Working remotely out of Australia – Broad Tax Implications
Over the past few years we have noticed a gradual increase in the number of Australian and other nationalities working remotely for Australian companies while resident overseas. We anticipate that this will increase markedly once Australia fully opens its borders, given the increase in remote working that we have seen across virtually all sectors of the economy.
International remote working can be very productive for both employers and employees, but our experience is that, outside of major international employers, much more care needs to be taken in terms of how employees are remunerated and taxed, and indeed whether individuals should remain employees. Seeking professional advice at the start of these arrangements can avoid some serious tax implications and consequences that can take years to unravel.
To provide some perspective, bear in mind the general comments made below:
Individuals who are not Australian tax residents and resident in a foreign country, other than on a short-term basis, are likely to be only taxable in that country with respect to any earned remuneration, rather than in Australia.
In this context, it is not appropriate to maintain them on an Australian payroll, deducting PAYG - this will require the employee to later lodge an objection with the ATO to recover incorrect PAYG withholdings. Indeed, the ATO has recently demonstrated a reluctance to repay these withholdings on the basis that the individual shouldn't have been on the Australian payroll. Furthermore, fringe benefits tax (FBT) will not be applicable in relation to a non-resident employee unless it relates to former employment in Australia.
An Australian employer does not need to make superannuation guarantee (SG) contributions in respect of a non-resident employee for services performed outside of Australia, unless a "certificate of coverage" has been issued under a bilateral Social Security agreement.
Bear in mind, however, that regardless of the individual being non-resident for Australian purposes, Australian employers may still be required to make social security contributions in relation to their employee in the employee's country of residence and individual advice should be sought. Contributions to Australian superannuation may also be taxable as income in the individual's country of residency.
With respect to payroll tax, where employees are working in another country, with an assignment duration of more than six months, state or territory based payroll taxes will not normally be payable.
Having an employee based overseas may result in the company being regarded as having a "permanent establishment" in the country in which the employee is resident - and this can have significant tax implications - both in terms of compliance and liabilities.
In summary, where there are only a small number of individuals involved, most employers either engage an “Agent” in a foreign jurisdiction to act as the employer or move to change the nature of the engagement with the individuals to contractors rather than employees. This should see individual become entirely liable for their own tax and social security reporting in the country of residence, but the new arrangements need to be structured carefully, from both a tax and administrative perspective.
It is not adequate enough - as we have seen - to simply ask an employee or former employee to seek an ABN and then continue paying them on the same contractual basis - bearing in mind that non-residents will typically not qualify to hold an ABN except in very specific circumstances.
If you would like to arrange professional advice please complete the Inquiry form below providing details and you will be contacted promptly.