Understanding income tax issues brought by ‘digital nomads’

The COVID-19 pandemic changed the employer and employee relationship forever. Prior to 2020, remote work opportunities were the exception, not the rule. In the post-COVID era, many employers have transitioned their workforce to allow remote work “from anywhere” in order to retain and attract talent.

Many employees are eager to maximize their remote work opportunities by continuing their job duties while simultaneously traveling the globe. Employers need to understand their potential risk exposure to allowing excited and eager employees to work abroad.

Is a taxable presence created?

One of the biggest concerns for employers should be whether an employee’s presence in a different country creates a taxable presence for the employer entity. If her presence creates a taxable presence for the employer, there could be additional employment tax and corporate tax requirements in the host country that the employer will need comply with.

Generally speaking, there are two types of taxable presence tests. The first test is called a fixed place of business presence (FPOB). A FPOB presence exists if the employer has a fixed place of business at its disposal which wholly or partially carries on the employer’s business. An employee’s home office abroad doesn’t constitute a FPOB presence if the employer doesn’t: