Cross-border remote work: navigating tax, social security and compliance

Cross-border remote work has become a defining feature of the modern workplace.

At its core, it means employees work from a country other than where their employer is based.

Sometimes, cross-border work happens because the company assigns an employee to work virtually on an international project.

In other cases, employees may request the arrangement, hoping to live or work abroad for a fixed period, or even permanently.

While cross-border work has been around for decades, the COVID-19 pandemic brought it to the mainstream.

Now, with remote and hybrid work becoming the standard, more and more employees are asking to log in from abroad, whether to follow a partner’s relocation, enjoy a few months in another country or to find a better work-life balance.

As a result of this surge, many companies are forced to think more carefully about the practicalities and compliance risks of international remote work.

Why companies say yes to remote work abroad

Allowing employees to work overseas often starts as a practical solution.

At times, cross-border remote work is the only way to get things started before a relocation can happen, or it’s a stopgap when travel restrictions delay moves.

For others, the motivation is clear: cost savings and workforce flexibility.

Employees, of course, see additional benefits, as it can offer far greater lifestyle freedom.

However, while the flexibility is appealing, it can pose significant risks for employers.

Compliance risks for employers

Someone working in a country where your company has no legal presence can create major headaches.

Employers suddenly find themselves navigating:

• Foreign tax rules
• Social security systems
• Potential corporate liabilities

For example, income tax can quickly become complicated, because if a company sets up a remote arrangement legally, there’s always the question of which country has the right to tax the employee’s income.

Without the right treaties in place, employees may face double taxation, and if compliance slips, both employer and employee can face consequences.

Corporate tax also creates another layer of complexity; when an employee performs work duties from another country – even if the company isn’t generating revenue there – the employer risks triggering permanent establishment status, which can lead to unexpected corporate tax obligations.

Additionally, social security is no easier! Contribution rules vary widely by country, and an employee who stops paying into their home-country system may lose access to pensions or benefits; meanwhile, employers must determine whether they need to register locally to make contributions.

Finding the right path forward

So, how can companies manage these risks without shutting down opportunities for global talent?

The first step is recognising that specialist tax and legal advice is essential.

Managing compliance across two countries is rarely straightforward, and ongoing guidance can help prevent costly mistakes.

Some businesses reduce risk by establishing local entities or working with an Employer of Record (EOR).

While this approach introduces new costs, it provides a structured way to ensure employees are fully compliant in their host country.

Companies also need to think carefully about visas and work permits.

An employee may assume they can work abroad without restrictions, but the type of work they’re doing – and how long they’ll be there – can trigger immigration requirements.

Approving an arrangement without verifying this can create serious liabilities.

Also, while it’s tempting to sidestep obligations by engaging overseas workers as contractors, this quick fix can backfire badly.

Misclassification is one of the riskiest strategies a business can pursue, exposing them to penalties, back pay and even legal action.

That’s where a partner like IRIS can help! Our global HR services are designed to support businesses expanding across borders.

From managing social security obligations to ensuring proper employment contracts and HR frameworks are in place, we provide the infrastructure companies need to hire and manage talent abroad confidently.

Navigating the new reality of cross-border remote work

My colleague, Dan J Grace, Director of IRIS HR Consulting Services, shared his thoughts, saying: “Don’s insights in this article highlight just how much the post-COVID world has reshaped international remote work.

“What was once a niche arrangement has become a mainstream employment model, and with that shift, organisations are facing a paradox.

“Remote work delivers unprecedented flexibility and access to global talent, but it also brings a maze of compliance challenges that many companies are completely unprepared to handle.

“The hard truth is that even a seemingly simple decision can trigger permanent establishment rules, expose the company to double taxation and leave both employer and employee vulnerable to significant penalties.

“Add social security obligations into the mix, and the complexity multiplies.

“Employees may unknowingly lose pension or healthcare rights, while companies risk retroactive assessments and reputational damage.

“What’s especially concerning is the misconception that these risks can be brushed aside through informal arrangements or pushed onto employees.

“Misclassifying staff as contractors may seem like a quick fix, but it’s a ticking time bomb that can lead to fines, back pay and legal battles.

“Likewise, telling employees to ‘handle their own taxes’ shows a fundamental misunderstanding of corporate liability and responsibility.

“For organisations serious about taking advantage of international remote work, half-measures are not an option.

“The choice is clear: either invest in proper infrastructure – through local entity registration, employer of record partnerships or comprehensive compliance frameworks – or accept the very real risks of non-compliance.

“The stakes are high, from criminal liability for directors to heavy financial penalties and long-term reputational harm.

“The business case for doing this right couldn’t be stronger.

“As HR professionals, our role is to help companies move past the initial excitement of borderless work and toward sustainable, compliant models.

“That means conducting rigorous risk assessments, creating clear policies, securing expert tax and legal guidance and, perhaps most importantly, setting realistic expectations about what international remote work can and cannot deliver.

“The organisations that thrive in this new era won’t be the ones that ignore the complexity.

“They’ll be the ones that face it head-on, building robust frameworks that protect their businesses, safeguard their employees and unlock the real opportunities global remote work has to offer.”

About the author: Don Hastie, Senior International HR Consultant

With more than 20 years of experience, Don brings extensive expertise in international HR.

Over the course of their career, they have led numerous HR initiatives in organisational development, employee relations and HR policy design.

Their professional background spans a wide range of industries, including engineering, renewable energy, technology, hospitality and retail.

They’ve also partnered with global organisations across North America, Europe, Africa and Australasia to design and implement HR strategies that align with broader business objectives.