Talent is located all over the globe, and the pandemic caused many workers to reassess what they want from their lifestyles and move abroad. Additionally, worker shortages have led some companies to hire an employee in another country instead of hiring locally. Can US companies hire employees in other countries to work for them? What are the tax implications of doing so? Here’s what you need to know.
The Short Answer
The short answer to whether or not you can hire an employee in another country is yes. There may be several hiccups along the way and you must consult with your accountant to prepare for potential changes to your taxes. Additionally, hiring internationally is generally more time-consuming and complex than hiring someone already living and working in the US.
Some of the Challenges When Hiring Internationally
- Labor Laws: When you hire an employee in another country, you will need to follow their labor and payroll laws, which might mean major changes to how you currently do things. If you don’t adapt, you could face steep fines and penalties.
- Permanent Establishment: If you are opening a location internationally that will be generating revenue, you are doing something known as permanent establishment. This will directly impact your corporate taxes, as you will now need to pay them in the second country. If you don’t follow permanent establishment rules, you are also likely to encounter tax penalties and legal issues.
- Payroll: Payroll can be complicated when you are working with employees who live in different states, and things get even harder when you factor in calculating payroll for international employees and the requirements of their countries.
- Misclassification: One of the most common problems that can arise when you hire a contractor in the US or hire an employee in another country is misclassification or treating a contractor like a full-time employee. There are many things that can cause this to occur, including giving them a set salary or having requirements for the way that they work (only working between specific hours, wearing a specific uniform, etc.). When you hire an employee in another country that might have different classifications, you must do your research ahead of time.
Overcome International Tax Challenges with Help from MKS&H
MKS&H provides tax and accounting services to businesses of every size and in every industry. We can work with you to make international taxes easily and avoid the most common international tax challenges. Contact us today for a consultation.
About MKS&H: McLean, Koehler, Sparks & Hammond (MKS&H) is a professional service firm with offices in Hunt Valley and Frederick. MKS&H helps owners and organizational leaders become more successful by putting complex financial data into truly meaningful context. But deeper than dollars and data, our focus is on developing an understanding of you, your culture and your business goals. This approach enables our clients to achieve their greatest potential.