When do business trips become taxable? 5 key triggers

Employers generally want to prevent business trips from triggering any compliance consequences in the destination country: the employee should remain taxable in the home country, and the same goes for social security, labour regulations, etc. And if set up right, for most business trips indeed there are no or only a few compliance requirements in the destination country. However, some business trips will trigger such compliance requirements.

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In this article, we describe when a business trip becomes taxable. With taxable business trips, we mean that the business trip triggers an employment tax obligation in the destination country. In practice, this means that the traveller needs to be included on a payroll in the destination country on a pro rata basis.

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5 key reasons that make a business trip taxable

1. Absence of a tax treaty

If there is no tax treaty between the home and the destination country, the business trip is more likely to trigger tax obligations in the destination country. Tax treaties often provide relief from double taxation and may allow the employee and employer to avoid paying or withholding taxes in the destination country. Without this protection, the employee and employer may be subject to the destination country's tax regime from day one of the trip.

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2. Exceeding 183 days

If an employee exceeds 183 days in the destination country, the trip is likely to trigger local tax obligations. Depending on the tax treaty between the home and destination country, the 183 days should be counted per calendar year, per tax year, or on a rolling 12-month period. This trigger for business trips becoming taxable is the reason that generally trips with a duration exceeding 183 days are classified as assignments – as elaborated in this article.

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3. Costs are borne by the destination company or branch

In most cases, the costs of a business trip are borne by the home company of the traveller. However, there are cases where the traveller is travelling to a group company or branch which bears the cost of the trip. If this is the case, this is likely to trigger an employment tax obligation in the destination country from day one.

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4. Permanent Establishment (PE) situation

A rather tax technical situation that makes business trips taxable is if the travellers themselves trigger a so-called Permanent Establishment – even though no entity or branch existed before. PEs can be triggered based on (extensive) duration, but especially also on the basis of the activities performed. Trips in the offshore or construction sector are particularly sensitive to constituting PEs.

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5. An Economic Employer situation

In certain situations and in countries that have adopted the so-called economic employer concept, the destination company may be considered the "economic employer" of the employee. This typically occurs when the travellers are integrated into the destination company or branch, or the destination company exercises significant control over their day-to-day activities. This scenario may trigger local employment taxes, as the employee is seen as working primarily for the destination company.