APAC companies going global must understand tax implications of remote staffBy Charles Ferguson
Keeping abreast of changing tax regulations has never been more crucial. Whether for a company that has yet to unleash the value and potential of borderless teams, or a global business that unexpectedly must manage a geographically dispersed workforce, navigating potential tax risks must be a top priority.
Although tax rules and regulations vary from one country to another and from one industry to the next, the most common corporation taxes collected by governments include: corporate and individual income taxes, indirect taxes including goods and service tax (“GST”), value added tax (“VAT”) and sales tax, property taxes on real estate assets, and employment and payroll taxes.
Beyond local specificities tax-wise, several factors can complicate tax compliance for businesses. A rapid shift to remote work, such as that induced by Covid-19 for instance, introduced a considerable number of changes in the way taxes had to be calculated. Failing to recognise tax law details or miscalculating taxes owed puts companies at risk of fines for noncompliance. It is, therefore, vital to gain control, visibility, transparency, and governance on a global scale via flawless local filing in an accurate, timely manner.
Eighteen months into the pandemic with the ‘work from anywhere’ model well established, tax authorities are now reviewing how taxes are imposed in line with these new business norms. For example, in 2020, the Inland Revenue Authority of Singapore (IRAS) granted temporary tax concessions on employment income through to June 30, 2021 for citizens and residents who were unable to travel back to overseas employers and needed to work remotely from Singapore. Non-residents who were temporarily stuck in Singapore and unable to return to their home countries were also granted these concessions. With the tax relief coming to an end, citizens, residents, and non-residents who were previously covered under the tax concession may now be subject to employment tax in Singapore with some exceptions. This means that their employers would need to spend more resources in tracking the length of time those employees spent in Singapore and understand the tax impacts of the “remote work” to mitigate the creation of a tax presence that could potentially trigger additional tax risk. Employees equally need to make themselves familiar with the requirements and implications.
According to a pre-pandemic study on tax complexity in Asia Pacific carried out by Deloitte: “China, India, Australia, Japan and Singapore are the top five jurisdictions in which many companies will spend the most time and resources on tax management in the next three years.” This aligns with the rise of the tax audits carried out by tax authorities in the Asia Pacific region to ensure appropriate tax compliance. Additionally, with the evolution of business models along with the rapid growth of the digital economy in the Asia Pacific region, remote working is now becoming the norm. Digital advancement allows remote staff to carry out extensive activities without having any presence in the market jurisdiction. In response, tax authorities are now catching up with the change and introducing tax reforms to minimise tax leakage in this area. With increased emphasis on tax management, companies will need to allocate more resources to managing tax risks such as investing in better systems and hiring in-house tax experts in order to adhere to the changing tax rules.
Despite tax implications and other risks associated with the pandemic, a CFO Report commissioned by Globalization Partners in May 2021 revealed that 53 percent of Asia Pacific executives are prioritising the implementation of a strategy for global expansion and presence, compared to 39 percent of EMEA executives and 36 percent of North American executives. CFOs across the world are optimistic, as global expansion opportunities abound, including newly shaped post-pandemic markets and M&A opportunities, according to the report.
Many companies may not have in-house experts to investigate all of these compliance aspects. Companies with global teams can benefit from exploring the latest time-saving and cost-efficient technologies relating to taxation compliance, as well as quickly understanding and adjusting to new regulation. Choosing a strategic partner can help provide the needful advice and solutions on evolving tax developments in order to remain compliant and avoid potentially significant tax exposures.