Sun, sea… and tax risk?

Remote working has quietly shifted from exception to expectation. For many senior executives, the idea of working abroad over the summer—extending a holiday while staying “online”—feels low risk.

From a tax and governance perspective, it rarely is.

Why this matters at board level

Short periods overseas can trigger disproportionate consequences. What looks like a few weeks of remote working can, in the wrong circumstances, create:

• a taxable presence for the company in another jurisdiction
• payroll and social security obligations
• indirect tax complications
• employment law rights in a new country

Crucially, these risks often arise unintentionally.

Corporate tax: the permanent establishment risk

One of the key risks to consider is the creation of a permanent establishment (PE).

Broadly, this can arise where:

• the individual has authority to conclude contracts, or plays a key role in doing so; or
• there is a fixed place of business at the company’s disposal (which can, in some cases, include a home office abroad).

For senior employees, particularly board members, the threshold is more easily met in practice:

• strategic decision-making overseas can be scrutinised;
• habitual contract negotiation or approval can be sufficient; and
• even short periods may be relevant depending on the nature of the activity.

A PE can expose part of the company’s profits to corporate tax in that jurisdiction, alongside compliance and reporting obligations.

Corporate residency: the central management and control risk

Distinct from the PE question is the risk to the company's own tax residency.

A company incorporated in the UK is automatically UK tax resident by statute. However, other jurisdictions may have similar rules to the UK; where companies incorporated outside the UK can become tax resident here based on where central management and control is exercised—typically where the board meets and the highest-level strategic decisions are made. For UK-incorporated companies, the risk is not a loss of UK residency, but the acquisition of dual residency in an overseas jurisdiction.

Where board members or senior decision-makers routinely work from overseas there is a risk that central management and control migrates with them. This is particularly acute where:

• board meetings are regularly attended from a single overseas location;
• key strategic, financial or operational decisions are made outside the UK; or
• a critical mass of senior leadership is based in, or regularly operates from, the same foreign jurisdiction.

If central management and control is found to have shifted, the company may become dual resident—or, under the relevant treaty tie-breaker provisions, resident solely in the overseas jurisdiction. The consequences can be far-reaching: a deemed disposal of assets, loss of group relief, and a fundamental change to the company's tax profile.

Unlike a PE, which typically affects the allocation of specific profits, a shift in corporate residency goes to the tax status of the entity itself. And because the test turns on where decisions are actually made, the risk can crystallise without any deliberate action by the board.

Employment tax and social security

From an employment tax perspective, the key questions are:

• Where are duties performed?
• Does the host country have specific withholding obligations that apply regardless of where the employing company is based?
• Does the host country have taxing rights under the relevant double tax treaty?

While short-term presence may fall within treaty exemptions (e.g. the familiar 183-day rule) or equivalent provisions on short term business visitors, this is not automatic and depends on:

• who bears the cost of the remuneration;
• whether there is a local entity or PE; and
• whether the duties performed overseas are ancillary to the employment or represent substantive, core functions of the role.

Social security can be more immediate: contribution obligations may arise overseas from day one.

For boards, the operational issue is less the technical rule and more the lack of coordination—these obligations are often triggered before anyone realises.

VAT and indirect tax

VAT is often overlooked but can become relevant where:

• services are effectively supplied from another jurisdiction;
• there is a "fixed establishment" for VAT purposes (a concept distinct from the direct tax PE test, with its own criteria under retained EU law); or
• local invoicing or registration obligations arise.

While less common for short-term remote working, the risk increases where:

• employees are revenue-generating; or
• contracts are managed or delivered from abroad.

Beyond tax: employment law and data

Tax rarely sits in isolation. Cross-border working can also engage:

• Employment law: local rights may apply depending on duration and integration.
• Data protection: cross-border access to systems and personal data can trigger GDPR and local law considerations, particularly outside the UK/EU.
• Immigration: working on a tourist visa or without appropriate work authorisation is unlawful in many jurisdictions and can carry personal consequences for the individual, including fines and future entry restrictions.

These risks often sit outside tax teams—but fall squarely within board accountability.

How can businesses mitigate the risks?

This is not about preventing flexibility. It’s about controlling risk in a way that stands up to scrutiny.

At a minimum, boards should consider:

• a clear policy on overseas remote working (particularly for senior staff)
• a notification and approval process
• alignment between HR, tax, legal and compliance
• documenting where key decisions are made and by whom
• periodic review of the risk profile of jurisdictions to which senior staff travel or work from regularly

The real risk isn’t the summer working arrangement itself. It’s the absence of a coherent, documented position if that arrangement is revisited—potentially years later.

Final thought

Remote working across borders is easy to arrange but much harder to unwind from a risk perspective.

For boards and for individuals personally the question is not "Can we allow this?" but rather: "If this is challenged in three years' time, will we be able to explain and defend what happened?"

That’s ultimately a governance question—and one best addressed before, not after, the summer.

How can we help?

Our Incentives and Employment Tax team works with a range of clients including FTSE, AIM and global companies, PE backed companies and start-up companies.

We have an in-depth knowledge of employee tax and can help you ensure your business complies with its payroll obligations, including for internationally mobile employees working in and outside the UK.

If you are interested in discussing any of the topics covered in this article, get in touch with our Incentives and Employment Tax specialists below.