employment obligations could be triggered based on the number of employees, from discrimination laws and leave protections to collective representation, termination protections and information reporting. Further, as a general rule of thumb, in many locations the higher the number of employees working in a jurisdiction the higher the risk of permanent establishment ("PE"), triggering potential corporate tax issues and/or payroll obligations. The risk of employees accruing local statutory rights will also generally increase with the duration of the overseas stay. Employers should also familiarise themselves with the local COVID-19 rules and restrictions as those may impede employees from coming back to the place of employment at the agreed time.
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Revise policies as needed: As the prevalence of remote working increases, it is recommended that employers consider how their current workplace policies apply to remote working outside the normal place of employment, including but not limited to supervision, performance management, time recording, privacy, confidentiality, IT and document management, insurance, etc. It is prudent to have a remote working policy that specifically covers the eligibility criteria, expectations and guardrails as summarised above.
Be familiar with local obligations: Employers should assess whether local laws will apply to them when they have employees working there and at what stage these may apply. It is prudent to be aware of employer obligations under applicable local law, such as immigration requirements, employment rights, employee benefits, filing requirements, health and safety, equal employment opportunity and human rights.
Overview of key risks for employers
General employment risks: Where an employee performs services abroad even for a short period local employment laws such as working time rules, overtime and leave entitlements, or termination rights may be deemed to apply. Whether or not local laws apply is a fact specific analysis that can depend on factors such as the duration of time spent in the jurisdiction, whether there is local corporate presence, nature of work, where payroll is paid, and what work permits are held. Generally speaking, local authority enforcement is unlikely for a one-off short-term case where an individual is stranded, for instance. But the risk is greater where the employee has stayed and worked abroad for a long period of time or on a regular repeated basis. Where a dispute arises such as over termination of the employee while abroad the employee is likely to try to claim "the best of both worlds": the more favourable of the laws of their home country and the overseas country.
Intellectual property ("IP") assignment issues, data privacy and export controls: If an individual creates IP, employers should consider whether local IP assignment laws might apply that have different requirements than the employee's ultimate jurisdiction (e.g. compensation requirements for creation of IP). Additional data privacy issues may also arise as data is likely to be transferred abroad. If the employee needs access to controlled technology, the employer is encouraged to review the application of export control laws and ensure compliance.
Payroll tax risk: Another risk is the failure to withhold income tax and social charges. Again, there is unfortunately no bright line rule as to when withholding obligations are triggered and case-by-case analysis is required based on the home working location and proposed overseas working location. Double-taxation treaties ("DTT") or Double-taxation agreements ("DTA") often provide that an employee temporarily located in another jurisdiction is not subject to taxes if (i) that individual is paid by the original location; (ii) resides in the other location for no longer than 183 days the rule used by most jurisdictions to determine if someone should be considered a resident for tax purposes (although this can vary); and (iii) the compensation paid to the individual is not borne by a PE of the original location abroad. However, requirements can vary by jurisdiction, and there may still be risk if an employee works abroad for less than six months. For instance, there may be no DTT or DTA between the home jurisdiction and the jurisdiction where employees are working abroad, the DTT or DTA may have different requirements, or the company may simply not fulfill all of the treaty or agreement requirements. Social security treaties are also less common and often do not provide protection from triggering local social charges. Payroll tax risk often poses higher financial exposure than other employment risks. This is especially true as claims vis--vis the government usually cannot be released.
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Permanent establishment tax and "doing business" risk: A company with an employee located in a jurisdiction where it does not have operations may trigger a taxable presence for income tax purposes, risking corporate tax obligations abroad. This risk tends to be higher where the individual is engaged in sales activities and generating revenue for the company, but non-sales employees can also create risk. Similarly, rules usually require a company that is engaged in "business" in a jurisdiction to set up a corporate presence.
Immigration risk: If an employee is working in a jurisdiction where she or he does not have the right to work, both the employee and/or the company may face penalties, fines or expulsion from the jurisdiction due to immigration violations. While there may be
flexibility for individuals who are unable to leave the jurisdiction in time due to an emergency, immigration issues may arise if individuals do not return to the jurisdiction of their regular work when feasible to do so.
Accordingly, employers should review carefully any employee requests to work in a jurisdiction outside their place of employment even where the arrangement is intended to be temporary. Staying longer than originally planned has become a key risk that needs to be considered at the planning and approval stage.
Below we have elaborated some risks on a jurisdiction-by-jurisdiction high level basis. Employers, however, should seek legal advice for detailed analysis.
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Key contacts
EMPLOYMENT
Laura Scampion Country Managing Partner and Head of Employment, New Zealand Auckland +64 9 916 3779 [email protected]
Helen Colquhoun Partner and Head of Employment, Hong Kong Hong Kong +852 2103 0840 [email protected]
Johnny Choi Partner and Head of Employment, China Beijing +86 10 8520 0709 [email protected]
David Smail Of Counsel Singapore +65 6512 9564 [email protected]
Nicholas Turner Partner and Head of Employment, Australia Sydney +61 2 9286 8522 [email protected]
Komson Suntheeraporn Partner and Head of Employment, Thailand Bangkok +66 2 686 8557 [email protected]
Keiji Nasuda Partner and Head of Employment, Japan Tokyo +81 3 4550 6417 [email protected]
TAX
Anderson Lam Co-Head of Tax, Asia Head of Tax, Hong Kong Hong Kong +852 2103 0722 [email protected]
Tina Xia Partner Hong Kong +852 2103 0440 [email protected]
Keitaro Uzawa Of Counsel Tokyo +81 3 4550 2833 [email protected]
David Johnston Partner Auckland +64 21 911 146 [email protected]
Eddie Ahn Partner Sydney +61 2 9286 8268 [email protected]
Acknowledgements
We would like to express our gratitude towards Pioneer Associates, a local law firm in Singapore, for making important contributions to this Guide by sharing their insights in relation to the tax aspects for Singapore.
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Australia
Employment-Related considerations
1. Would an employee, whose normal place of work and employer is in another jurisdiction, who chooses to spend 1-90 days in a 12-month rolling period working remotely in Australia be likely to acquire local employment rights during their stay? On balance, we would not expect an employee to acquire Australian employment rights during a limited stay of between 1 and 90 days in Australia in any 12-month rolling period. It will be fact specific in each case and will depend on whether the court or the Fair Work Commission considers there to be a sufficiently strong connection with Australia.
To minimise the risk, we recommend informing the employees in writing that their existing terms and conditions of employment will continue to apply to them while they are working remotely in Australia.
2. At what point during the stay are any local employment law rights likely to accrue? The longer the stay in Australia, the more likely that an employee will successfully argue that they have acquired Australian employment law rights. Broadly, such risk starts to increase after 90 consecutive days, and after 6 consecutive months, it will be very difficult for an employer to argue that Australian employment law does not apply.
The look back period is likely to extend back to the date on which the employee started to work in Australia.
3. Which key non-termination rights will apply? The below rights have been identified for completeness in the event that the employee acquires Australian employment law rights (though it is not an exhaustive list):
Minimum Wage
Modern award coverage
Statutory leave (e.g. paid annual leave, paid personal/carer's (sick) leave etc.)
Long service leave (which is a type of extended vacation leave and the relevant period of service on which this entitlement is calculated can include service outside Australia)
Statutory redundancy pay
Anti-discrimination, harassment and bullying
Whistleblowing protections
Some of the above rights will depend on the length of an employee's service in Australia, or for long service leave, outside Australia.
4. How onerous is it for an employer to comply with these non-termination rights? Medium
5. What are the key termination rights that will apply and what are the potential termination remedies? Protection against unfair dismissal (employees need 6 months' continuous service to bring a claim). The cap on compensation is generally 6 months of base salary.
Ability to bring a general protections claim in connection with the employment, including but not limited to termination.
6. How onerous/expensive is it for an employer to terminate lawfully? Medium
There are requirements relating to both the process of termination and the reason for the termination.
7. Overall risk for employer? Medium
8. Is the type of work and/or seniority of the employee relevant to the analysis and if so how? No.
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Tax-Related considerations
1. What is the duration (e.g. 6 months or otherwise) relevant for determining the existence of PE in Australia when an employee from an overseas company is working remotely in Australia? There is no fixed duration threshold to determine whether PE of an overseas company exists when its employee is working in Australia, as it depends on factors including the nature of the business of the overseas company, the seniority level of the employee and the activities carried out in Australia by the employee (see Question 4).
For instance, whilst generally the duration threshold is 6 months, business activities of a recurrent nature can constitute a PE even if any continuous presence lasts less than 6 months.
In this regard, Australia and its DTT generally follow the approach of the Organisation for Economic Co-operation and Development ("OECD") in identifying PE (see Question 4).
otherwise act on behalf of the overseas company in Australia? Yes.
Generally, the risk of a PE is higher where the employee is at a higher level of hierarchy or where his or her activities represent the core business activities of the overseas company.
Further, under Australia's DTTs (which generally follow the OECD's approach in identifying PE):
A place of management (i.e. comprising individuals making high-level decisions relating to the taxpayer's business and affairs) would likely constitute a PE.
A person who has, and habitually exercises in Australia, an authority to conclude contracts on behalf of the overseas company would also likely constitute a PE, although there are certain exclusions (e.g. for independent agents or for the purchase of goods or merchandise only etc).
2. Does it make a difference whether there is a double taxation treaty between Australia and the jurisdiction of the overseas company Yes.
If there is no DTT, Australian income tax liability arises to the extent the relevant income is Australian sourced regardless of PE.
If there is a DTT, Australian income tax liability arises to the extent the net profits is attributable to a PE.
3. During this pandemic, are there exceptions relating to PE? No.
The Australian Taxation Office had once provided some administrative concessions relating to COVID-19 and PE, but such concessions only applied until 31 December 2021 and have not been extended further.
4. When referring to PE, are there different approaches for people at different levels, with different levels of responsibilities or job types, without or without authority to sign or
5. When is an employee of an overseas company who is working remotely in Australia required to pay salary tax in Australia? When the employee is present in Australia for a period of or periods totaling 183 days or more in an income year.
6. If the employee refuses to pay tax to the local authority or chooses not to file income tax return (if required), will the liability be extended to employer? Generally, an employer is liable to withhold Pay-As-You-Go ("PAYG") withholding tax from taxable salary and wages payable to its employees. An overseas company that has employees in Australia may also be liable for PAYG withholding regardless of whether it has a PE in Australia.
7. Further Remarks/Comments In particular, apart from PAYG withholding, an overseas company which has employees in Australia may also be liable for superannuation contributions, payroll tax and other employer tax related obligations, regardless of whether it has a PE in Australia.
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People's Republic of China ("PRC")
Employment-Related considerations
1. Would an employee, whose normal place of work and employer is in another jurisdiction, who chooses to spend 1-90 days in a 12-month rolling period working remotely in the PRC be likely to acquire local employment rights during their stay? This will depend on the specific circumstances of each case.
Generally, there will be a risk for an individual to acquire PRC employment law rights if he or she is a Chinese citizen (including Hong Kong, Macau and Taiwan residents) and there is a PRC subsidiary, affiliate or corporate entity which can be regarded as his or her PRC employer. The longer the duration of stay in the PRC, the risk will increase.
On the other hand, it is not likely for an individual to acquire PRC employment law rights if he or she is a foreign citizen who does not have a PRC work permit, or if there is no PRC subsidiary, affiliate or corporate entity which can be regarded as his or her PRC employer.
Double salary for being employed without a written local labour contract
Overtime pay (including during public holidays) and compensation for entitled but unused annual leave and other types of statutory leave
Social insurance and housing fund
Note that some of the above rights will be subject to certain qualifying criteria or conditions.
4. How onerous is it for an employer to comply with these non-termination rights? Medium
5. What are the key termination rights that will apply and what are the potential termination remedies? An employer is only permitted to terminate the employee unilaterally in limited circumstances for which the conditions are difficult to satisfy or prove. An employee can be reinstated if terminated wrongfully.
However, if the individual stays and works beyond 90 days in the PRC, the risk of not obtaining a PRC work permit will increase.
6. How onerous/expensive is it for an employer to terminate lawfully? High
2. At what point during the stay are any local employment law rights likely to accrue? The look back period may extend to the date on which the employee began working in the PRC in the event the employee successfully argues that PRC employment law rights apply to his or her employment. Such rights will not necessarily take effect from a particular date.
3. Which key non-termination rights will apply? The below rights have been identified in the event that the individual acquires PRC employment law rights (though it is not an exhaustive list):
7. Overall risk for employer? High
8. Is the type of work and/or seniority of the employee relevant to the analysis and if so how? Only relevant to a certain extent. For example, in order to ascertain whether the individual has a PRC employment relationship with a PRC subsidiary or affiliate, facts related to the nature of his or her work would be relevant.
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Tax-Related considerations
1. What is the duration (e.g. 6 months or otherwise) relevant for determining the existence of PE in the PRC when an employee from an overseas company is working remotely in the PRC? PRC tax law does not provide for PE. An overseas company will be subject to PRC income tax if it has an "establishment" in the PRC.
Without a DTT, an overseas company sending employees to work in the PRC will be deemed to have a taxable "establishment" in the PRC even if the employees only spent one day in the PRC.
On the other hand, where there is a DTT between the jurisdiction of the overseas company and the PRC, the provision of such treaty shall apply.
2. Does it make a difference whether there is a double taxation treaty between the PRC and the jurisdiction of the overseas company? The PE article in most of the DTTs to which the PRC is a party sets a 6-month or 183-day threshold for PE assessment.
If an employee of an overseas company continues to work from home in the PRC (say for more than 6 months), the home office, as an extension of business of the overseas company, will be considered to have certain degree of permanence, and will give rise to a "fixed place of business" and thus a PE of the overseas company.
3. During this pandemic, are there exceptions relating to PE? Yes. Based on the "Q&A on the Implementation of Tax Treaty Provisions during the Pandemic" published by the State Taxation Administration on 14 August 2020 ("Q&A"), which applies to the implementation of DTTs, the "exceptional and temporary change" of the location where employees perform their employment because of the COVID-19 pandemic, such as working from home, should not create new PEs for the employer.
However, there is no further guidance under the Q&A as to what constitutes an "exceptional and temporary change", which shall be interpreted reasonably by the taxpayers taking into account the public health measures of the relevant jurisdictions.
4. When referring to PE, are there different approaches for people at different levels, with different levels of responsibilities or job types, without or without authority to sign or otherwise act on behalf of the overseas company in the PRC? Yes. PRC tax law deems an overseas company whose "place effective management" is in the PRC to be a PRC resident company. Such "place effective management" is determined as, among others, the place where senior executives perform their day to day duties, and where the directors or senior executives habitually reside.
In addition, many DTTs have the "place of effective management" as a tie-breaker rule for situations of dual tax residency.
Notwithstanding the above, for DTTs, the Q&A provides that, the temporary change to the location of directors or other senior executives is an extraordinary and temporary situation due to the COVID-19 pandemic, and should not trigger a change in treaty residence of a company.
Therefore, the temporary change of work location of senior executives generally will not result in changes in corporate residence of an overseas company.
5. When is an employee of an overseas company who is working remotely in the PRC required to pay salary tax in the PRC? According to the Q&A, the tax residence status of an employee will not change purely because of the temporary change of the work location due to the COVID-19 pandemic.
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However, if an overseas company has constituted a PE in the PRC due to its employee's remote working in the PRC (taking into account the guidance and administrative relief on the impact of COVID-19 provided under the Q&A), its employees working in the PRC will be liable to PRC individual income tax regardless of the days spent in the PRC.
6. If the employee refuses to pay tax to the local authority or chooses not to file income tax return (if required), will the liability be extended to employer? No. The individual income tax liability remains with the employee.
However, if the employee is liable to PRC individual income tax because his or her employer (i.e. an overseas company) has constituted a PE in the PRC,
the PE of his or her employer shall perform tax registration in the PRC and act as the withholding agent of the individual income tax of the employee.
7. Further Remarks/Comments There are other types of PEs that might be created by an overseas company due to its employees' working remotely in the PRC, such as furnishing services for third parties, or habitually signing or negotiating sales contracts with third parties, for and on behalf of the overseas company. The analysis of such PE will be subject to the facts and circumstances of each situation.
GUIDE TO REMOTE WORKING IN APAC
Hong Kong
Employment-Related considerations
1. Would an employee, whose normal place of work and employer is in another jurisdiction, who chooses to spend 1-90 days in a 12-month rolling period working remotely in Hong Kong be likely to acquire local employment rights during their stay? On balance, we would not expect an employee to acquire Hong Kong employment law rights during a limited stay of between 1 and 90 days in Hong Kong in any 12-month rolling period. Whether the Hong Kong tribunals would take the view that Hong Kong law and thus statutory rights should apply will be fact specific in each case and will depend on various factors such as the intention of the parties and how close a connection there is to the overseas original location.
The longer the stay and the more regular any repeat annual stays in Hong Kong are, or the closer the relationship with the Hong Kong office (if any) during the period of stay, the more likely that an employee will successfully argue that he or she has acquired Hong Kong employment law rights. The risk will be higher if the parties have not expressly agreed that the overseas governing law continues to apply to the relationship.
3. Which key non-termination rights will apply? The below rights have been identified for completeness in the event that the employee acquires Hong Kong employment law rights (though it is not an exhaustive list):
To minimize the risk, we recommend that the employer imposes a limit on the time that employees can work in Hong Kong and avoids assigning work to employees which is connected to Hong Kong or its establishment in Hong Kong (if any). The employer should continue to pay remuneration and manage the employment relationship from the home country, such as handle payroll, dismissal, grievance, disciplinary matter etc. as a local process in the home country.
Statutory leave (e.g. annual leave, maternity leave, paternity leave etc.)
Statutory holidays Rest day per week Statutory sickness allowance Statutory severance/long service payment Minimum Wage
We also recommend to make clear to the employees that all of their employment terms and conditions as stipulated in the employment contract will remain unchanged (including the governing law) during their stay in Hong Kong.
2. At what point during the stay are any local employment law rights likely to accrue? The longer the stay in Hong Kong the higher the risk that an employee will successfully argue that they have acquired Hong Kong employment law rights. While the case law in Hong Kong is unsettled on this point, generally speaking, it is prudent to take the view that the risk can become more significant when the stay lasts for more than 6 consecutive months. However, it will be fact specific in each case and will depend on various factors, including the intention of the parties and the level of connection that remains with the overseas location.
Unlawful discrimination and harassment
Employees' compensation insurance
Mandatory Provident Fund
Note that some of the above rights will be subject to certain qualifying criteria or conditions. Further, an employee who does not work for at least 18 hours per week for 4 consecutive weeks will receive fewer statutory rights.
4. How onerous is it for an employer to comply with these non-termination rights? Medium
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5. What are the key termination rights that will apply and what are the potential termination remedies? Statutory right to terminate employment with notice or wages in lieu of notice (except for gross misconduct).
Statutory right for employee to terminate employment without notice in certain circumstances, such as reasonably fear for physical danger by violence or disease which are not contemplated under contract, employed for at least 5 years and certified as being permanently unfit for the type of work engaged to do, or subject to ill treatment by employer etc.
Dismissal of a "protected" employee is unlawful, such as those in receipt of statutory sickness allowance, who are pregnant, who are on statutory maternity leave, or who are suffering work injury entitling them to compensation under the Employees' Compensation Ordinance (Cap. 282) etc. It is a criminal offence upon
conviction and there can be personal liability for directors and officers in certain circumstances.
Dismissal must have a valid statutory reason if the employees have been continuously employed for at least 24 months. Otherwise, employees can bring an "unreasonable dismissal claim".
6. How onerous/ expensive is it for an employer to terminate lawfully? Low
7. Overall risk for employer? Low
8. Is the type of work and /or seniority of the employee relevant to the analysis and if so how? No.
Tax-Related considerations
1. What is the duration (e.g. 6 months or otherwise) relevant for determining the existence of PE in Hong Kong when an employee from an overseas company is working remotely in Hong Kong? For an overseas company which is not a tax resident of a jurisdiction having a DTA with Hong Kong, the Inland Revenue Ordinance (Cap. 112) ("IRO") will apply to determine whether it has a PE in Hong Kong.
There is no clear guideline as to the duration that constitutes a PE if an overseas company has an employee who works remotely in Hong Kong. It depends on the facts and circumstances of each case.
For an overseas company which has employees temporarily relocated to Hong Kong and delivers work here, it is not likely that a PE will be created by reason of the employees' transitory presence unless they perform work or habitually conclude contracts on behalf of the businesses even prior to the COVID-19 pandemic.
2. Does it make a difference whether there is a double taxation treaty between Hong Kong and the jurisdiction of the overseas company? Yes, for an overseas company which is a DTA territory resident person (i.e. to whom Hong Kong's DTA is applicable), whether it has a PE in Hong Kong is to be determined in accordance with the relevant provisions under the DTA (not the IRO).
In essence, a non-DTA territory resident person (i.e. to whom no DTA is applicable) has a PE in Hong Kong if it has a "fixed place of business" in Hong Kong through which the business of the enterprise is wholly or partly carried on. Even if there is no "fixed place of business", a person acting in Hong Kong on behalf of the overseas company to habitually conclude contracts, or habitually plays the principal role leading to the conclusion of contracts that are routinely concluded without material modification by the overseas company, can be seen as having a PE in Hong Kong.
The definition of PE is the same as that under the IRO, i.e. a DTA territory resident has a PE in Hong Kong if it has a "fixed place of business" through which the business of the enterprise is wholly or partly carried on.
However, the DTA indicates the duration in determining a PE. If the furnishing of services by an overseas company, directly or through employees or other personnel engaged by such overseas company, within any 12-month period the cumulative number of days during which services have been provided by such overseas company in Hong Kong exceeds 183 days, then it will be regarded as having a PE in Hong Kong.
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3. During this pandemic, are there exceptions relating to PE? There are no specific exception relating to PE during the COVID-19 pandemic by way of legislation stipulated by the Hong Kong Inland Revenue Department ("IRD"). However, the IRD provided general information through a publication issued in July 2021:
Even if there is no "fixed place of business", a person acting in Hong Kong on behalf of an overseas company to (a) habitually conclude contracts, or (b) habitually plays the principal role leading to the conclusion of contracts that are routinely concluded without material modification by the overseas company, can be seen as having a PE in Hong Kong.
The IRD is prepared to adopt a flexible approach in determining PE related issues, aligning with the "Updated guidance on tax treaties and the impact of the COVID-19 crisis" released by the Organisation for Economic Co-operation and Development ("OECD Guidance") in January 2021. It will examine all the relevant facts and circumstances of a case, including the international travel disruption caused by public health measures imposed by governments in response to the COVID-19 pandemic, to assess whether a non-Hong Kong resident person has a PE in Hong Kong under DTAs (for DTA territory resident) or relevant sections of the IRO (for non-DTA territory resident).
For instance, the OECD Guidance explained that the exceptional and temporary change of locations where employees exercise their employment due to the COVID-19 pandemic should not create a new PE for their employers.
The IRD emphasises that such views are relevant only to circumstances arising during the COVID-19 pandemic when public health measures are in effect.
4. When referring to PE, are there different approaches for people at different levels, with different levels of responsibilities or job types, without or without authority to sign or otherwise act on behalf of the overseas company in Hong Kong? There is no detailed guideline on whether the IRD will adopt a different assessment in determining PE when employees remotely working in Hong Kong are at different levels of hierarchy and/or with different level of responsibilities, authorities, job types.
However, the IRD recognises that certain activities that a person undertakes for an enterprise could give rise to sufficient taxable nexus.
If the activities of the employees in Hong Kong are limited to preparatory or auxiliary activities, even if exercised through a "fixed place of business", it would not make that "fixed place of business" a PE. It depends on the facts and circumstances of each case.
5. When is an employee of an overseas company who is working remotely in Hong Kong required to pay salary tax in Hong Kong? An employee of an overseas company who renders services in Hong Kong during visits for not more than a total of 60 days in the basis period of a year of assessment will have no liability to salaries tax.
If the employee's visits in Hong Kong exceed 60 days and the source of employment is outside Hong Kong (i.e. a non-Hong Kong employment), he or she will be assessed on the income attributable to the services rendered in Hong Kong (including leave pay attributable to such services), and generally according to the number of days (days-in-days-out basis) in a year of assessment.
6. If the employee refuses to pay tax to the local authority or chooses not to file income tax return (if required), will the liability be extended to employer? No. It is the employee's obligation to pay tax and file tax returns to the IRD. The liability applies to the individual and will not be extended to the employer.
A prudent approach is for the overseas company to make filings in relation to the employee's employment in Hong Kong.
If the stay of the employee creates a presence of the overseas company (which is subject to analysis of the facts), it must make filings for business registration as a non-Hong Kong company under Part 16 of the Companies Ordinance (Cap. 622) and fulfill its employer's obligation (e.g. filing timely and accurate returns, keeping and retention of records, etc.).
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Japan
Employment-Related considerations
1. Would an employee, whose normal place of work and employer is in another jurisdiction, who chooses to spend 1-90 days in a 12-month rolling period working remotely in Japan be likely to acquire local employment rights during their stay? As long as the employment contract clearly states the governing law and the employee continues to report to the original employer in the home country while working remotely in Japan, it is unlikely that a court would find that the employee has acquired Japanese employment law rights if he or she stays and works in Japan for between 1 and 90 days in any 12-month rolling period.
Minimum wage
Annual paid leave
Statutory working hours of 8 hours per day/40 hours per week
Overtime allowance for overtime work exceeding statutory working hours
Restrictions on harassment and unlawful discrimination
Whistleblowing protection
Statutory unpaid leaves (e.g. maternity, childcare and family care leave etc.)
If an employee temporarily reports to the Japan office (if any) while working remotely in Japan, we recommend the home country employer to ensure that all terms and conditions under the existing employment contract (such as work hours, performance reviews and disciplinary procedures) are determined by the home country employer in order to minimize the risk of the employee claiming that Japanese employment law rights apply to them.
2. At what point during the stay are any local employment law rights likely to accrue? The look back period may extend to the date on which the employee began working in Japan in the event the employee successfully argues that Japanese employment law rights apply to his or her employment. Such rights will not necessarily take effect from a particular date.
The longer the stay and the more regular any repeat annual stays in Japan are, or the closer the relationship with the Japan office (if any) during the period of stay, the more likely that an employee will successfully argue that he or she has acquired Japanese employment law rights.
3. Which key non-termination rights will apply? The below rights have been identified for completeness in the event that the employee acquires Japanese employment law rights (though it is not an exhaustive list):
Note that some of the above rights will be subject to certain qualifying criteria or conditions.
4. How onerous is it for an employer to comply with these non-termination rights? High
5. What are the key termination rights that will apply and what are the potential termination remedies? If an employee acquires rights under labour laws in Japan, dismissal will be very difficult.
While employers do have the right to dismiss employees, a dismissal will be regarded as an "abuse of rights" under Japanese law and therefore invalid, if a court determines that the dismissal lacks "reasonable" grounds and is not "socially acceptable". This is a very high standard to meet. While there are no statutory grounds for dismissal, the following grounds may possibly be considered reasonable and socially acceptable:
Very serious misconduct (e.g. theft or violence in workplace);
Serious insubordination and failure to correct the action after clear warnings are given;
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Serious and on-going poor performance, after formal warnings have been given, significant training has been provided through performance improvement plans and other positions have been explored, and it is determined that the training is ineffectual and no other suitable positions exist;
Provision of material false information about one's background that impacts performance; and
the termination leads to labour tribunal proceedings or a lawsuit, a settlement is often reached in a package of about 6 months to 1 year of base salary, though it depends on the specific case.
6. How onerous/expensive is it for an employer to terminate lawfully? High
A loss of or significant and continuous lack in ability/capability to perform work duties.
Generally, labour tribunal proceedings will take 3-4 months and a lawsuit takes about 1 year or more.
There is no statutory "remedy" for dismissal, and the employer is required to continue employment unless the dismissal is justified.
7. Overall risk for employer? Low
Therefore, the most common approach is to negotiate a mutual resignation. When an employee refuses to resign, and a dispute over the validity of
8. Is the type of work and/or seniority of the employee relevant to the analysis and if so how? No.
Tax-Related considerations
1. What is the duration (e.g. 6 months or otherwise) relevant for determining the existence of PE in Japan when an employee from an overseas company is working remotely in Japan? There is no duration threshold for determining whether a PE for an overseas company exists when its employee is working in Japan. Instead, it should be determined subject to the totality of the circumstances test.
Generally speaking, the PE recognition rules under the Japanese tax law are mostly in line with the Organisation for Economic Co-operation and Development ("OECD") standards, and there are three types of PEs, which are so-called as follows: "fixed place PE", "construction PE" and "agent PE".
For "construction PE", an overseas company is deemed to have a PE in Japan if it carries out, for a period exceeding one year, a construction, installation or assembly project or similar activity, or performs services in supervising or superintending such projects or activities in Japan.
However, there is no such duration requirement for "fixed place PE" or "agent PE". Rather, actual activities performed by or authorisation granted
to the employee in Japan will be considered when determining the existence of PE in Japan by an overseas company.
2. Does it make a difference whether there is a double taxation treaty between Japan and the jurisdiction of the overseas company? Japan has DTTs with over 70 nations, and the PE concepts under most of the DTTs are generally the same as the ones under Japanese tax law or OECD standards.
However, some DTTs contain wider exceptions to the PE categories. For example, with regard to the concept of fixed place PE, the qualifying preparatory, ancillary and auxiliary activities under the DTT are more expansive than the ones under the domestic tax law.
Further, in many DTTs, a shorter period is provided for the duration requirements for "construction PE".
3. During this pandemic, are there exceptions relating to PE? No guidance or announcement on exceptions relating to PE during the COVID-19 pandemic has been issued by the National Tax Agency or any other governmental bodies of Japan.
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However, the definition of "PE" under Japanese tax law is basically in line with the ones under the latest version of the OECD Model Tax Convention. Even though the commentaries or guidance by the OECD are not binding in Japan, in general, they are highly respected in practice.
Therefore, treatments addressed in the OECD's "Updated guidance on tax treaties and the impact of the COVID-19 pandemic" would be taken into consideration when analysing exceptions relating to PE in Japan.
(which is normally determined by his or her resident registration at the city hall).
Even if the employee is not treated as a tax resident in Japan, he or she will still be subject to Japanese individual income tax for the salary income paid for his or her work in Japan. In such cases, the employee is supposed to file a tax return to the Japanese tax authorities and pay individual income tax in March of the following year depending on his or her employment status and the taxable income amount of the previous year.
4. When referring to PE, are there different approaches for people at different levels, with different levels of responsibilities or job types, without or without authority to sign or otherwise act on behalf of the overseas company in Japan? In general, "fixed place PE" is recognised based on the substance of a fixed place of business rather than the nature of the person working in such place.
On the other hand, "an agent PE" will be recognised based on various factors, such as the person's actual activities performed, roles and responsibilities, job titles, and authorities granted:
If an employee of an overseas company has high level of responsibilities and, in Japan, he or she has the authority to execute contracts on behalf of the overseas company repeatedly, the employee is likely to be deemed as an agent PE.
In other words, to the extent that an employee of the overseas company has no authority to execute contracts on behalf of the overseas company and does not conduct any material acts in negotiation of the transaction, the employee is unlikely to be deemed as an "agent PE".
However, a large number of Japan's DTTs include an exemption for salary income earned by a nonresident, which is commonly known as the 183-days rule, which applies if all of the following conditions are satisfied:
the employee is present in Japan for a period of or periods not exceeding in the aggregate of 183 days in any 12 month period commencing or ending in the taxable year concerned;
the remuneration is paid by, or on behalf of, an employer who is not a resident of Japan; and
the remuneration is not borne by a PE which the employer has in Japan.
Please note, however, the requirements above may vary depending on each DTT.
6. If the employee refuses to pay tax to the local authority or chooses not to file income tax return (if required), will the liability be extended to employer? Under Japanese tax law, the tax liability of an employee would not be extended to its employer.
There are no different approaches for "construction PE" based on the construction workers' levels, responsibilities, or authorities.
5. When is an employee of an overseas company who is working remotely in Japan required to pay salary tax in Japan? Generally speaking, an employee of an overseas company who is working remotely in Japan could be treated as a tax resident in Japan and subject to Japanese individual income tax for his or her worldwide income, regardless of the type and source of such income, if he is domiciled in Japan
Salary receivables (i.e. unpaid salary) acquired by an employee who refuses to pay tax may be subject to seizure by the Japanese tax authorities, but this does not mean that tax liability is extended to the employer. Furthermore, it is rare for Japanese tax authorities to seize overseas receivables.
Apart from the tax liability of an employee, if an overseas company has, for example, a branch office in Japan, such branch office is obliged to withhold tax when salary payment is made to an employee who is working remotely in Japan even though the payment is made outside of Japan.
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New Zealand
Employment-Related considerations
1. Would an employee, whose normal place of work and employer is in another jurisdiction, who chooses to spend 1-90 days in a 12-month rolling period working remotely in New Zealand be likely to acquire local employment rights during their stay? We would not expect an employee to acquire New Zealand ("NZ") employment law rights during a limited stay of between 1 and 90 days in NZ in any 12-month rolling period. However, if the stay is longer or loses its temporary nature, it can become increasingly likely that an employee can successfully argue that NZ employment law attaches to their employment. It will be fact specific in each case.
To minimise (but not eliminate) this risk, we recommend that the employment agreement (or any variation) stipulates what law applies, the location of work being overseas, and the temporary nature of any NZ based work.
2. At what point during the stay are any local employment law rights likely to accrue? The longer the stay and the more regular any repeat annual stays in NZ are, the more likely that an employee will successfully argue that he or she has acquired NZ employment law rights.
Public holidays Parental leave benefits Unlawful discrimination Rest and meal breaks Whistleblowing protection Health and Safety Privacy
Note that some of the above rights will be subject to certain qualifying criteria or conditions.
4. How onerous is it for an employer to comply with these non-termination rights? Medium
5. What are the key termination rights that will apply and what are the potential termination remedies? Protection against unjustified dismissal. Dismissal must be for cause (e.g. poor performance, redundancy, misconduct, medical incapacity etc.) and a fair process must also be followed.
Potential remedies include:
Any potential liability may extend back to the date on which the employee began working in NZ in the event the employee successfully argues that NZ employment law rights apply to his or her employment. Such rights will not necessarily take effect from a particular date.
3. Which key non-termination rights will apply? The below rights have been identified for completeness in the event that the employee acquires NZ employment law rights (though it is not an exhaustive list):
Minimum Wage
Wages Protection
Statutory leave (e.g. annual leave, sick leave, bereavement leave and domestic violence leave etc.)
Lost remuneration for the length of time that the employee is out of work (the employee must attempt to mitigate his or her loss);
Hurt and humiliation compensation which is tax-free and can reach NZD30,000 NZD40,000 depending on the nature of the employer's conduct;
Costs which are set at a daily tariff for hearing time of NZD4,500 for the first day and NZD3,500 each day after in the Employment Relations Authority (i.e. the first body to determine these cases);
Lost benefits (i.e. any benefits that the employee would have otherwise been entitled to receive e.g. redundancy compensation etc.) may be awarded; and
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Penalties of between NZD2,000 NZD20,000 may be awarded which are usually payable to the Crown.
6. How onerous/expensive is it for an employer to terminate lawfully? Medium/High
7. Overall risk for employer? Medium
8. Is the type of work and/or seniority of the employee relevant to the analysis and if so how? No.
Tax-Related considerations
1. What is the duration (e.g. 6 months or otherwise) relevant for determining the existence of PE in NZ when an employee from an overseas company is working remotely in NZ? PE is widely defined under NZ legislation and means any "fixed place of business" through which the business of a non-NZ resident is wholly or partly carried on, and this includes a place of management, a branch or an office (which can include a home office).
A PE can arise where there is an employee (or dependent contractor) in NZ for an aggregate period exceeding 183 days or more in any 12-month period, or a person (other than an independent agent) who has, and habitually exercises, authority to substantially negotiate or conclude contracts in NZ on behalf of a non-NZ resident company. Generally, the COVID-19 pandemic should not cause non-NZ resident companies to have a PE in NZ simply because their employees are confined or stranded in NZ if the above is not met.
For completeness, NZ recently introduced a PE anti-avoidance rule. Under such rule, a PE can arise where an independent NZ person (such as an independent corporate contractor or independent individual) carries out sales-related activities in NZ and that person is "commercially dependent" on a non-NZ resident company, and certain other requirements are satisfied. A NZ person will be regarded as "commercially dependent" on a non-NZ resident company if 80% or more of its assessable income relates to the sale of such non-NZ resident company's products.
2. Does it make a difference whether there is a double taxation treaty between NZ and the jurisdiction of the overseas company? Yes. Where a DTA signed with NZ is applicable and contains its own definition of "PE", then PE will have the meaning given by such DTA.
3. During this pandemic, are there exceptions relating to PE? For a PE to be present, the business must be carried out on a regular basis, and it must be undertaken wholly or partly through a "fixed place of business". Whether there is a PE is determined by having regard to the facts and circumstances of each case, which include the COVID-19 pandemic. It would be a relevant consideration that the non-resident company did not have a PE in NZ prior to COVID-19 and the presence of employees in NZ is short-term because of current travel restrictions.
Please note that NZ's Inland Revenue is expected to review the abovementioned position on or after 30 June 2022.
4. When referring to PE, are there different approaches for people at different levels, with different levels of responsibilities or job types, without or without authority to sign or otherwise act on behalf of the overseas company in NZ? Under NZ law, and where there is no applicable DTA, a PE may exist if there is a person who has, and habitually exercises, authority to substantially negotiate or conclude contracts in NZ on behalf of the non-NZ resident. There is an exception if the person is an independent agent acting in the ordinary course of the agent's business and is not closely related to the non-resident (tested on the basis of common beneficial ownership of at least 50%).
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On the other hand, under some DTAs, a PE may exist where a person in NZ is acting on behalf of a non-NZ resident (e.g. an agent) and, in doing so, habitually exercises, authority to substantially negotiate or conclude contracts on behalf of such non-NZ resident.
5. When is an employee of an overseas company who is working remotely in NZ required to pay salary tax in NZ? An employee will have an obligation to account for and pay their own tax if his or her employer has no obligation to (i.e. because the employer does not have sufficient presence in NZ see Question 6), or does not for any reason, deduct pay-as-you-earn ("PAYE"), such as salary tax.
Generally, this is an obligation of the employee (unless the non-resident employer has sufficient presence in NZ), to deduct and return PAYE, such as salary tax, where an employee performs services for a non-NZ resident (e.g. overseas company) and is present in NZ for 93 days or more in any 12-month period. This obligation can arise from the first day of which the employee is in NZ.
the services performed by the employee are properly attributable to its presence in NZ.
The nature and extent of the required presence may vary depending on the facts in each case. For example, a sufficient presence could range from a non-NZ resident employer having a permanent office or site in NZ where trading operations are performed, or a non-NZ resident employer having a single employee in NZ working from home and performing contracts in NZ on its behalf utilising labour and resources in NZ to perform such contracts.
It is considered that merely having employees in NZ would not, of itself, constitute a presence that is sufficient to subject the non-NZ resident employer to NZ's jurisdiction.
For completeness, a non-NZ resident employer can also register voluntarily to be a NZ employer and therefore, make the deductions and payments for their employees in NZ. PAYE is generally required to be deducted at source from the employees' salary and paid to the Inland Revenue via the PAYE system.
6. If the employee refuses to pay tax to the local authority or chooses not to file income tax return (if required), will the liability be extended to employer? If an overseas company is a non-resident employer, it has an obligation to withhold PAYE from a PAYE income payment made to an employee if:
it has made itself subject to NZ tax law by having a sufficient presence in NZ; and
7. Further Remarks/Comments For completeness, if the overseas company is a non-NZ resident and is providing services to NZ customers and on a cumulative basis has employees in NZ for 93 days or more in a 12-month period, then the NZ customers can be under an obligation to deduct withholding tax, referred to as non-resident contractors tax, from payments made to the overseas company.
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Singapore
Employment-Related considerations
1. Would an employee, whose normal place of work and employer is in another jurisdiction, who chooses to spend 1-90 days in a 12-month rolling period working remotely in Singapore be likely to acquire local employment rights during their stay? Generally speaking, it is unlikely for an employee to acquire Singapore employment law rights.
Shared parental leave Paid childcare leave Paid adoption leave Paid extended childcare leave Unpaid infant care leave Retirement and re-employment rights
However, if the stay becomes a regular annual stay, it may become increasingly likely that an employee can successfully argue that Singapore employment law attaches to his or her employment. It will be fact specific in each case and will depend on whether the Employment Claims Tribunal considers there to be a sufficiently strong connection with Singapore.
2. At what point during the stay are any local employment law rights likely to accrue? The longer the stay and the more regular any repeat annual stays in Singapore are, the more likely that an employee will successfully argue that he or she has acquired Singapore employment law rights. Such rights will not necessarily take effect from a particular date.
Right to be provided Key Employment Terms Health and safety Work injury compensation
For employees covered by Part IV of the EA*:
Maximum working hours Overtime Rest days Break times Accrual and forfeiture of annual leave Consideration for retrenchment payment (though
no fixed amount)
Most of the key Singapore statutory employment entitlements accrue after 3 months' service and this is often used as a benchmark (although there are some entitlements that accrue from day 1).
3. Which key non-termination rights will apply? The below rights have been identified for completeness in the event that the employee acquires Singapore employment law rights (though it is not an exhaustive list).
For employees covered by the Employment Act ("EA") (i.e. all employees except seafarers, domestic workers, statutory board employees or civil servants):
Paid annual leave
Paid public holidays
Sick leave
Paid maternity leave
There are also various sets of non-binding guidelines and advisories issued by the tripartite partners (Ministry of Manpower, National Trade Unions Congress and Singapore National Employers Federation) where employers are encouraged to follow in a number of areas including (e.g. retrenchment, discrimination, workplace harassment, mental health, COVID-19 etc.). While these are not legally binding per se, there can be administrative penalties for failure to comply including curtailment of future work pass privileges and being placed on a discrimination "watchlist".
*Employees are covered by Part IV of the EA if they are: (i) workmen (doing manual labour) earning a basic monthly salary of not more than SGD4,500; or (ii) non-workmen earning a basic monthly salary of not more than SGD2,600 but in each case who are not managers or executives.
Paid paternity leave
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4. How onerous is it for an employer to comply with these non-termination rights? Medium
5. What are the key termination rights that will apply and what are the potential termination remedies? Protection against wrongful dismissal (managers or executives need 6 months' continuous service to bring a claim).
The normal remedy is compensation, subject to a cap of SGD20,000 where there is no trade union assistance, or SGD30,000 where there is trade union assistance. Another remedy is reinstatement with backpay which is rarely granted in practice.
Failure to pay or provide statutory employment entitlements can also be a criminal offence, and there can be personal liability for directors and officers in certain circumstances.
6. How onerous/expensive is it for an employer to terminate lawfully? Low
7. Overall risk for employer? Low
8. Is the type of work and/or seniority of the employee relevant to the analysis and if so how? No.
Tax-Related considerations
1. What is the duration (e.g. 6 months or otherwise) relevant for determining the existence of Permanent Establishment in Singapore when an employee from an overseas company is working remotely in Singapore? Generally, Singapore considers that where a business renders services through the presence of employees, the presence of the employees for such purpose should constitute a PE if their period of stay in Singapore is relatively long.
The Income Tax Act 1947 defines a PE as a fixed place where a business is wholly or partly carried on (for example, a place of management, a branch, an office, a factory, a warehouse etc.).
A PE may also be construed if the business:
carries on supervisory activities in connection with a building, worksite, a construction, installation or assembly project; or
has another person acting on behalf of the business in Singapore who:
i. has and habitually exercises an authority to conclude contracts;
ii.maintains a stock of goods or merchandise for the purpose of delivery on behalf of that person; or
iii.habitually secures orders wholly or almost wholly for that person or for such other enterprises as are controlled by that person.
2. Does it make a difference whether there is a double taxation treaty between Singapore and the jurisdiction of the overseas company? Yes, DTAs between Singapore and certain foreign jurisdictions provide safe harbour rules where they clearly set out that the presence of the employees of an overseas company will constitute a PE in Singapore only if their employees' stay in Singapore exceeds a certain period of time. The period can range from 90 to 183 days within a basis period or any 12-month period.
3. During this pandemic, are there exceptions relating to PE? The Inland Revenue Authority of Singapore ("IRAS") had once provided some concessions relating to COVID-19 and PE, but such concessions only applied until 31 March 2022 and have not been extended further.
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4. When referring to PE, are there different approaches for people at different levels, with different levels of responsibilities or job types, without or without authority to sign or otherwise act on behalf of the overseas company in Singapore ? Generally, services rendered through the presence of any employees (i.e. regardless of their rank, level of responsibilities, job types) of an overseas company in Singapore may create a PE for that company in Singapore if their presence constitutes a fixed place of business.
The levels of responsibilities (amongst other factors) would be relevant to the determination of the profits attributable to the Singapore PE, if any.
5. When is an employee of an overseas company who is working remotely in Singapore required to pay salary tax in Singapore? All individuals deriving Singapore-sourced income (including employment income) are required to file their personal income tax returns by 15 April (if paper-filed) or 18 April (if e-filed) each year.
Once their tax returns have been processed by the IRAS, tax bills will be issued to them. The taxes assessed as indicated in the tax bills are required to be settled within one month from the tax bills.
However, non-resident employees who are on short-term employment in Singapore (i.e. the total period of the Singapore employment is not more than 60 days in a calendar year) are not required to file and pay Singapore taxes on their employment income derived during such period as such employment income is tax exempt in Singapore.
Where non-resident employees do not qualify for tax exemptions, they may qualify for tax treaty relief if the prescribed conditions as stated in the DTA are met (e.g. they are present in Singapore for not more than 183 days in any consecutive 12-month period).
To claim the DTA exemption, they will have to complete and submit the Claim Form for DTA Exemption and Certificate of Residence issued by tax authorities of their country of residence to the IRAS. Once the IRAS has approved their application for DTA exemption, their Singapore employment income will be tax exempt in Singapore.
6. If the employee refuses to pay tax to the local authority or chooses not to file income tax return (if required), will the liability be extended to employer? This applies if the employee does not fall within the COVID-19 exemptions and has to pay Singapore tax. Filing personal tax returns and paying personal taxes to the IRAS are obligations of the employee.
The employer has a presence in Singapore
Such obligation will not be extended to the employer except for cases that are under tax clearance (see paragraph under "Tax clearance process" below).
However, the employer is required to prepare the Form IR8A (i.e. Return of Employee's Remuneration) which contains information on the income received by the employee. Such Form IR8A should be given to the employee by 1 March each year so that the employee can file their tax returns with the IRAS.
Tax clearance process
Generally, when a non-Singapore Citizen employee (i.e. foreigner or Singapore Permanent Resident employee) ceases employment in Singapore, goes on an overseas posting or plans to leave Singapore for more than three months, the employer is required to seek tax clearance for the employee by filing the Form IR 21 (Notification of a Non-Citizen Employee's Cessation Of Employment Or Departure From Singapore) at least 1 month before the date of cessation of employment or departure from Singapore.
In addition, the employer is also required to withhold all monies due to the non-Singapore Citizen employee (such as salaries, bonus, allowances and other cash remuneration), pending obtaining tax clearance with the IRAS.
After the IRAS has processed Form IR21, the employer will receive a Directive to Pay from the IRAS. The employer is required to remit the amount payable as stated in the directive to the IRAS. If the monies withheld from the employee are insufficient, the employee will need to pay the amount of shortfall to the IRAS. If the monies withheld are more than the amount stated in the directive, the employer is then authorised to release the balance to the employee.
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If the employer fails to (i) file Form IR21 by the filing deadline and (ii) withhold all monies due to the employee, the IRAS may hold the employer liable for the tax that is owed by the employee.
The employer does not have a presence in Singapore
The employee should ask the employer for the statement of income and disclose such income in their Singapore tax return and pay tax on such income. For employees who are Singapore citizens, their tax liabilities will not be extended to their employer who does not have presence in Singapore. However, these employees are required to file their Singapore income tax return and disclose their remuneration for the relevant period.
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Thailand
Employment-Related considerations
1. Would an employee, whose normal place of work and employer is in another jurisdiction, who chooses to spend 1-90 days in a 12-month rolling period working remotely in Thailand be likely to acquire local employment rights during their stay? An employee is unlikely to acquire employment rights under Thai law due to his or her temporary stay in Thailand irrespective of duration of stay.
Whilst the factual circumstances of each case could be different, to mitigate the risk, it is recommended to clearly agree and document that the employee, although working remotely from Thailand, would still be entitled to receive remuneration and employment-related entitlements from his or her home country employer. It is also recommended to make clear to the employees that all of their employment terms and conditions as stipulated in the employment contract governed by the laws of the home country will remain unchanged and continue to apply during their stay in Thailand.
However, if the employee is required to obtain a work permit (e.g. there is an employment transfer from the home country employer to Thailand or the employee is to obtain a work visa due to the intended period of stay in Thailand), Thai labour law would automatically apply. This is because to apply for a work permit, such employee would have to be employed by an employer in Thailand. Hence, the employee would be acquiring local labour rights under Thai law in this scenario.
2. At what point during the stay are any local employment law rights likely to accrue? Whilst a temporary stay in Thailand is unlikely to result in an employee obtaining mandatory labour rights under Thai law, if the duration of stay gets longer, then the said employee might later rely on such longer stay (among other circumstances) in proving him or her obtaining employment status in Thailand. For example, if the employee is consequently employed by an employer in Thailand, the employee may claim that they started working with the employer since the commencement of
his or her stay in Thailand. Such ground could be made because Thai law does not require an employment agreement to be made in writing to establish an employer-employee relationship. A verbal agreement is binding between the parties. Therefore, if the employee could prove that he or she was actually employed by or working for the Thai employer since his or her stay in Thailand, he or she may be entitled to employee's rights under Thai law since day one.
Whether the Thai Court will eventually view an employee as being entitled to Thai labour rights would depend on individual circumstances and be decided on a case by case basis.
Therefore, documentation relating to the remote working scheme, including but not limited to the relevant remuneration and entitlements, should be put in place prior to the commencement of remote working in Thailand. Explicit documents would be useful when there is a claim or dispute before any regulatory or judicial body in Thailand.
3. Which key non-termination rights will apply? For completeness, below are examples of the general labour-related rights under Thai laws (though it is not an exhaustive list):
Minimum Wage (different rates would apply in case of the employee being a non-Thai national)
Working day and hours
Rest breaks
Overtime work and pay
Holiday
Leave entitlements (both paid and unpaid)
Grievances
Compensation for temporary business closure
Note that some of the above rights will be subject to certain qualifying criteria or conditions.
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4. How onerous is it for an employer to comply with these non-termination rights? Medium
The severance pay and unfair dismissal compensation are not legally required if the employee resigns.
5. What are the key termination rights that will apply and what are the potential termination remedies? Key termination rights are as follows:
Termination notice/Payment in lieu of advance notice
Payment of (accrued) unused annual leave
Severance pay
Repatriation expense
Unfair dismissal compensation
Severance pay is calculated based on the entire period of employment of the terminated employee. The rate is specified under Thai labour law, starting from an amount equivalent to 30 days of wages if being employed from 120 days but less than 1 year.
6. How onerous/expensive is it for an employer to terminate lawfully? Medium
Proper process and calculation must be carried out to avoid risk of default interests/surcharges due to non-payment or late payment (including a criminal penalty) under Thai labour law.
Usual rights applicable to a direct employee would also apply to the employee in this remote working scenario.
7. Overall risk for employer? Low
8. Is the type of work and/or seniority of the employee relevant to the analysis and if so how? No.
Unfair dismissal compensation is not codified under Thai labour law but it has been derived from the court's practice under which this compensation will be granted if the termination is viewed as unfair.
Tax-Related considerations
1. What is the duration (e.g. 6 months or otherwise) relevant for determining the existence of PE in Thailand when an employee from an overseas company is working remotely in Thailand? For an overseas company which is not a tax resident of a jurisdiction having a DTT with Thailand, the Thai Revenue Code will apply to determine whether it has a PE in Thailand.
Thai Revenue Code does not define the criteria or duration that would constitute a PE if an overseas company has employee works remotely in Thailand and there is no clear guideline on this. It therefore depends on the facts and circumstances of each case.
Please note that however, "place of business" for the purpose of VAT obligations is a place where a business person regularly carries on its business, including places where manufacturing and storage of goods regularly take place. A place of residence of such person could be regarded as place of business in case where the usual business place or manufacture and storage place does not exist.
2. Does it make a difference whether there is a double taxation treaty between Thailand and the jurisdiction of the overseas company? Yes if there is a DTT between Thailand and another jurisdiction that could apply, the determination of PE would be as specified in the relevant DTT.
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The DTT would also carve out certain scenarios that would not be regarded as PE.
3. During this pandemic, are there exceptions relating to PE? No.
4. When referring to PE, are there different approaches for people at different levels, with different levels of responsibilities or job types, without or without authority to sign or otherwise act on behalf of the overseas company in Thailand? No.
5. When is an employee of an overseas company who is working remotely in Thailand required to pay salary tax in Thailand? In general, if an employee is considered as resident of Thailand (i.e. having at least 180 days of staying
period in Thailand) and obtained an assessable income (e.g. salary/compensation/other amount received from employment), the employee would be subject to tax payment under Thai tax law.
6. If the employee refuses to pay tax to the local authority or chooses not to file income tax return (if required), will the liability be extended to employer? If the employee is required to pay tax under Thai tax law, the Thai employer as the paying party would be required to withhold tax from the payment made to the employee and submitted the deducted amount to Thai Revenue Department. However, this requirement is not applicable to employers that are situated overseas.
The withholding obligations are required to be made on a monthly basis. Non-compliance could lead to penalties and/or surcharges under Thai tax law.
DLA Piper is a global law firm operating through various separate and distinct legal entities. Further details of these entities can be found at www.dlapiper.com. This publication is intended as a general overview and discussion of the subjects dealt with, and does not create a lawyer-client relationship. It is not intended to be, and should not be used as, a substitute for taking legal advice in any specific situation. DLA Piper will accept no responsibility for any actions taken or not taken on the basis of this publication. This may qualify as "Lawyer Advertising" requiring notice in some jurisdictions. Prior results do not guarantee a similar outcome. Copyright 2022 DLA Piper. All rights reserved. | MAY22 | A13746-8