I was reading an article about employees who are keeping up the facade of wfh when they’ve actually moved abroad to a place where the cost of living is cheap e.g Thailand. They align their work hours, meet targets, in fact no one would be any wiser.
The article went on to mention that it’s a nightmare for companies because of the tax implications. Can someone what the actual problem is. Thanks!
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In most countries you have to pay taxes where you live. So if they live in Thailand they would have to pay taxes to Thailand. So the company has to figure out how to pay taxes in a country they might even never have made any business in or they are commiting tax fraud.
Most countries have laws that provide that if a company operates or does business in that country, the company becomes subject to the laws of that country.
One of the signs of doing business in a country can be having an employee working in that country, so if their employee moves to another country and sets themselves up to do their job from there, the company might then become subject to the laws of that country.
That might mean that the company has to pay tax in that country on their profits, withhold income tax in that country on the salary they pay their employee and pay it to that country’s tax office, pay pension contributions for the employee, comply with the laws of that country about minimum pay and leave (holidays, sick leave) for the employee, and work safety laws, all in a country they didn’t want to operate in in the first place (and potentially didn’t even know they were operating in). Which is absolutely a bit of a nightmare for the company.
Companies are legally required to pay taxes where they do business and where they employ people. So for example if you have an employee in NJ, you pay the NJ authorities taxes for your employee each month (by withholding them from their paycheck). The employee then files NJ taxes at the end of the year to correct any difference.
If you secretly work someplace else, say, GA, then that state is missing out of tax revenue, and is going to come after both employee and employer if they find out.
If you decamp abroad, especially to a poorer country, and do this, you are also stiffing the residents of that country, because you are using their society’s resources without contributing to their tax base. I see people saying, “well, Im renting an apartment and shopping, so Im contributing”, but that’s not the point since you should also be paying local taxes.
I just got out of a digital nomad situation after sorting out the shit storm that is called filing my annual income tax, so I will answer from my experience.
So from a high level perspective, when someone is working, the government that someone resides in is providing services like healthcare, welfare and security to ensure that person can work at full productivity, and to pay for that service the person’s employer withholds a portion of that person’s paycheque and pay taxes to the government.
Now imagine that employee is in a digital nomad situation without telling the employer that he moved from country A to country B. The employer is none the wiser and still paying government A to provide services, but the employee is actually located under government B’s jurisdictions and getting services for free from there. Once government B finds out, they will hold the employee, employer and government A responsible for undercutting them as a team and evading taxes. Government A and the employer will then get pissed off and hold the employee responsible for all the trouble they got dragged into that force them to smooth things over with government B.
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