The working from home revolution is here to stay in the aftermath of Covid. So, if you can work remotely from anywhere, why not a sunny villa overlooking the Tuscan hills? Spain has acknowledged this trend and introduced a new visa to enable people to live and work in Spain, working for non-Spanish companies, without the need for a full work visa. The new visa will permit non-residents to stay between six and 12 months without the right to residency. Dubai and Barbados have also created similar arrangements.
It is a nice thought, and for short periods, it has the potential to improve our quality of life. However, for those tempted to make it a longer term arrangement, there are risks that may not spring instantly to mind. There is the risk that you will become subject to income tax in the country you are working remotely from. There is even the risk that as an employee you may inadvertently create a 'permanent establishment' for your company in that country and render the company profits subject to income tax there too.
From a tax perspective, if you are only working remotely abroad for a shorter period of time, say a week or two here and there, you are likely to remain UK resident for tax purposes. The general tipping point for tax residence is spending 183 days in a year in another country. It would, however, be prudent to check as different countries will have different rules.
If you are staying for a longer period of time, then it is increasingly likely you will become subject to tax in the host country as well as the UK. At this point, it gets more complicated and the Double Taxation Treaty between the countries might need to be considered. Even where a DTT does apply, there may still be obligations to register with local authorities and report any income being made.
If you then decide to remote work permanently abroad, you are likely to be deemed non-UK resident and instead be deemed tax resident in your host country. This is going to pose its own problems as you are employed in the UK but working and resident outside of the UK. The risk of creating a 'permanent establishment' for your company becomes much higher in this scenario and employers may not be keen to be suddenly subject to foreign corporate taxes because of one employee abroad.
There are also other elements that need to be considered. There are social security complications (particularly outside of the EU), there are immigration considerations (for example you do not have the right to work for even an hour without a visa in Hong Kong) and there are also regulatory considerations if you work in a regulated profession.
If the trickle of people working remotely from abroad becomes a flood, we might even see changes being made to the UK tax rules on the taxation of employment income. A recent article by Rita de la Feria and Giorgia Maffini in British Tax Review suggested that annual losses in UK tax receipts from Personal Income Taxes could be somewhere between £6.5 billion and £32.5 billion as a result of remote workers becoming subject to tax abroad. This does not include consumption taxes, such as VAT, which will be levied on the remote worker's spending on goods and services in the host country. If this proves to be true, we may see the Government seek to change the rules on taxation of employment income to bring the lost tax back to the UK.
While we may like the idea of the freedom to work where we want in the world with the spread of remote working, the framework for this is still nascent and should be navigated carefully.