Tax regulations are adjusting to remote work

We know that the remote working landscape has changed dramatically over the last few years. In a remote workers survey from February 2023, the Pew Research Center found that approximately 35% of US employees work remotely all the time. Although this is a 46% decline compared to data from January 2022, remote work has still changed how people perceive and complete work. And in this latest information from Gallup, they share that one third of people prefer to work remotely full-time! Compared to the 8% that worked remotely full-time pre-pandemic, this is a dramatic increase. Additionally, the fact that expectations for being full-time on-site (21%) versus the 7% that prefer to be on-site, shows how the employee preference to work some or all the time away from the office is substantial! Remote working, some or all of the time, has become the norm for millions since the COVID-19 pandemic. 

Digital nomads are one type of remote worker that we have written about most recently, noting the best places to be a digital nomad in 2023. The World Economic Forum, counts 49 nations with digital nomad visas that make moving there appealing. Some, like Spain, offer generous tax breaks. Others offer financial incentives for remote workers to move to rural areas to revive dwindling communities.

But what does this mean for taxability?

According to this article from Grant Thornton, while remote working may not seem such a new idea, how tax regulations are responding to its widespread use is still uncertain. Knowing that remote work adds important flexibility for corporate initiatives and talent management, tax authorities and international organizations like the OECD and U.N. appear to be committed to further developing their approaches and addressing remote work through new tax regulations and guidance. 

The article talks about the scale of this change, what policy makers are trying to accomplish, and what the results could be once changes are made. A very interesting model is shared, displaying 10 different remote work options across a frequency and duration spectrum that considers the intention and purpose of the work. Whether the employee's mobility is driven by company intention or employee intention has been coming up more often these days. The increase in self-initiated workforce mobility is a direct result of the pandemic experience, where so many companies have been able to be effective even without a physical office, giving employees the chance to experience the benefits of remote work. 

Many companies are now having to develop HR policies and procedures that allow for such cross-border working when it is not directly tied to a business need. Over the past few years we have looked at "hand-raisers" and "de-location" policies and as companies consider the remote work options they are challenged to develop policies that balance the needs of both the company and the employees in ways that are both compliant and integrate well into their talent management strategies or frameworks.

Objectives may differ for businesses and tax authorities, for developed and developing economies, for politicians and regulators, and for employees and employers. Looking ahead, the expectation is that we will not head back to pre-pandemic ratios of in-person and remote work, because hybrid and remote work are here to stay. Knowing that, tax authorities need to determine what they are attempting to solve for and why. Some countries are revisiting existing permanent establishment rules, payroll withholding obligations, and other elements within their tax treaties. 

A recent U.N. draft report considers how tax regulations can “facilitate” remote working. Grant Thornton comments that "For employers and advisers, the ability to have more seamless remote working without the associated tax risks would be a desirable outcome. However, with the conflicting priorities of the various stakeholders in remote work, any output of multilateral or bilateral efforts is likely to be more reflective of the tension among the differing priorities." 

Areas of focus will be on the liability for the tax compliance, updating tax treaties, simplifying compliance to increase employer reporting, more accurately and completely defining "remote workers", and better aligning income tax and social security.