More and more often, employees want to work from abroad for a short or long period of time. For the employer, however, this is not just a matter of work organization – a remote worker moving to another country may bring with it tax, social security and labor law obligations. It is worth considering these issues before granting permission.
Is it remote work, a secondment or a posted employee?
The first step is to define the situation correctly. If an employee performs their regular work in another country and this is done by agreement of the parties, it is generally considered teleworking. However, if an employer temporarily sends an employee to a foreign country to perform a specific task, it is considered a business trip.
In the context of the European Union, there is also a regulation on posted workers, when an employee provides a service in another member state on behalf of an employer. In this case, the mandatory working conditions of the host country must be taken into account (for example, minimum wage requirements and working and rest hours).
Correctly defining an employee's status is important because it determines which taxes, benefits, and labor law rules will apply.
Remote work from a foreign country must be agreed upon in writing.
Working from abroad should not be based solely on verbal agreements. It is recommended to conclude a written teleworking agreement or an addendum to the employment contract that clearly states:
- the country and address from which the work is being done;
- how long the work from abroad lasts;
- what are the working hours and availability;
- who bears the additional costs associated with the work;
- under what conditions the employer may revoke the permit.
A clear agreement helps avoid disputes and gives the employer the opportunity to react if tax or legal risks arise.
Tax issues do not begin or end with 183 days
It is often believed that if an employee stays abroad for less than 183 days, there are no tax obligations, but in reality the situation is more complicated. When assessing remote work abroad, the employer must base its assessment on the tax treaty concluded with the foreign country and obtain clarification on the following issues:
- whether an employee can become a tax resident of a foreign country;
- whether the salary may become taxable in the country of employment even before the change of residency;
- how the taxing right is divided between Estonia and the destination country based on the relevant tax treaty.
It should also be remembered that although a tax treaty limits the taxing rights of countries, it does not automatically exempt the employer from local registration or reporting obligations. Even a short period of employment may result in the obligation to register as an employer in a foreign country.
Does the employer face a permanent location risk?
Long-term teleworking from a foreign country may also result in employer-level tax obligations in that country. If the employee's activities are commercially significant (such as sales transactions, contracting or management functions), the destination country may claim that the Estonian company has a permanent establishment there.
This in turn may mean that the company has income tax, accounting or other obligations in the destination country. The longer the period of employment abroad and the greater the employee's decision-making power, the greater the risk.
Social security and A1 certificate in the European Union
When moving between EU countries, it is not enough to just know where the employee is physically located. It is also important to know which country's social security applies.
In the case of temporary employment abroad, an A1 certificate is often required, which confirms that the employee remains covered by Estonian social security. Without a valid A1 certificate, the destination country may require payment of social security taxes into its own system. The A1 issue should always be resolved before the employee moves abroad.
If an employee lives abroad for an extended period of time, additional documents may be required to arrange health insurance.
Occupational safety and data protection remain the employer's responsibility
Even when working from abroad, the employer must ensure that the work is organized safely. This means that the employer must consider whether the employee's working conditions are suitable and whether the work tasks are organized in a way that does not endanger the employee's health.
Additionally, data protection and information security are becoming increasingly important. Working from home networks, public Wi-Fi networks, or personal devices increases the risk of data leakage. Therefore, employers should have clear rules about work tools, VPNs, passwords, and handling confidential information.
Summary
An employee's desire to work remotely from a foreign country is not a problem in itself, but it is an additional risk for the employer. Before granting permission, the following should be assessed:
- the legal form of work;
- the impact of tax residency and tax treaties;
- social security organization;
- permanent establishment risk;
- occupational safety and data protection requirements.
The longer the period of working abroad, the more important it is to conduct a thorough analysis. Many problems can be prevented if these issues are resolved before the employee moves abroad, not after.
Blog author Malle Liivat, malle.liivat@grow.ee
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