In recent years, there has been an increase in the number of remote workers all over the world. On a global scale, (already) 16% of all companies are already fully remote and 62% of all workers claim to work remotely at least occasionally. Experts expect that the number of remote workers will rise even more in the near future.
The wide proliferation of remote work may lead to a clash between the laws of the country where the remote worker is based and the country of the employer
The basic rule of thumb in the field of tax law is that a worker is taxed in the country where she exercises her activities. Therefore, if a worker works remotely in a given country, she would in theory be subject to tax in that country and not in the country of her employer.
For example, if a worker works remotely for a Dutch company in the Netherlands and suddenly relocates to Bulgaria to continue working for the same Dutch company, she may be temporarily subject to tax in both countries. More specifically, the Netherlands may initially tax the income generated from her remote work in Bulgaria based on the assumption that her stay in Bulgaria is too short to lead to a change in her tax residency. The decision whether an individual is a Dutch tax resident is rather subjective and made on a case-by-case basis. At the same time, Bulgaria may not immediately start taxing the remote worker as, under Bulgarian law, she needs to either reside in Bulgaria for 183 days per year or prove that her center of vital interests is in Bulgaria. Hence, it may happen that the worker may, for a given period of time, be subject to tax in both countries. Fortunately, Bulgaria and the Netherlands have signed a double tax treaty aiming to prevent double taxation.
Remote workers who plan to relocate to another country need to be aware of the tax residency rules applying in both the country of departure and the country of arrival as well of the double tax treaty concluded between these two countries. This will allow them to make sure that they will cease being a tax resident of the first country and will accordingly become a tax resident of the second country. In this way, they will not only avoid double taxation, but also properly complete their tax returns and other tax-related documentation.
Although remote workers are taxed in the country where they are based, there is a lack of certainty as to when remote workers who relocate from one country to another stop being tax residents of the first country and become tax residents of the second country. This may lead to legal issues and even double taxation. That is why remote workers who consider changing their tax residence are advised to consult tax experts before their relocation.
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