Wage Tax

This dimension assesses the company risks of becoming an employer in a third country and having to pay employment tax there. This would imply having the obligation to set up payroll in such country (generally consisting of wage tax and social security contributions).  Also, the employee might be affected by double tax residence issues.

Wage tax rates can be up to 60% of the employee's remuneration, and even up to 150% if the employer has not ensured that the taxes are paid by the employee. Penalties and fines can be imposed if taxes are not declared and/or paid on time. From an administrative point of view, an employment obligation requires the establishment and implementation of a local payroll system. The payroll tax risk is closely related to the permanent establishment (PE) risk mentioned above. Another special feature is that in some countries and in some cases the personal income tax liability of an employee in the destination country can trigger this payroll tax liability. In order to assess this risk, the employer must obtain personal information before approving temporary work from abroad.

More questions around wage tax?

Check out our Compliance Handbook which breaks down all Compliance Risks around remote work and takes a deep dive into the topic of wage tax.

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