In recent times, remote working has become a new trend that is totally beneficial for both employers and employees. But, with great benefits comes great responsibilities. While keeping all the benefits in mind, one has to take care of the compliances, rules, and regulations of forming a remote team in another country.
Because of the advantages of remote work, many enterprises plan to build remote teams outside their home country. But one should not forget about crossing the compliance challenges.
In this blog, we have explained 5 important areas of compliance challenges that one should be mindful of. This blog would also touch upon the issues businesses face due to compliance oversight while forming a remote team outside your home country.
Compliance that you should be mindful about
The five important compliance areas which you should explore more for the destination you choose to build your remote teams are listed below. The early identification of the compliances and ensuring you make arrangements to fulfill those would avoid unpleasant surprises as you get started with experiencing the benefits of remote working. Also, keep in mind that every compliance fulfillment has its own cost and you should factor in those costs in your budgeting.
Data security compliances
In recent times data security has become very important and governments imposed strict norms around data sharing outside the country’s jurisdiction.
European countries have a GDPR system for the security of data. The GDPR has the right to request businesses to delete, correct and forward the data. If any such compliance issue or failure to protect data subjects, the Data Protection Directive 95/46/EC may require operational changes and impose major fines.
For example, Meta has been fined $1.3 billion for transferring the personal data of users to servers in the United States.
AvePoint surveyed 223 respondents from multinational companies.
- Only 26% of them keep records of data for processing and transfer
- Only 33% classify the data
- Only 10% utilize automatic data classification
All of these are significant for GDPR. Organizations should perform an audit for their data security that may help them to rectify their mistakes.
79% of people say that they would abandon the brand if their data is used without informing them.
That’s the reason why It is significant to have security policies and guidelines to stay away from data loss issues. Keep yourself updated with cross-border data transfer rules and regulations.
Payroll compliances and licenses for remote hiring
It is difficult for foreign employers to consider compliances and legal regulations regarding payroll and taxation. For example, in India, you may have to open a legal entity that allows you to hire employees.
Some local authorities require home occupation permits for remote workers. Some states, and especially locals are strict with the terms of permitting and licensing. There are chances of getting into trouble by paying payroll taxes without having any local-level home occupation permits.
Previously, companies have received notices regarding such situations from interconnected government agencies. The distinctions between managing a business from home and not doing so are blurred as more work is done
remotely and as remote workers gain more autonomy. Ensure with your employee’s local city or country zoning laws and requirements of the permit.
With the help of an employer of record services, you can have a team working for you through a local employer without setting up a legal entity in the country. Such agencies are known as Employer of Record (EOR)
Requirements for foreign qualification
If you have established a corporation or limited liability company, and have employees working from different countries, then you may need to meet the requirements of foreign governments.
You may need to qualify your limited liability company in that country depending on your type of business, what your remote employees are working on, how many employees are in a country, and how long they are responsible. This might be setting up a separate entity in the geography, where you have employees.
Applying for permission to conduct business in a state other than the one in which the corporation or limited liability company was incorporated is known as a foreign qualification. You would need to meet the requirements if you regularly take orders or carry out contracts there, or if you have a physical presence there.
Once registered, the corporation or limited liability company will also be subject to additional compliance requirements, such as the need to name and keep up a registered agent and submit an annual report.
Tax compliance for remote employees
As per rules and regulations, employees are liable to pay taxes to the country in which they work. If the employee is working from another country, under the rule of physical presence, you’re required to hold back the unemployment and taxes in your country. But, there are some exceptions.
Some countries and states have given agreements about allowing an employee who lives in one country and works in another or neighboring state to have their tax paid to the work state. This could be different as the country changes.
The remote employees may have to pay double taxation since they are subject to income tax in both countries. For such issues, you might need an employer of record services that will help you remain safe.
EOR services have the best knowledge of tax responsibilities and assume responsibilities for employees. EOR takes your tax worries and responsibilities away.
Tax nexus- Becoming Permanent Establishment
Tax Nexus is the term that indicates a situation when the organization is having business in a state or country other than its primary location. Depending on the remote employee’s designation or role, the organization comes under sales, income, or other tax laws. Here comes a proficient measure – EOR services to deal with your Taxation.
With the help of an adept understanding of taxes, laws, and responsibilities EOR services help you to be safe.
Understand Permanent Establishment status compliance issues
If an enterprise establishes an entity in another country, here comes the risk of Permanent Establishment. The enterprise is liable for corporate income tax, any attendant penalties, and interest charges.
PE risk appears when the foreign enterprise starts to promote goods and services within a country’s border and generates revenue out of it. For example, buying a factory in another country with the purpose of hiring lower-cost labor.
Increased tax burden and a lot of international tax and other regulations violations and litigation, reputational damage, could be the reasons that may bring PE risk.
A business cannot fail to account for its company tax liability because if tax authorities find so they might look for other irregularities and the PE risk takes place. An employer can be found breaching the obligations because a country’s corporate tax liability and employer liability are similar.
EOR services can be a one-stop solution
Employer of record services will help you manage your remote employees. EORs ensure your compliance with local laws and regulations.
EOR provides a range of services from recruitment to onboarding. They are experts in handling legal compliance issues and also in navigating local employment laws, ensuring a low risk of legal issues for the company. This is possible due to the firm presence of EOR services with fully functioning employment systems in the respective countries.
EOR provides cost-effective payroll processing, benefits administration, and HR management. EOR services can be the best support for businesses that want to manage their remote employees more effectively and efficiently. Forget all the worries of compliance and rely on EOR.