Most Common Tax Issues For Short-Term Business Visitors

Specialists sometimes travel to a different country for business purposes, which often results in some sort of income. Now, where there’s income, there’s usually some sort of tax, which is why most countries and states have to develop regulations for these short-term business visitors. 

This usually involves a special work permit or visa (usually in a scenario where it exceeds a certain time period). This determines everything, from their legal status in the country that they’ve visited all the way to their eligibility for various benefits and allowances in the host country.

What affects them the most is the way in which they’re taxed. So, in order to understand this a bit better, here are some examples of the most common tax issues for short-term business visitors. 

1. Why does your physical location matter?

In most countries, the income tax is calculated as the amount of money you’ve earned while you were physically present in a certain country. The main reason why things are arranged this way is because, otherwise, every business would just register in a tax-free country and avoid paint taxes altogether. 

In other words, regardless of what country you’re a permanent resident of, you pay the tax of the country that you currently reside in (not the country where the company is registered). 

Today, with so many businesses operating internationally, hiring remote workers, collaborating with international partners, and investing abroad, this is more important than ever. We’re also living in an era of digital nomadism, which means that a single person may come in touch with more than just one enterprise. 

2. Outsourcing your accounting to mobility tax experts

No matter how complex the situation may sound, the simplest way to solve these issues is to find adequate mobility tax services. 

The truth is that these issues are not nearly as rare or uncommon as you think. The world is more open than it ever was. First of all, employers have employees all over the world, and remote work is becoming a driving force in the modern workplace. This means that there are a lot of digital nomads who hop from one country to another, having to figure out different types of bilateral tax agreements all the time.

It was only natural that some accounting firms would start specializing in mobility tax. By finding specialists, you’ll cut this process short. Even if you hate the idea of having to pay for a service that you believe you can handle on your own, you have to be realistic about your ability to do so. Make no mistake, these issues are more complex than they appear on the surface and mistakes (when it comes to taxes) are costlier than you assume. 

3. UN double tax treaty

The biggest problem with this is the fact that it can get so complex. This is why there’s this thing called the UN double tax treaty, which is not really a treaty but more of a model double taxation convention. In other words, it’s a template that developed and developing countries can use to create their own bilateral tax treaties.

This way, these countries can avoid double taxation of income, which is a scenario where a person would have to pay taxes both in their country of residence and their host country. If this wasn’t the case, working abroad for a short period of time would be financially non-viable, which would be a huge problem in modern hyper-connected world.

Just think about it: working abroad is already problematic. You’re away from home, separated from your family (short-term business visitors usually don’t bring their entire family or partners along), and you’re potentially facing a higher cost of living. On top of that (and having to work through a difference in work culture and language barrier), you’re also forced to pay more taxes than ever (up to a point where earning that income is no longer worth it). 

The existence of this convention promotes international trade and investment by allowing specialists to operate internationally without compromising their profit.

4. The 183-day test

One of the most common principles used for countries to determine the tax residency of individuals is the “183-day rule.” The simplest explanation is that if a person spends less than 183 days (within 12 months) in a given country, their income may not be taxed by the host country. 

Just keep in mind that the 183 day sounds arbitrary, but it’s a norm in a surprisingly large number of countries. However, you must do actual research since different countries may pick different benchmarks. 

Knowing the rules is the key to anyone trying to avoid double taxation or plan their taxes accordingly. 

5. Troubles with payroll

One of the biggest challenges comes from the fact that, in the majority of countries, taxes are automatically deducted from the payroll. This can be quite problematic, especially with overseas taxes. 

Imagine an employee who goes to a foreign country where their own company has no presence. While they’re there, they receive pay from their employer (and the taxes are automatically deducted in their original country of residence) but are also expected to pay taxes in the country where they’re in. 

In most cases, they can file for a tax return and then settle due taxes on their own. 

Some countries, like India or Spain, request that the payroll be registered in the name of the employer, regardless of whether the employer has a corporate presence in the country. Countries like the UK or Canada have different rules and laws. 

Wrap up

Getting informed on the laws that affect you is your own responsibility. Sure, it may sound like the organization in charge of regulating and enforcing tax laws should be responsible for notifying you; however, this is often not the case. Even when it’s mandated by law (in a shockingly small number of countries), it will never cover short-term business visitors. Sure, this is a lot of extra labor, but this shouldn’t scare someone who’s willing to travel to another country for work. It’s nothing out of the ordinary, and it’s nothing to worry about.

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