Industries: International Business
By: Rebecca Fisher
In light of the continuing global effects of COVID-19, individuals and businesses around the world are learning to navigate a new and ever-changing global mobility landscape. The world continues to witness border closures, travel bans, government closures & suspensions, stay-at-home orders, and frequent changes in government regulations. As a result, companies with global employees and individuals working in jurisdictions outside of either their place of employment or place of residency must consider key tax issues and the potential for unexpected tax exposures.
One such issue affecting global mobility is the rise in “stealth expats” and the subsequent rise in “stealth repatriations”. Traditionally, companies around the world have assigned employees to work abroad for a specified period of time. These individuals are deemed “expatriates”, or “expats”. At the end of the assignments, the company would have a process in place to repatriate, or send back, the employees to their home countries. Expatriates are accounted for with a plan in place by the company for their assignments from start to finish. However, a stealth expat is an “accidental” expatriate. These are individuals who work abroad but the company is unaware of it, resulting in potential legal and tax issues. Once a company becomes informed that an employee is a stealth expat, it can begin the process of repatriation.
While not always possible due to travel bans and other closures as a result of the pandemic and quarantine regulations, many companies have offered temporary or permanent repatriation to their employees working abroad. These repatriations of known expats have increased since the onset of the pandemic, reducing costs and allowing companies to reconfigure their global mobility plans.
However, an additional increase in repatriation is being seen due to stealth expats. These accidental expats are employees working remotely in a jurisdiction that inadvertently leads to them being classified as an expat for tax and legal purposes. In many cases, the individual is unaware of this classification; therefore, the company is unaware until a compensation issue or a question on expenses arises. This stealth expat status can trigger tax and legal problems under the host country where the employee is working, affecting immigration, income tax, payroll, social security and other areas of potential risk and compliance for both the company and the employee. While this is not a new issue, it has been more pronounced since the onset of the pandemic and repatriation of these stealth expats has significantly increased as a result.
This is why it’s imperative for companies to know where their employees are choosing to work, or temporarily having to work due to travel restrictions, in order to evaluate the possible legal and tax effects. Communication is critical during this time when remote working is on the rise coupled with the flexibility to work from anywhere and the challenge for companies to know where all employees are working from.
So what are ways this can be addressed? Employees should alert their companies or global mobility teams about where they are working in order for any potential issues to be handled and risks mitigated as early as possible to minimize consequences. Additionally, companies can confirm in writing where “home” could be or require employees to inform them of a change of address to assist with compliance. Having clear home working terms that address flexible working policies both domestically and internationally, and other policy documents to address home working as a result of COVID-19, can be effective in educating and explaining to employees why it matters where they work. Technology solutions for tracking employee moves and assignments can also be considered as a solution to know where employees are and when repatriation decisions may need to be made.
Understanding the global pandemic has impacted this, the IRS has provided relief through two Revenue Procedures. Revenue Procedure 2020-20 provides relief to non-resident aliens who were unable to leave the U.S. due to COVID-19. Revenue Procedure 2020-27 provides relief to U.S. citizens working abroad whose assignments were prematurely ended and sent home ahead of border closures.