Common Scenarios in International Employee Taxation
1. Employee Sent Abroad (Outbound Expatriate)
⇒ Home country tax: May continue taxing global income(e.g,U.S.citizens taxed on worldwide income).
⇒ Host country tax: May apply if the employee stays >183 days or has a permanent establishment.
⇒ Double Taxation: Mitigated by
⇒ Double Tax Avoidance Agreement (DTAA)
⇒ Foreign Tax Credit (FTC)
⇒ Exemption methods
⇒ Payroll: Employer must determine if tax withholding is needed in host country.
2. Inbound Foreign Employee (Works in India, for example)
⇒ Tax Residency: Based on number of days stayed in India (≥182 days = resident).
Resident foreign nationals:
⇒ Taxed on global income in India.
⇒ Non-residents:
⇒ Taxed only on Indian-sourced income.
⇒ May also be taxed in home country depending on residency and tax treaties.
3. Remote Workers or Digital Nomads
⇒ Taxed in the country of residence and potentially the country where income is sourced.
Complex if:
⇒ They stay too long in a foreign country (triggering tax residency).
⇒ Create a permanent establishment (PE) risk for the employer.
Key Taxation Factors
| Factor | Implication |
|---|---|
|
Residency Status |
Determines whether global income is taxable
|
|
Duration of Stay |
183-day rule common globally (OECD standard)
|
|
DTAA (Double Tax Treaty) |
Prevents or mitigates double taxation
|
|
Employer’s Legal Presence |
May create withholding or corporate tax obligations
|
|
Social Security |
Totalization agreements may exempt from dual contributions
|
|
Payroll Location |
Affects withholding, reporting, and compliance responsibilities
|
Compliance Checklist (for Employers & Employees)
- Determine residency status (host country)
- Review DTAA provisions
- Obtain Tax Residency Certificate (TRC) from home country
- Consider permanent establishment risk
- File necessary forms (e.g., Form 67 in India for FTC)
- Evaluate social security agreements