Work from anywhere policies: tax implications for NZ employers

As HR teams debate whether the work from home split should be 3:2 or 2:3, a new evolution in flexible working is emerging amongst employees eager to make the most of the power they hold while the war for talent rages on. Move over work from home, hello employees demanding to work from anywhere in the world.

A poll of businesses recently found that 86% of employers have seen a growth in demand for international working but the implications of having employees working overseas are vast and complicated. Aside from specifically COVID lockdown related advice, the Organisation for Economic Co-operation and Development hasn’t given any guidance on the type of remote working arrangements we’re now seeing. As such, if employers would like to offer the option to their staff, the onus is on them to ensure compliance with the rules of every country they have staff working in. And let’s not forget that any relevant double tax agreements need to be considered too.

“The key issue with working across international borders is it opens employers up to additional risk and compliance obligations which can result in increased costs, add complexity and jeopardise the integrity of corporate structures,” says Nick Cooke, tax director at KMPG.  “It’s critical those risks are managed appropriately and that’s where a working from anywhere policy can be quite useful.”

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Where do you begin developing a work from anywhere policy?

As they say, it takes a village. Drafting a work from anywhere policy requires input from many corners. “I get calls from finance teams all the time asking, what are your thoughts, and where do we go, and my advice to them is get everybody into a room,” says Cooke.

As HR leaders, you’re likely very excited about the talent acquisition benefits from a work from anywhere policy, but for an IT manager for example, it opens a whole new world of work in cyber security defence and for finance teams - a whole new set of tax laws and regulations to be across.

“Everyone around the table will have a different view as to where they sit on that risk spectrum. So, get everyone into a room, establish where the red lines are and where everyone feels comfortable, from that, look for a general theme that you can weave together and form into a more formal policy.”

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It’s no secret that countries are quite incentivised to claim as much tax as they can from organisations so businesses will need to be vigilant about conducting business in other countries, for instance imagine a scenario where a manager who’s sitting in a foreign country could enter a supply contract for stationary, the tax jurisdiction in that country could deem you to be conducting business in that country and tax the business on any profits attributable to that contract.

“Tax laws are generally intricate and plenty but Nick Cooke from KPMG has broken down the two major tax risks for employers below: 

1. Employer and social security obligations in the country -  these are the obligations that typically bite the earliest so are the highest risk from a time perspective;
2. Permanent establishment risk – creating a tax presence in another country, having profit attributed to that permanent establishment and being subject to tax by another country’s tax authority.”