Short-term expatriates move abroad for several reasons: studies, work, volunteering, etc. Although they might believe after getting their visa and paper done when needed, that bureaucracy is over, some countries might require them to pay taxes. When can that happen?
According to the OECD, a short-term migrant is a person who moves to a country other than that of their usual residence for a period of at least three months but less than a year (12 months) except in cases where the movement to that country is for purposes of recreation, holiday, visits to friends or relatives, business and medical.
Income tax for working expats
In most countries, expats will have to pay taxes related to work, regardless if they're short-term migrants or not. If they go to the United Kingdom for a short time only and for a temporary purpose, they may not become residents in the UK for tax purposes. However, even if they are not UK residents, they will generally have to pay UK income tax on employment income earned from a job they carry out in the UK.
It is understandable that one also asks: why does the company have to deal with the taxation of employees during a foreign assignment at all? After all, the employee basically receives a gross salary and then has to take care of paying the taxes himself. But according to Friederike Ruch, managing partner at Convinus Mobility Solutions, if the employee is sent abroad on behalf of the employer, then the employer should get involved and not leave it up to the employee.
In Spain, as in the UK, employment incomes in temporary assignments are taxable at a 24% rate (19% for individuals qualifying as tax residents in an EU country). However, expats might not have to pay residency taxes if they live from 1 to 182 days in the country, implying they are non-residents.
In China, a short-term expat has to pay taxes in accordance with their duration of residence in the country. China non-domiciled expatriates have a 6‐year tax exemption period so that they don't have to pay PRC IIT on non‐PRC sourced income, subject to a put‐on‐record filing with the PRC tax authorities.
Research tax conditions
Each expat needs to check to what extent there are tax consequences in the country they're moving to as rules might change. According to Ruch, the decisive factor when researching is whether a double taxation agreement can be applied or not. Agreements on that can occur, for instance, in countries within the EU or the UK, as the European Commission states. If a double taxation agreement exists, it may be possible to avoid tax liability in the country of assignment, and the salary remains taxable in the employee's country of residence. However, that applies just as long as the expat stays less than 182 days in the country.
Most countries won't have this kind of agreement, and expatriates will have to pay employment taxes when working in the country, regardless of whether it's remote work, freelance or not.
The 183-day rule
If a double taxation treaty applies, this automatically leads to a review of the so-called "183-day rule". This rule basically states that taxpayers remain liable to tax in the country of residence if they stay in the country of assignment for less than 183 days, and no salary costs are paid to them from the country of assignment, and no salary costs are borne by a permanent establishment in the country of assignment. If all three conditions are met, the tax liability for the employee remains in the country of residence.
One could now conclude that one would like to avoid tax liability in the country of assignment for the employee in any case so that this does not lead to any additional tax costs, and also, no administrative tasks arise for the employee in the country of assignment or in the country of residence. However, one forgets the tax consideration at the company level. Therefore, as a rule, in cases where one tries to avoid taxation at the employee level, the tax risks at the company level are higher.
