Home > Updates > Remote working – the tax implications you should consider
In recent years our workforce has become more mobile. Not only are more employees working from home, or in a different city to their employer, but more employees are also working in a different country from where their employer is based, giving rise to various tax considerations.
Following on from our last article about the benefits and challenges of remote working, this article explores the tax implications you need to keep in mind if you are involved with the remote working scenarios outlined below.
A NZ employer is required to deduct PAYE from employment income, including accommodation allowances or benefits paid to an employee living overseas if the employee is tax resident in NZ. If the employee is not a tax resident in NZ, the NZ employment income is not subject to PAYE.
Determining if an overseas employee is a tax resident in NZ is not always straight forward as it requires consideration of not only NZ’s tax law, but also any Double Tax Agreement of the overseas country. In addition, if the overseas employee undertakes any of the work while they are present in NZ, this can impact the NZ tax position of the employment income.
It is also necessary for the NZ employer and the overseas employee to consider what tax obligations they may have in the overseas country.
For instance, does the overseas country require the NZ employer to deduct payroll taxes and pay those taxes to the overseas tax authority? Does the overseas country require the overseas employee to file a tax return and pay tax in the overseas jurisdiction?
An overseas-based employer is required to deduct PAYE from employment income paid to a NZ-based employee if the employer has “sufficient presence” in NZ, and the services performed by the employee can be attributed to the employer’s presence in NZ. In addition, there may be Fringe Benefit Tax (FBT) or Employer Contribution Superannuation Tax (ESCT) obligations for these NZ-based employees.
“Sufficient presence” can range from trading from a permanent office or site in NZ, to having a single employee who performs contracts in New Zealand on behalf of the overseas-based employer. However, “sufficient presence” does not arise where an employee simply chooses to live in NZ and undertakes their employment duties from NZ and the overseas-based employer has no other connection to NZ.
For example, Sally lives and works in NZ and is employed by a consulting company based in Canada. The company leases a small office space in NZ for Sally to work out of and to meet with clients. The NZ office space means the Canadian company has “sufficient presence” in NZ and must therefore register as an employer with Inland Revenue deduct PAYE from employment income paid to Sally.
In a situation where the overseas-based employer does not have “sufficient presence” in NZ, and therefore is not required to deduct PAYE from the employment income, the NZ-based employee will be responsible for paying their own NZ income tax. This should be done by the employee registering as an IR56 taxpayer. As an IR56 taxpayer, the employee is responsible for deducting PAYE from their gross salary, and forwarding the PAYE to Inland Revenue, together with the monthly employment return.
Aside from employment taxes, the overseas-based employer should also consider if it is subject to NZ income tax, for instance if the employer had a “permanent establishment” in NZ.
The above is a high-level overview of some of the tax considerations for employees and employers who are not based in the same country. The tax obligations depend on the specific facts and no two situations are the same, therefore, if you have a situation with a cross-border employer or cross-border employees, please reach out to your Nexia Advisor or the Nexia Tax Team to help guide you through these rules.
Please get in touch with your Nexia Advisor to help guide you through these rules.
Who are Nexia New Zealand? Nexia is one of New Zealand’s leading full-service chartered accounting and business advisory consultancy firms, offering the full range of accounting, business advisory, corporate advisory, tax, audit, and insolvency services.
Nexia New Zealand has four offices throughout New Zealand: Victoria Street in Christchurch, Albany on Auckland’s North Shore, Newmarket in the Auckland CBD and Hastings in Hawke’s Bay.
