Businesses in response to the 2019-nCoV epidemic (coronavirus) that are considering relocating employees from mainland China to work in a different jurisdiction permanently or remotely in the interim period need to be aware of potential individual and corporate tax implications of each arrangement and to consider quantifying associated cost to employees and business ahead of initiating the move.
Individual tax considerations
An individual is likely to trigger a tax liability in the jurisdiction where that person is working, even if it is not that person’s home or primary work location. An exemption may be available by virtue of domestic concessional rules in that jurisdiction or by application of income tax treaty provisions when applicable. Often these exemptions will depend on matters such as the duration of the stay, and where the costs are borne.
If tax liability is triggered in a jurisdiction, individuals and their employers may be subject to tax reporting and withholding obligations according to local practices in that jurisdiction.
Employers need to consider whether any additional tax cost will be borne by the company or the individual. Consideration may need to be given to the reason that the specific location was chosen—was it driven by business needs, or from personal preference.
Furthermore, ongoing individual tax and employer withholding obligations in China may continue if the move is temporary, and double taxation may arise when the move to the other jurisdiction is extended and the employment arrangement is not updated timely.
Returning an expatriate to the home jurisdiction may be easiest from an immigration perspective, but could also have implications for the individual’s tax residence. For example, if an employee left the home country relatively recently, the return may mean that tax residence is not considered to have been broken, creating a tax exposure back to the original departure.
Corporate tax considerations
An individual carrying out certain activities in a jurisdiction may trigger tax obligations for his or her employer.
A presence in a location, depending on its duration and the activities undertaken, may trigger a corporate tax liability, business registration or registration for other taxes such as VAT/GST. Tax relief may be available if a double tax treaty applies.
When reviewing repatriation or remote working plans, businesses need to take into consideration the potential immigration and tax compliance requirements triggered by such relocations.
Many of the tax issues could be “worked out later” but the cost of doing so could be significant. There, however, are some critical items that need to be dealt with before a move. Considering those critical issues in advance, and formulated policies and contingency plans, will allow a quicker response to the needs of the business and the individuals as those needs arise.
For more information, contact a KPMG tax professional:
David Ling | +1 609 874 4381 | firstname.lastname@example.org
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