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Is your business hiring a remote workforce from overseas? Know your tax implications

Access to human talent remains one of Australia’s most major hurdles, but so do taxation complexities for employers.

There has been a steady rise in the number of foreign nationals working remotely for Australian businesses while residing abroad over the past few years.

Experts believe that given the massive expansion in remote working that we have seen across practically all sectors of the economy as a result of the pandemic, this will increase dramatically over time.

However, while international remote working can be extremely beneficial to both employers and employees, for smaller businesses, much more consideration must be given to how employees are paid and taxed and whether they should continue to be employees.

It goes without saying that getting expert guidance before you enter into these arrangements will help you avoid significant tax repercussions and implications that could be very expensive and take years to resolve with the ATO and other tax authorities.

Individuals who are not Australian tax residents who are residing in a foreign nation, other than on a short-term basis, are likely to be taxed only in that country with respect to any earned pay, rather than in Australia, according to Exfin.

“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 their engagement with individuals to contractors rather than employees. This should see individuals become entirely liable for their own tax and social security reporting in the country of residence,” Exfin notes.

The conditions

Employees who meet the following criteria are not normally taxable in Australia under Australian domestic law.

  • Ordinarily reside overseas but have temporarily returned to Australia during the pandemic,
  • Continue to be non-residents of Australia for tax purposes,
  • And whose employment income remains foreign-sourced per the ATO COVID-19 guidance.

Additionally, an Australian employer is not obligated to make superannuation guarantee (SG) contributions on behalf of a non-resident employee for services rendered outside of Australia unless a “Certificate of Coverage” has been obtained under a bilateral Social Security agreement.

Making remote working seamless

Jonathan Perumal, Country Manager for ANZ at Safeguard Global, asserts that organisations should develop comparable employment practices to help remote workers.

“With 286 occupations having skill shortages across Australia, according to The National Skills Commission 2022 Skills Priority List, local businesses are struggling to keep up with the competitive skills market,+ and many are turning to overseas hiring practices to combat this. 

“RSM Australia recently released a report highlighting tax obligations could be a potential issue for businesses hiring overseas. Other concerns include employment benefits, payroll compliance and on-the-ground support. 

“To help streamline the process and avoid headaches, working with a global employer of record partner with in-country teams and knowledge of local laws and regulations can help your company meet its employment and tax obligations. 

“Rather than navigating unwanted complications and paying hefty fines, businesses can focus on maximising the benefits of hiring the best global talent and providing an optimal Work In Any Way experience for employees, wherever they are.

“While there is currently no digital nomad visa available in Australia, businesses can create similar employment policies to support remote workers. As the world adapts to a new way of working, governments will likely make it easier for working professionals on the go, with 49 countries already implementing a digital nomad visa, up from 21 countries in February 2021. 

“Australian businesses must provide flexibility to staff to remain competitive on the global talent market, but they must be aware that tax and other statutory obligations may arise if their workers are in countries for more than a few weeks.” 

New era, new rules

Danielle Sherwin, Principal of RSM Australia’s International Tax and Transfer Pricing, also sounded the alarm for tech firms that had entered new international markets or hired personnel abroad without fully taking into account the tax complexities and regulations. “If economic activity is occurring in a country, that country will typically want to derive some tax revenue from it,” Ms Sherwin said. “However, the complexity of operating in the digital age means it’s sometimes not clear where the economic activity is occurring.” 

Australian Computer Society CEO Chris Vein – who also shared his views on the tech sector’s short-term challenges in the RSM report – said access to talent was “the biggest challenge right now and will likely remain so for the foreseeable future’’. 

“In 2020, fewer than 6,000 IT bachelor’s degrees were awarded to domestic students. That is less than 10 per cent of the annual projected growth of the Australian IT workforce,’’ Mr Vein said. 

More on Exfin here; source here.

Full RSM report here.

Dynamic Business does not give tax advice. For assistance or further information, please get in touch with your local, qualified tax practitioner.

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Yajush Gupta

Yajush Gupta

Yajush is a journalist at Dynamic Business. He previously worked with Reuters as a business correspondent and holds a postgrad degree in print journalism.

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