Remote Work Across Borders in Times of Uncertainty: A Tax Perspective on Flexibility and Risk Management

The emergence of cross-border remote work

From a UAE tax standpoint, there is no inherent restriction preventing an entity from permitting its employees to work temporarily from outside the country. Such arrangements are not uncommon and, when properly managed, can be implemented without significant adverse consequences. However, the shift from a domestic to a cross-border working environment introduces a new layer of tax complexity, particularly where the employee’s activities create a nexus with a foreign jurisdiction.

Tax authorities worldwide are increasingly attentive to these developments. The temporary relocation of employees, especially from low or no-tax jurisdictions such as the UAE, may be perceived as an opportunity for other jurisdictions to assert taxing rights over business profits or individual income. As such, what is operationally convenient may, if left unmonitored, result in unintended tax exposure.

Permanent establishment risk

The primary corporate tax concern arising from cross-border remote work is the potential creation of a permanent establishment in the host jurisdiction. A permanent establishment, broadly defined, arises where a company has a sufficient degree of presence in another country, thereby granting that country the right to tax a portion of the company’s profits attributable to that presence.

In the context of remote work, this risk is not merely theoretical. It may materialise where the employee’s activities go beyond ancillary or preparatory functions and instead contribute directly to the generation of business income. Particular attention should be given to situations in which employees are engaged in core operational functions, habitually negotiate or conclude contracts, or otherwise represent the business in a manner that reflects a degree of permanence or continuity in the host jurisdiction.

Duration is also a relevant factor in this assessment. Many double tax treaties include provisions addressing service permanent establishments, under which the presence of employees in a jurisdiction for a specified period may trigger taxing rights. While a 183-day threshold is commonly used as a reference point, it should not be interpreted as a safe harbour. Rather, it operates as a practical benchmark, the relevance of which depends on the specific treaty provisions and the factual circumstances. In the absence of a double tax treaty, domestic rules in the host jurisdiction may apply, often with lower thresholds and broader interpretations of taxable presence.

VAT considerations

In addition to corporate income tax exposure, businesses must also consider the indirect tax implications of remote work, particularly in relation to VAT. The concept of a fixed establishment, although distinct from that of a permanent establishment, similarly hinges on the presence of sufficient human and technical resources in a jurisdiction to enable the supply or receipt of goods or services.

Short-term remote working arrangements, where employees merely perform their duties from abroad without engaging with local markets, are unlikely to give rise to a fixed establishment. However, the risk increases where the employee’s presence becomes more sustained or where their activities are closely connected to local transactions. This may be the case, for instance, if employees begin interacting with local clients, supporting local business development, or contributing to supplies that are effectively made within the host jurisdiction.

Where a fixed establishment is deemed to exist, this may trigger VAT registration obligations and associated compliance requirements in the relevant jurisdiction.

Individual tax residency

Beyond corporate considerations, remote work abroad also has implications at the individual level. Employees may become subject to personal income tax in the host jurisdiction if they meet the criteria for tax residency or if their activities give rise to taxable income under local law.

The determination of tax residency typically depends on a combination of factors, including the number of days spent in the jurisdiction, the existence of a permanent home, and the centre of vital interests. While day-count thresholds are often used as a starting point, they do not operate in isolation and must be assessed in light of the applicable domestic rules and, where relevant, double tax treaties.

In this context, employees should be particularly mindful of the cumulative number of days spent abroad, including anticipated travel later in the year, as well as any specific provisions applicable to remote workers under local legislation.

Managing risk through practical safeguards

Although cross-border remote work introduces tax risks, these can be effectively managed through appropriate safeguards and monitoring mechanisms. In particular, it is advisable to ensure that:

These measures, while relatively straightforward, play a critical role in demonstrating that the arrangement remains exceptional and does not give rise to a taxable presence abroad.

The evolution of remote work reflects a broader shift in how businesses operate in times of uncertainty. Flexibility has become an essential tool for resilience, enabling organisations to adapt quickly to changing circumstances while supporting their workforce. However, this flexibility must be accompanied by a clear understanding of the tax implications that arise when activities transcend national borders. Permanent establishment risk, VAT exposure, and individual tax residency are all areas that require careful consideration and ongoing monitoring. Well-structured and short-term remote working arrangements should not, in principle, result in significant tax issues. Nonetheless, businesses and employees alike must remain vigilant, ensuring that operational decisions are aligned with tax compliance requirements in an increasingly interconnected world.

If you would like to understand more about the tax implications of cross-border remote working arrangements, please contact Zain Satardien, Partner and Head of Tax & International Trade, or Myriam Fellag, Associate.