Global Employment Tax and Compliance Newsletter. December 2023

Welcome to the final 2023 edition of the Global Employment Tax and Compliance Newsletter. This year has been a journey of discovery and adaptation in the world of global employment, and our 12th edition is no exception. We’ve consistently strived to bring cutting-edge insights and analysis to the forefront, empowering global employment professionals to navigate the complexities of an ever-evolving landscape.

As we culminate this year’s series, this edition encapsulates the latest legislative updates and reflects on the strides we’ve collectively made in shaping effective global employment strategies. The diverse changes and challenges we’ve examined throughout the year, from tax reforms to visa policies, have enhanced our collective expertise.

Our ambition has always been to transcend beyond mere compliance updates. We aim to provoke thought, foster innovation, and inspire strategic thinking in managing global workforces. The remarkable increase in our LinkedIn community and subscriber base is a testament to the value we’ve created together.

As we enter a new year, we carry insights, experiences, and lessons from 2023. Let’s continue to collaborate, innovate, and elevate the standards of global employment practices.

????-???? Clarifying Permanent Establishment in Remote Work: New Belgium-Netherlands Agreement

Legislation Adopted

On 23 November 2023, Belgium and the Netherlands ratified a Competent Authority Agreement to interpret Article 5 of their Income Tax Treaty, specifically addressing the impact of remote working on establishing a permanent tax presence.

Key Provisions in a Nutshell

• Scope of Agreement: Guidelines on how remote working affects the creation of a permanent establishment for taxation. Determining if home-working leads to a permanent establishment is crucial, impacting cross-border employees’ corporate and income tax calculations.
• Home-Working Scenarios: Differentiation between occasional, regular, and consistent home-working and their impact on establishing a permanent establishment.
• Practical Guideline: Working from home 50% or less of the time does not constitute a permanent establishment. Over 50% may lead to a permanent establishment, dependent on certain conditions.
• Effective Date: Applicable from 8 December 2023.

Understanding the Impact

This Agreement marks a crucial development in the growing hybrid work model, offering clarity on tax obligations and permanent establishment related to remote working for cross-border employees between Belgium and the Netherlands.

Implications for Employers & Immediate Actions

• Policy Review: Assess remote working policies in light of these new guidelines.
• Tax Compliance: Adjust tax reporting and compliance strategies for employees working remotely.
• Individual Assessment: Examine the working patterns of cross-border employees to understand potential tax implications under the new Agreement.
• Ongoing Discussions Monitoring: Stay informed about ongoing discussions between Belgium and the Netherlands, particularly regarding income tax implications for cross-border employees. These talks may lead to future changes that could impact cross-border employment arrangements.
• Assessment of Permanent Representative Status: The Agreement does not address situations involving a permanent representative. Employers must assess if employees working from home with the authority to conclude or negotiate employment contracts could be classified as permanent representatives. This is crucial as it has significant implications for establishing a permanent establishment and the related tax obligations.

???? Czech Republic’s Revisions in Taxation of Employee Stock Plans

Legislation Adopted

The Czech Republic is considering a bill to revise the taxation on employee stock options and shares. Set for potential implementation on 1 January 2024, if passed, the bill is directed at employer-provided stock benefits.

Key Provisions in a Nutshell

• Scope of the Bill: Adjusts taxation on employee stock options and shares, focusing on those acquired in a business corporation that is the employer or a related entity.
• Taxation Timing: The amendment specifies when the non-monetary benefit, i.e., employment income from these plans, becomes taxable for the employee.
• Defined Taxable Events: Includes termination of employment, changes in tax residency, share or option transactions, option exercises, and reaching a 10-year limit from acquisition.
• Option Type Applicability: The bill’s current form does not specify a distinction between transferable and non-transferable options.
• Transferable vs. Non-Transferable Options: The amendment does not distinguish between freely transferable and non-transferable options in its current wording.

Understanding the Impact

This legislative change is significant, particularly regarding when and how employee stock options and shares are taxed, affecting both employers and employees, especially in cross-border employment situations.

Implications for Employers & Immediate Actions

• Review Employee Plans: Examine existing stock options and share plans for alignment with the new taxation rules.
• Inform Employees: Clearly communicate the changes in taxation timing to employees to help them understand the impact on their income.
• Legislative Monitoring: Keep track of the bill’s progress to adapt swiftly and ensure compliance.
• Seek Clarification on Ambiguities: Consult local tax and employment experts to understand how the lack of distinction in option types affects plan administration.

???? Cyprus 2024 Update: Social Insurance Contribution Rates Rise

Legislation Adopted

Effective 1 January 2024, Cyprus has mandated an increase in the Social Insurance Fund contribution rates, per the Social Insurance Law of 59(I)/2010 and its amendments.

Key Provisions in a Nutshell

• Employed Persons: Contribution rates for both employers and employees will rise from 8.3% to 8.8% on insurable earnings.
• Self-Employed Persons: The contribution rate will increase from 15.6% to 16.6% on insurable earnings.
• Insurable Earnings Cap: For 2024, the maximum insurable earnings are set at €1,209 per week, €5,239 per month, and €62,868 per annum.
• Contribution to Other Funds: Rates for the Redundancy, Training and Development Funds, along with the Social Cohesion Fund (which has no cap on earnings).

Understanding the Impact

These changes will affect cost projections and budgeting for international assignments to and from Cyprus. Employers must consider these rate increases in payroll adjustments and hypothetical tax calculations, particularly for tax-equalised assignees.

Implications for Employers & Immediate Actions

• Payroll Adjustment: Update payroll systems to reflect the new contribution rates for both employed and self-employed individuals.
• Budget Revisions: Revise budgeting for international assignments in Cyprus to account for increased social insurance contributions.
• Communication: Inform stakeholders, including assignees, about the changes to ensure understanding and compliance.
• Consultation: Employers and self-employed individuals should seek advice from tax professionals for optimal management of these changes.

Social Insurance Contribution Rates for 2024

???? Slovakia’s Tax Legislation Overhaul Post-Government Change

Legislation Adopted

Following its recent formation, the Slovak government rapidly introduced a tax reform, leading to the passage of the Amendments Act on 19 December 2023. This act revises several existing tax laws, including the Slovak Income Tax Act, and is set for implementation from the start of 2024, pending presidential approval.

Key Provisions in a Nutshell

• Dividend Income Tax Hike: Tax on dividends rises from 7% to 10% for profits accruing in tax periods beginning 1 January 2024 onwards.
• Revocation of Tax Exemptions: Specific exemptions on securities sales, company shares disposals, and virtual currency transactions are eliminated.
• Adjustment in Self-Employed Taxable Income Cap: The threshold for a 15% tax rate for self-employed individuals increases from €49,790 to €60,000.
• Higher Health Insurance Contributions: Employer health insurance contributions are set to rise from 10% to 11% (5.5% for employing disabled persons).

Understanding the Impact

These rapid legislative developments introduce significant changes in Slovakia’s tax landscape. Employers, particularly those under the Slovak social security regime, and individuals with investment income will face higher taxation.

Implications for Employers & Immediate Actions

• Prepare for Increased Operational Costs: Factor in the raised healthcare insurance rates in budgeting and payroll.
• Investment Income Reassessment: Reevaluate the financial impact due to the removal of specific tax exemptions and increased dividend taxation.
• Policy Revision: Update internal tax-related policies, including for international assignees, to align with the new tax regime.
• Individual Tax Planning: Advise employees to review their tax situation, especially those with investments affected by the changes.

???? China’s Expanded Visa Exemption for Select Countries

Legislation Adopted

China’s Ministry of Foreign Affairs announced an expansion of its unilateral visa exemption policy, effective from 1 December 2023 to 30 November 2024, for travellers from six additional countries.

Key Provisions in a Nutshell

• Beneficiary Countries: Germany, France, Italy, the Netherlands, Spain, and Malaysia.
• Eligibility Criteria: Visa exemptions apply to citizens holding ordinary passports visiting for business, tourism, visiting relatives, and transit for up to 15 days.
• Existing Exemptions: This expansion builds on existing visa exemptions for Singapore and Brunei citizens.

Understanding the Impact

These visa exemptions ease entry into China for short-term stays from the specified countries, promoting business, tourism, and cultural exchanges. However, the duration under visa exemption cannot be extended within China.

Implications for Employers & Immediate Actions

• Inform Relevant Stakeholders: Update mobile employees, frequent travellers, and students about the new visa exemption opportunities.
• Compliance: Ensure understanding and adherence to the visa exemption conditions, including duration limitations.
• Monitor Updates: Stay informed about further immigration policy changes in China and reciprocal visa policies from the affected countries.

Reciprocal Visa Policies

• France’s Policy for Chinese Citizens: France now offers a five-year multiple-entry visa for Chinese citizens who have completed a master’s degree and at least one semester of study in France.
• Malaysia’s Visa Exemption for Chinese Citizens: From 1 December 2023, Chinese citizens with ordinary passports are exempted from needing a visa for tourism visits to Malaysia for up to 30 days.
• China-Singapore Visa Waiver Agreement: An agreement for visa waivers for ordinary passport holders of China and Singapore is under finalisation, with specifics yet to be announced.

???? Brazil’s Comprehensive Tax Reform: Impacting Income and Overseas Investments

Legislation Adopted

Brazil’s government has enacted Law No. 14.754/2023, bringing significant changes to individual income taxation. Effective January 1, 2024, this law includes taxation and reporting for foreign income, such as financial investments, income from foreign employment and or financial investments abroad, for Brazilian residents. Additionally, controlled foreign entities in tax havens or with low active income face a 15% income tax rate. Taxpayers may opt to declare such entities' assets directly, with taxation upon actual income receipt. Employers must adjust budgets and payroll for tax-equalized assignees accordingly.

Key Provisions in a Nutshell

• Trust Regime Reforms: Introduces important changes to how trusts are handled for tax purposes.
• Valuation of Foreign Assets: Alters rules for valuing foreign assets held by Brazilian tax residents, impacting their tax liabilities.
• Broad Tax Treatment Changes: Affects various forms of income, including employment and overseas investments.

Understanding the Impact

The Law marks a significant shift in Brazil’s tax policy, affecting individuals with diverse income sources and investments overseas. The new valuation rules for foreign assets are especially noteworthy.

Implications for Employers & Immediate Actions

• Inform and Prepare Assignees: Discuss the applicable tax rates, thresholds, exemptions, and changes in the valuation and reporting of overseas assets with new Brazil-inbound assignees.
• Review Assignment Policies: Employers should reassess assignment policies, considering the increased tax responsibilities and potential impacts on assignees.
• Seek Expert Guidance: Employers and employees should consult with local tax professionals or a Global Employer of Record to understand the implications and ensure compliance with the new laws.

???? Comprehensive Tax and Social Security Reforms in the Czech Republic

Legislation Adopted

The Czech government has enacted significant personal income tax and social security reforms, effective January 1, 2024. These changes come as part of a government consolidation package to address financial imbalances.

Key Provisions in a Nutshell

• Income Tax Rate Changes: The threshold for a 23% tax rate is lowered, impacting higher earners.
• Non-Monetary Benefit Limits: Introduction of limits on exemptions for non-financial benefits, including managerial accommodations and meal allowances.
• Tax Deductions Removed: Removal of specific tax deductions and credits affecting students, families, and union members.
• Cap on Securities and Share Exemptions: Restriction on tax exemptions for sales of securities and shares, with a new cap set.
• Social Security Contribution Adjustments: Increase in employee and self-employed contribution rates.

Understanding the Impact

These reforms will likely lead to increased taxation for employees, especially international assignees, and heightened social security contributions, affecting the Czech Republic’s employees and self-employed individuals.

Implications for Employers & Immediate Actions

• Budget and Policy Adjustments: Employers should reassess their budgeting for assignments and consider revising policies to accommodate increased tax and social security costs.
• Employee Communication: Clearly communicate these changes to employees, especially those on international assignments, to manage expectations and ensure compliance.
• Monitor Further Developments: Stay alert to any additional guidance or modifications to these reforms.

???? EU’s New Directive on Platform Work: Ensuring Fair Employment Status

Legislation Adopted

The European Parliament and Council reached a provisional agreement on the Platform Work Directive on 13 December 2023. This directive, pending formal adoption, targets improved working conditions for individuals engaged in tasks through digital platforms.

Key Provisions in a Nutshell

• Employment Status Clarification: Presumption of employment based on certain control indicators.
• Algorithmic Transparency: Mandated disclosure of algorithmic decision-making impacting workers.
• Human Oversight in Decision-Making: Requirement for human involvement in significant platform decisions.
• Data Protection Enhancements: Restrictions on processing sensitive personal data of platform workers.
• Intermediary Regulation: Measures to prevent circumvention of rules through intermediaries.

Understanding the Impact

The proposed EU Platform Work Directive can significantly transform the platform economy’s landscape. It’s poised to shift the classification of a substantial number of workers from self-employed to employee status. This change isn’t just a label alteration; it has profound implications for taxation and social security contributions. The directive’s reach extends across various segments of the gig economy, notably impacting sectors like food delivery services. With this shift, many individuals operating as independent contractors could gain full employee rights and protections, altering the financial and operational dynamics for workers and platform operators.

Implications for Employers & Immediate Actions

• Reassess Employment Classifications: Review and update employment status in line with new criteria.
• Adapt to Transparency Requirements: Revise systems to ensure algorithmic decision-making is transparent.
• Incorporate Human Review in Decision Processes: Establish procedures for human oversight in critical decision-making areas.
• Monitor and Prepare for Compliance: Keep abreast of developments and prepare for the directive’s effective implementation.

Additional Considerations

• Potential Directive Adoption: The directive, likely to be adopted, addresses the employment status of platform workers, with court cases often leading to reclassification from self-employed to employed.
• Economic Implications: Observations highlight that the directive may align with the financial strategies of certain member states where service provision taxes are less than those for employment. The anticipated shift from self-employed to employed status for many workers could increase overall tax and social security contributions.
• EU Commission’s Analysis: Over 5 million platform workers might be misclassified, and reclassification could significantly increase state revenues.

???? United Kingdom HMRC Releases Guidance on Digital Platform Reporting Rules

New Reporting Obligations for Digital Platforms

HMRC’s updated guidance, detailed in the International Exchange of Information Manual (IEIM), outlines the UK’s implementation of the OECD’s model reporting rules for digital platforms. These new requirements, effective from 1 January 2024, compel UK-based digital platforms to gather and report to HMRC annual income information for sellers providing personal services, selling goods, or renting out property or transport on their platforms. The initial data reporting is scheduled for January 2025.

Compliance for UK and EU Platforms

The guidance is particularly relevant for UK digital platforms that are also active in the EU. These platforms must be aware of their dual reporting responsibilities, as the EU’s Directive on Administrative Cooperation (DAC7) enforces similar rules from 1 January 2023, a year earlier than the UK’s timeline. The first EU reporting deadline falls in January 2024. Platforms operating in both regions should prepare for each jurisdiction’s nuanced requirements and timelines.

???? New UK Tax Treaties with Luxembourg ???? and San Marino ????

Legislation Adopted

The UK has recently ratified new double tax treaties with Luxembourg and San Marino. The UK-Luxembourg treaty, signed on 7 June 2022, and the UK-San Marino treaty, signed on 17 May 2023, have both been formally ratified and entered into force on 22 November 2023 and 30 November 2023, respectively.

Key Provisions in a Nutshell

• UK-Luxembourg TreatyTakes effect for UK and Luxembourg withholding taxes from 1 January 2024.Applies to other Luxembourg taxes on income or capital from 1 January 2024.Affects UK corporation tax (including on chargeable gains) from 1 April 2024.Impacts UK income tax and capital gains tax from 6 April 2024.
• UK-San Marino TreatyEffective for San Marino taxes and the UK withholding taxes from 1 January 2024.Applies to UK corporation tax from 1 April 2024.Influences UK income tax and capital gains tax from 6 April 2024.

Understanding the Impact

These treaties are pivotal in preventing double taxation and fiscal evasion and enhancing trade and investment between the UK and these countries. They provide clarity on tax obligations for businesses and individuals engaging in cross-border activities.

Implications for Employers & Immediate Actions

1. Review International Transactions: Employers with cross-border transactions between the UK and Luxembourg or San Marino should review their structures and transactions to align with the new treaty provisions.
2. Tax Planning: Consider tax planning opportunities under the new treaties, particularly regarding withholding taxes, capital gains, and corporate taxes.
3. Update Tax Compliance Protocols: Ensure that payroll and taxation systems are updated to reflect the changes, especially regarding withholding tax obligations.
4. Communicate with Employees and Stakeholders: Inform employees and relevant stakeholders about how these changes might affect their tax liabilities.
5. Seek Expert Advice: Consult with tax professionals to understand the detailed implications of these treaties on your business operations.
6. Monitor Implementation: Keep abreast of how these treaties are implemented in practice, especially in their initial years, to ensure full compliance and to take advantage of potential benefits.

???? U.S. Visa Bulletin January 2024: Key Updates

Legislation Adopted

The U.S. Department of State’s January 2024 Visa Bulletin announces significant updates in employment-based visa categories, particularly for EB-1 and EB-3 visas for certain nationalities.

Key Provisions in a Nutshell

• EB-1: Progression in cut-off dates for China and India.
• EB-2 and EB-3: Changes in cut-off dates for China, India, and other countries.
• Other Categories: Adjustments in EB-4, Certain Religious Workers, and EB-5 categories.

Understanding the Impact

These updates reflect ongoing adjustments to the U.S. immigration system, addressing the backlog and demand for employment-based visas. The shift in cut-off dates is a response to changing immigration trends and the need to manage visa allocations efficiently.

Implications for Employers & Immediate Actions

• Monitoring Visa Bulletins: Employers should closely monitor monthly bulletins for changes affecting their workforce’s visa status.
• Planning and Compliance: Adjustments may be required in workforce planning and compliance strategies, especially for those employing a significant number of employees from China and India.
• Communication with Employees: It’s essential to keep affected employees informed about their visa status and potential eligibility or application timeline changes.

Cut-Off Dates for Dates of Final Action Chart for January 2024

This table concisely summarises the cut-off dates for the final action per visa category, as per the January 2024 Visa Bulletin. It’s a helpful guide for employers and individuals planning their visa applications.

???? United Kingdom HMRC’s New IR35 Off-Payroll Working Rules Guidance

Legislation Adopted

• Guidance Released: HMRC has published “Help to comply with the reformed off-payroll working rules (IR35) — GfC4,” as part of their Guidelines for Compliance (GfC) program.

Key Provisions in a Nutshell

• Target Audience: Aimed at businesses managing IR35, involving workers who provide services through their own intermediaries. Note: IR35 off-payroll working rules are a set of tax legislation in the UK designed to combat tax avoidance by workers supplying their services to clients via an intermediary, such as a limited company, but who would be an employee if the intermediary was not used. These workers are often referred to as ‘disguised employees’ by HMRC.
• Structure: The guidance is divided into 14 distinct sections, each detailing aspects of IR35 compliance.

Understanding the Impact

• Purpose: The guidance is designed to clarify good practices for IR35 compliance, helping organisations understand HMRC’s expectations.
• Format: Features practical examples of systems and processes deemed effective for adhering to IR35 rules.

Implications for Employers & Immediate Actions

• Complementary Nature: These guidelines are to be read alongside existing HMRC off-payroll working guidance, not in isolation.
• Integration with Current Practices: Employers should incorporate the guidance into their existing IR35 compliance strategies.
• Review and Implementation: Thoroughly review the GfC4 guidelines and integrate the recommended practices for a comprehensive IR35 compliance approach.
• Ongoing Compliance: Regularly update and refine IR35 compliance processes in line with HMRC’s evolving guidelines and practices.

A-Z Guide to Global Employment

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From A to Z, we’ve covered it all – from international hiring strategies to visa processes, cultural diversity, and tax reporting. Whether you’re an HR professional, a business owner, or a global executive, this guide is your ultimate resource for success in the global workforce.

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Embracing the Future of Global Employment

As we draw the curtains on this year’s final edition of the Global Employment Tax and Compliance Newsletter, we want to extend our heartfelt gratitude to each one of you. Your engagement, insights, and feedback have been the driving force behind our continuous evolution and success.

Looking ahead, the landscape of global employment continues to evolve at an unprecedented pace. The challenges and opportunities it presents will undoubtedly require us to stay agile, informed, and proactive.

We eagerly anticipate continuing this journey with you in 2024, further expanding our horizons and deepening our understanding of global employment intricacies. Until then, we wish you a successful wrap-up of this year and a fantastic start to the next.