Work abroad which doesn’t need to be taxed abroad

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Income of employees working abroad needs to be taxed, but from where and when?

Companies are rather unsure when the work from their employees needs to be taxed abroad. Income needs to be taxed in the country where the work is physically executed, so theoretically every day working abroad would need to be taxed.

To facilitate international business the OECD Model Convention has foreseen a certain rule which is included in most double tax agreements.

Where income needs to be taxed?

Salaries, wages and other similar remuneration derived by a resident of a Contracting State in respect of an employment shall be taxable only in that State unless the employment is exercised in the other Contracting State. If the employment is so exercised, such remuneration as is derived therefrom may be taxed in that other State.

Exception

Remuneration derived by a resident of a Contracting State in respect of an employment exercised in the other Contracting State shall be taxable only in the first-mentioned State if:

  • the recipient is present in the other State for a period or periods not exceeding in the aggregate 183 days in any twelve-month period commencing or ending in the fiscal year concerned, and
  • the remuneration is paid by, or on behalf of, an employer who is not a resident of the other State, and
  • the remuneration is not borne by a permanent establishment which the employer has in the other State.

This rule is not applicable when the company has a permanent establishment in the other State and can’t be applied after 6 – 12 months.

If you have further questions concerning this topic feel free to contact us at International HR Services AG/Ltd..