Technology and Pandemic Create Tax Issues for Foreign Employees and Foreign Companies

July 16, 2020

Advancing technology is rapidly bringing possibilities to the workforce that once seemed to be nothing but science fiction. AI (artificial intelligence), virtual reality, data communications, augmented reality, and more sophisticated automations are already making their mark to various degrees.

In addition, the COVID19 pandemic has seen hundreds of thousands of Australians return from abroad. Many of those returning may be able to continue working for their foreign employers.

What does this all mean?

With the rise of the internet and global e-connectivity many organisations in finance, information technology, telecommunications and professional services had been realising that their employees did not have to be physically present in the workplace to perform their job function.

Even before the pandemic that trend had well and truly commenced. The enormous outsourcing industry has been a testament to that. The necessity of lockdowns should accelerate that trend.

Working for foreign employers from Australia

An increasing number of Australians will be able to take advantage of continuing permanent employment opportunities, not with domestic employers but with overseas employers.

When you are a tax resident in one country, but your sole source of income is from another country, you may find that not only do you face double the tax administration, but if the correct advice is not taken you may face higher effective rates of taxation.

As more of these scenarios emerge, there will be a need to obtain tax advice from advisors who are experienced with addressing these issues.

Managing companies ‘remotely’

If you are a director of a company and have returned to Australia due to the pandemic, unavoidable issues will arise if you are required to manage the affairs of a foreign company from Australia.

Corporate tax laws stem from over one hundred years of legal history and they are not about to change any time soon to accommodate modern times. Australia’s laws around corporate residency are well understood and the reality is that if you are a controlling director of a foreign company and you have returned to Australia, you should seek tax advice in relation to how Australia’s tax laws apply to foreign companies.

The consequence of not seeking detailed advice is that the foreign company in question might be a resident of Australia and its profits might be subject to Australian corporate tax depending on the situation.

If you are a controlling shareholder of a foreign company, you might also find that Australia’s tax laws will attribute some or all of the company’s profits to you even if a dividend is not paid to you. This outcome can arise depending on the facts, because of Australia’s Controlled Foreign Company rules.

Changing the way you interact with your accountant

If you are working for a foreign employer from Australia, there will be a need for income tax advice to ensure that you properly plan for tax outcomes and are not caught out with unexpected tax bills.

Keeping in touch with your accountant more regularly to plan your position will be increasingly important if you find yourself in this situation.

Dianne Lee

Dianne Lee

Dianne has over 15 years of business tax experience and has experienced the expat lifestyle having worked in New York and studied in South Korea. Her areas of specialty include tax residency, capital gains tax planning, employee share schemes and family trusts.

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