Hiring employees and consultants Internationally

The question inevitably arises:

What issues will I face when I have an employee based abroad?

I'll share some of the concerns that light up my head whenever someone discusses such an activity:

You will have to consider what type of agreement (employment agreement, consulting agreement, business to business services agreement) you will want to enter into with the person X who is going to provide you service.

When you hire someone as an employee and he/she is sitting in some other country, you could be affected by:

a) local laws related to employment and taxation

b) foreign laws related to employment and taxation

The odds of being governed by local employment laws increases if you hire them locally and then send them abroad. But the most important considerations for you as an employer will be the laws in the location where the service is being provided.

So, should you choose to base an employee in a particular location, you should consult a local employment lawyer on the terms and conditions governing the employment relationship in that jurisdiction. 

Then you should consult a good local accountant/tax lawyer in that jurisdiction, on what your tax withholding obligations are. 

Finally you should consider whether you will have any duplicate legal obligations in your local jurisdiction. 

[If you do, you will probably want to terminate the relationship locally and set up an independent contractor relationship- more on that below ....]

Now, if you have person X, employee of your company "here"/locally, sitting and working out of the office of your company's subsidiary, parent, or affiliate, in some other jurisdiction, you will need to account in taxation terms for some sort of transfer of benefit between the two companies (X, after all, is a representative of your local company, and by sitting there working, is resulting in benefit either moving from there to here or here to there)

Suppose you don't want to avoid all these headaches, you will come up with the bright idea of making person X an independent contractor, and have that person bill you either directly or through a corporate entity.

This will naturally clear things up a little.

However, then you should check with your local lawyer and tax accountant to make sure:

a)  the contracting relationship with X doesn't turn out to be an employment relationship under the local law, dumping you back into your earlier conundrum (making sure someone is an independent contractor varies in terms of difficulty in different jurisdictions.)

b) that you have identified all the taxation obligations in that jurisdictions that may exist under the local laws in that jurisdiction.

Often there are withholding obligations under taxation laws when you are taking money out of a particular country. Tax authorities will impose a withholding tax against money owed to non-residents because non-residents are presumably not as easily to get hold of (to extract money from!) However, sometimes when you pay money into a jurisdiction to independent contractors, you may have tax remittance obligations on those consulting agreements even if you specify that those independent contractors have the obligation to pay their own taxes.

Finally, the easiest, (from the limited employment and tax perspective in this blog entry) will be a business to business services agreement between you and a company in that jurisdiction that will, in turn, pay person X.

In conclusion, if you are planning to hire overseas in a jurisdiction, setting aside sales, marketing issues, for just the hiring decisions, you should consider both local employment and tax advisers. 

And when you come up against tough questions like these, call me and I can point you to the right experts.