Katy Bond looks at the notable tax policy responses to these challenges through the lens of international mobility and identifies trends businesses should be aware of.
The current landscape
Multiple socioeconomic factors have combined to create significant inflationary pressures worldwide and fuel the well-documented "cost of living crisis".
Governments are under pressure to take action to provide support where it's needed, but are struggling to control national debts and deficits following the cost of the pandemic. National budgets must contend not only with assistance for those in need, but also the way the pandemic has fundamentally shifted the business environment. This includes the demands of meeting environmental targets and compliance, rebuilding revenue losses, as well as navigating a shift in both employees' and employers' perceptions of how work can be conducted.
Cross-border remote working and internationally mobile workers are here to stay, and governments, employers, employees and entrepreneurs need to deal with the fiscal consequences of such activity. This might include tax implications, compliance with labour laws and regulations, and changes in the way businesses and workers are taxed.
Trends in government responses to global mobility
Most countries are grappling with balancing the need to recoup the cost of COVID with supporting their citizens through the cost of living crises and, while the approach to this has varied between countries, a common theme has been emerging with redistributive taxation.
The UK's Kwarteng budget attempt at "trickle down economics" and a reduction in higher rates of income tax was short lived and, since then, several countries – Canada, Ghana, Scotland, Singapore and Spain, among others – have introduced additional top rates of tax or increased existing rates for higher earners. Oman is breaking with custom in the Gulf states and plans to introduce income tax targeted at high earners, while Lithuania intends to shelve its flat tax in favour of a more progressive system. And the UK itself has reduced the threshold at which earners pay 45% tax.
Political factors have played their part in applying a handbrake to more ambitious policies. The Biden administration’s Inflation Reduction Act was a substantially scaled-back reworking of the Build Back Better plan; Spain’s Solidarity Tax is subject to legal challenge; and Oman first announced its intention to introduce income tax in late 2020 but implementation now looks unlikely to take place until 2024.
Taxation increases aimed at higher earners will typically increase costs for internationally mobile employees and businesses, but, in recognition of the economic benefits of mobility, some countries are taking steps to attract inpatriates. Belgium is introducing a new inpatriate regime which offers exemption of up to 30% of compensation from tax, while Spain has expanded its own special regime to include digital nomads, individuals with particular qualifications and families of already qualifying workers. Ireland has also extended its Special Assignee Relief Programme, albeit with tightened qualifying criteria and excluding those who don't perform duties in Ireland in each of the 12 consecutive months following their arrival. For businesses sending employees to these countries the value of qualifying for beneficial tax regimes is significant and should be considered.
Focus on compliance
Encouraging good compliance is high on the agenda for tax authorities around the world and many have taken a more stringent approach to non-compliance over recent years with increased rigour on audits and higher penalties for non-compliance, such as those announced in the recent Singapore budget.
The challenge of taxing remote workers or digital nomads continues with different results. Spain recently asserted its right to tax overseas employees working remotely in Spain while by contrast, Romania has outlined conditions for exempting such workers from taxation. The UK’s Office of Tax Simplification’s final act before being disbanded was to release a report into hybrid working arrangements; Davyd Fisher explores its findings in more detail. But, compliance for remote working is a hot topic amongst global mobility tax and immigration professionals.
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And finally, as ESG remains top of the agenda for most businesses, tax incentives for employees have typically focused on the environmental factors and specifically around exemptions for the provision of zero or low emission vehicles - such as the FBT exemption in Australia and the extension of the exemption for private use of electric cars in Ireland.
So while there have been limited significant tax changes impacting mobile employees to date this year, we continue to see a global shift towards tighter compliance and higher tax rates combined with incentives to attract key talent.
For guidance and support navigating these complexities for your globally mobile business, get in touch with Katy Bond.