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Tax and your mobile workforce: the essential guide for fast-growth companies - EY - Global

Tax and your mobile workforce

The essential guide for fast-growth companies

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Key questions:

The trends outlined in this guide are real, growing and here to stay. A business on the fast track to market leadership cannot afford to have key staff sidetracked by immigration and tax problems.

Here are four key questions to consider:

  • How do you ensure that you can assign employees when and where you need them, with minimum delay?
  • How well do you identify the immigration needs of your short-term business travelers?
  • Are you able to take an integrated view of immigration and tax issues?
  • How often, and how deeply, do you assess the tax and compliance risks associated with an increasingly mobile workforce?

It’s becoming much harder to move around the world as a casual business traveler.

The people who work for your business are one of your most valuable assets. As your company grows, they will probably need to become more mobile and increasingly global.

This will create a unique set of compliance and tax challenges. As with most human capital issues, an effective response demands an integrated approach. Get this wrong and you and your employees could face unexpected tax and compliance obligations. Get it right, and you can find new ways to motivate and retain your best people.

We’ve created this essential guide to introduce three emerging trends that will change the way business leaders think about mobile workforce compliance.

1. A tightening net

It’s becoming much harder to move around the world as a casual business traveler. Governments have invested heavily in their ability to monitor foreigners entering their territories. This infrastructure, created to enhance national security, is also being used to enforce immigration compliance and detect tax obligations.

Fast-growth companies that want to maintain a globally compliant mobile workforce need a globally-consistent approach to tax and compliance issues.

Points to consider:

  • Are the data you gather as good as the government’s? Jurisdictions around the world can now gather vast amounts of accurate, timely and traceable information about the presence of foreign nationals. They can use this wealth of detail to challenge tax arrangements in a way that would not have been economically viable a few years ago. It is more difficult to respond to such challenges if you lack high-quality information about staff deployments.
  • Watch for flying visits. Companies often use “flying squads” of mobile staff to enter a country, complete a project, and then leave, before they trigger any rules on local tax residency. With more countries keeping a closer track on foreign nationals, many are lowering the bar on residency status, increasing the compliance risk associated with this kind of deployment.
  • A quick trip can have serious consequences. Border and immigration staff in many countries can now track even the most casual form of entry — such as a quick shopping trip — and notify national tax authorities, triggering a liability.

2. Sharing information

Jurisdictions around the world are redefining “privacy”, making it easier for governments and tax authorities to share information, both within their territories and internationally.

More countries now have the ability to consider tax and immigration issues in tandem. Companies need to mirror this approach. Dealing with mobile employee tax and compliance issues in the most effective way requires an integrated view.

Points to consider:

  • It’s easy to become an “accidental expatriate.” The briefest physical presence in a country can now be used to justify a claim that an employee has a “permanent establishment” in a territory, causing surprise tax and compliance obligations for both employer and employee.
  • Your high-risk people may not be the most frequent travelers. Most large, global organizations have mobility programs to look after their heavy-traveling staff. Those most at risk of compliance problems are often the people who travel for business less often, and hence slip through internal checks.
  • Keep tax and immigration under one roof. Organizations tend to put tax concerns and immigration compliance in separate boxes when they should really be dealt with together. The risk of an issue falling through the gap between the two disciplines is significant. It could lead to compliance penalties, reputational damage or a restatement of financial results.

3. Bigger teeth, sharper bite

Governments around the world have new powers to punish companies that fall foul of their tougher tax and immigration rules, and are increasingly willing to use them.

The economic downturn and the ease with which jobs can be moved overseas are encouraging governments to take a more protectionist stance. This can make life harder for fast-growth businesses that want to deploy mobile talent, whenever and wherever it is needed.

Points to consider:

  • You are much more likely to be challenged. Governments are showing a new willingness to conduct immigration “status audits” to ensure employer compliance. Such reviews are commonplace in the U.S. and are becoming more frequent in other jurisdictions, from Britain to Brazil.
  • What worked in the past may not be allowed now. Under pressure to make more jobs available to their own nationals, many countries are developing stricter definitions of what constitutes “work”, making it harder for foreign employees to visit on business without a work permit. Many countries are also introducing quotas to reduce the number of overseas workers.

 Key questions

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For a report on the leading risks facing global businesses today, or to discuss the issues raised in this guide, please contact one of these SGM leaders:

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