Working remotely from another country: What you need to know

08 June 2022 by National Bank
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The COVID-19 pandemic has normalized working remotely, and we can assume it's here to stay. So why not dream a little and consider working remotely from abroad? Before you book a plane ticket and start living the digital nomad lifestyle, you should consider the tax implications, know the rules to follow, and check out our tips to make sure you're well prepared.

What are the tax implications of working remotely from another country?

The tax implications will depend on a number of factors, including the country you choose and the duration of your stay. To ensure peace of mind, make sure you're aware of the tax legislation in effect in Canada and in your remote work country. You should ask yourself the following questions:

1. Will you maintain your Canadian tax residency?

Being a resident for tax purposes means you have to file a tax return and pay taxes on all of your income, no matter where it comes from. In general, based on the criteria set by the government, you will retain your status as a resident if you have significant residential ties to Canada. In some cases, secondary ties may be enough to determine your status. It's handled on a case by case basis.

Examples of significant residential ties:

  • A home in Canada
  • Dependants in Canada (such as minor children)
  • A spouse in Canada
  • Working from abroad temporarily

Examples of secondary residential ties:

  • Canadian bank accounts or credit cards
  • A Canadian driver's licence
  • A Canadian passport
  • Health insurance with a Canadian province

2. Have you established tax residency in the remote work country? 

Check what criteria the country uses to determine your tax residency status. If you become a tax resident, you may have to pay income taxes and file a tax return. 

3. How long will you be away?

The duration of your stay abroad could have tax implications. The longer you're away, the higher the risk that the other country will consider you a resident for tax purposes. This doesn't mean that you will lose your Canadian tax residency. You could therefore be required to file two tax returns and pay income taxes in Canada and in the other country.

4. Has Canada signed a tax treaty with your destination country? 

If a tax treaty is in effect, as set out in this list from the Government of Canada, you will generally be able to avoid double taxation (having to pay taxes in Canada and abroad). These treaties settle conflicts between the tax laws in effect in the two countries. Here's how it works:

Canada: You may have lived and worked in the United States, but you still owe me income taxes!

United States: Nope, I don't think so. I'm the one you should be paying income taxes to! 

Tax treaty: No fighting, you two! I've got rules that set out exactly what to do in this situation.

The end.

Usually, the country where you receive your salary and other income (such as investment income) will collect income tax first. However, the higher tax rate in effect in the two countries often prevails. There's no escape from taxes. It's also possible that you may have to file more than one tax return.

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What are your obligations to your employer when it comes to working remotely from another country?

Check with your employer

It's important to be transparent. Notify your employer that you plan to work remotely from another country. You'll need to get their permission. You may also have to complete and sign a contract or a special agreement.

Discuss the conditions of your stay with your employer

When you discuss working remotely from another country with your employer, you should clarify a few points:

  • The length of your stay
  • Your work schedule while you are abroad
  • Your work tools (example: Are you allowed to bring your employer's computer equipment abroad?)

Understand the tax implications for your employer

Having employees working remotely from another country could have tax implications for your employer. Your bosses will have to assess a number of factors:

  • Your office abroad: will it be considered an office of your employer? 
  • Social security agreements: will your employer need to pay charges in Canada, abroad, or both?
  • Withholding taxes on your salary: will they be affected?

What should you do to prepare for working remotely from another country?

Draw up a budget

The good news? When you decide to mix business with pleasure by working remotely from another country, you'll keep earning an income. However, you should draw up a travel budget to make sure you leave yourself some financial flexibility. It would be a shame to be living in a major European city or by the beach in the Caribbean and not have any spending money!

To make the most of your stay, consider:

  • One-time travel fees (like plane tickets)
  • The cost of living in the other country (food, lodging, etc.)
  • The currency and exchange rates
  • The expenses in your regular budget that will remain the same, such as rent payments for your home in Canada

Want to spice up your life by working remotely from another country? Draw up a plan to save for your project. Apply a few simple tips and you may be able to save for your trip more quickly than you'd think! 

Learn about applicable legislation and other formalities in the country you're visiting 

Business or pleasure? Upon your arrival, customs will ask about the reason for your stay. Depending on the country you're visiting and the duration of your stay, you may also be required to provide a visa. Before you leave, check out the information on requirements and the advisories in effect issued by the government for Canadian travellers. 

To ensure peace of mind: Learn about the legislation applicable to working in the remote work country and be sure to comply with it.

Check your insurance coverage

Do you have personal insurance or insurance through your employer? 

  • If you don't, you should take out some insurance coverage. 
  • If you do, you should make sure your coverage:
  • Is valid abroad
  • Will protect you in the event of a health issue or travel-related problems (theft, lost baggage, etc.)
  • Is sufficient (e.g., amount allocated for hospital fees)
  • Will apply for the full duration of your stay

Which country should you choose?

You can work remotely from hundreds of destinations abroad. No matter which country you choose, there are a few things you should consider to make your life easier. If you're planning to work remotely from another country, the following criteria will help you make an informed choice:

  • Time zones: Depending on when your meetings take place, time zones can have a significant impact. For example, a meeting that's held at 3:00 p.m. in Montreal or Toronto will take place at 9:00 p.m. in Paris.
  • Your work environment and internet connection: Having a decent connection and a comfortable work environment count for a lot. Just having internet access isn't enough if you've got a poor connection and video meetings scheduled all day. 
  • Safety: Make sure you choose a destination that offers a safe and pleasant environment. The Government of Canada regularly issues information on risk levels in each country and laws and customs to be aware of.

The idea of working remotely from another country is exciting. No matter where you're planning to go in the world, you'll need to do some planning. Feel free to ask for help in preventing tax impacts and drawing up a budget. We're here to answer your questions.

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