Working remotely abroad? Businesses warned of potential tax risks at Mobility Elite Summit

Remote working arrangements could expose businesses to additional tax obligations in foreign jurisdictions, even when employees are working from abroad for relatively short periods, delegates at the Mobility Elite Summit were told on Friday (today).

Speaking during the summit, held at the Marriott Hotel in Sliema, Vidas Niparavicius, Tax Manager for the company Baltics, outlined the tax implications of international remote working, explaining that there is no single threshold determining when an employee's presence in another country creates tax liabilities.

His presentation, titled When does remote work become a tax problem?, examined the interaction between individual tax residency, employment income, employer payroll obligations and the possibility of a company establishing a taxable presence abroad.

Mr Niparavicius explained that employers must consider several separate questions when allowing employees to work across borders, including where the individual is considered tax resident, where their salary is taxable and whether the employer has reporting or withholding obligations in the country concerned.

Another consideration is whether the employee's activities could result in the company being considered to have a permanent establishment in another jurisdiction, potentially exposing part of its profits to taxation there.

Tax residency and employment income

According to the presentation, determining an individual's tax residency involves examining several factors, rather than relying exclusively on the number of days spent in a particular country.

These can include the individual's physical presence, whether they maintain a permanent home, their personal and economic ties, and their habitual living arrangements.

Where two countries consider the same individual to be tax resident, an applicable double taxation treaty may provide rules for determining which jurisdiction takes precedence for treaty purposes.

However, Mr Niparavicius emphasised that an individual's tax residency is not necessarily the same as the jurisdiction entitled to tax their employment income.

Under many double taxation treaties, employment income may remain taxable exclusively in the employee's country of residence when work is carried out temporarily in another country, provided certain conditions are met.

These typically include the employee's presence in the host country not exceeding the applicable treaty threshold, often 183 days during a specified period.

In addition, the remuneration must generally be paid by, or on behalf of, an employer that is not resident in the host country, and must not be borne by a permanent establishment maintained by the employer there.

All three conditions must generally be satisfied for the relevant treaty exemption to apply.

However, payroll withholding and reporting requirements remain separate questions governed by domestic legislation.

Consequently, an employer could face administrative obligations in another jurisdiction even where the employee's income qualifies for relief under a tax treaty.

Could an employee create a taxable presence abroad?

Another issue addressed during the presentation was whether an employee working from a foreign home could create a permanent establishment for their employer.

Mr Niparavicius referred to updated OECD guidance issued in 2025 concerning the circumstances in which remote working arrangements may give rise to a fixed-place permanent establishment.

The guidance considers the facts surrounding an employee's activities, including the extent to which a foreign location is used to conduct the company's business.

Working from a particular foreign location for more than 50 per cent of total working time over a 12-month period is identified as an important benchmark in the updated commentary.

However, the threshold does not automatically establish that a permanent establishment exists.

The nature of the work, the commercial reasons for the arrangement and the relationship between the location and the employer's business activities must also be considered.

This distinction is particularly relevant for businesses employing staff who regularly work from other countries, whether through formal relocation arrangements or temporary working holidays.

Workation or relocation?

Mr Niparavicius also distinguished between temporary workations and longer-term relocations, noting that the duration, regularity and commercial purpose of an employee's overseas presence can change the company's tax exposure.

A short period of remote working abroad may therefore present different considerations from an arrangement in which an employee consistently carries out business activities from another jurisdiction.

For employers, the implications extend beyond individual income tax and may include payroll compliance, corporate taxation and permanent establishment assessments.

The presentation highlighted the importance of examining cross-border working arrangements individually, rather than assuming that all remote working situations fall within a standard tax exemption.

As Mr Niparavicius put it, remote work becomes a tax problem when an employee's location stops being "just HR data".

Read more about the conference here.