When Your Remote Employee Becomes A Compliance Problem

Here are 4 ways how your remote employee becomes a compliance problem the moment they start working from another country

As remote and hybrid working become a permanent part of global business, employees are increasingly requesting the flexibility to work from another country, whether for a few weeks, several months, or even on a long-term basis. While these arrangements can support employee satisfaction and business continuity, they also introduce legal, tax, payroll, immigration, and employment law considerations that many organisations fail to assess before approving the request.

From an HR perspective, allowing an employee to work remotely from another country may appear to be a simple operational decision. The employee continues performing the same role, reports to the same manager, and remains on the same payroll. However, changing the country where work is physically performed can trigger a range of compliance obligations, often from the first day the employee begins working overseas. These obligations may arise long before the organisation becomes aware of the associated risks.

Understanding when these obligations begin and what they mean for your business is essential for managing international remote work compliantly.

A note from Raj Inda, CEO of Beyond Borders HR:

"The pattern I see repeatedly is that the initial approval happens informally. A manager says yes, or HR agrees without escalating. By the time the arrangement comes to someone's attention who recognises the compliance implications, it has been running for five or six months. That is no longer a straightforward approval process. It is a remediation exercise, and those are always more expensive and more disruptive than getting the answer right at the start."

Four Key Compliance Areas to Assess Before Approving International Remote Work

When an employee works from another country, the organisation’s compliance obligations do not arise one after another. Several legal and regulatory considerations can be triggered at the same time, with each governed by different rules, thresholds, and timelines.

For example, consider an employee who is tax resident in the UK, employed by a UK company, but working remotely from the Netherlands for four months. Although the arrangement may appear straightforward, the employer may need to consider tax, corporate presence, social security, and immigration requirements simultaneously.

The four areas below are among the most important compliance considerations HR teams should assess before approving an international remote working request.

1. Tax Residency

One of the first considerations is whether the employee’s presence in another country creates personal tax residency or employer tax obligations.

The 183-day rule is often viewed as the primary threshold for tax residency, but many jurisdictions can create obligations much earlier. For example, the UK’s Statutory Residence Test can establish residency in as few as 46 days where someone who was not UK resident in any of the previous three tax years has all four relevant UK ties, and in as few as 16 days for someone who was UK resident in any of the previous three tax years and who also has four UK ties.

In Germany, a habitual abode (Gewöhnlicher Aufenthalt) generally arises after a continuous stay of more than six months, but unlimited tax liability can be triggered far sooner where the individual has a dwelling in Germany available for their use (Wohnsitz). The United States uses a weighted three-year substantial presence calculation that takes prior years’ presence into account.

Where tax residency changes, employer responsibilities may also arise, including payroll withholding in the host country, foreign employer registration requirements, and coordination between tax advisers in both jurisdictions to ensure treaty relief is applied correctly.

Germany: When a Wage Tax Withholding Obligation Actually Arises

German wage tax withholding under section 38 of the Income Tax Act (EStG) applies to a “domestic employer”, meaning one with a domicile, habitual abode, place of management, registered office, permanent establishment or permanent representative in Germany, and also to hiring-out of labour arrangements. A purely foreign employer with no German presence therefore does not generally have a withholding obligation, and the employee accounts for the German tax through a personal return. The point organisations commonly miss is the reverse one: where the group already has any German entity, establishment or representative, or where a German affiliate is treated as the economic employer, withholding can be required on the wages attributable to German workdays even for a short stay. German wage tax audits examine cross-border workdays closely, so the presence of any German footprint should be checked before an arrangement is approved.

2. Permanent Establishment (PE)

An employee working remotely from another country may also create corporate tax exposure if their activities establish a permanent establishment (PE).

The 2025 Update to the OECD Model Tax Convention, published on 19 November 2025, introduced a 50% temporal benchmark, indicating that a home or other location used for less than 50% of an individual’s total working time for the enterprise over any 12-month period will generally not be a fixed place of business. The 50% figure is a guideline rather than a hard threshold. Where home working reaches 50% or more, the analysis turns on a second limb: whether there is a commercial reason for the activity to be carried out from that particular state. However, the OECD Commentary is not legally binding. It informs the interpretation of existing treaties based on Article 5(1), so its practical effect in any given case depends on the applicable treaty and on national practice, and some states have entered observations or reservations on the new tests.

Dependent Agent PE Remains a Separate Risk

The 50% threshold does not apply where an employee habitually negotiates or concludes contracts on behalf of the employer. In these circumstances, dependent agent PE risk may arise regardless of the number of days the employee spends in the host country. For example, a sales director who habitually concludes customer contracts while working remotely from France could expose the company to PE risk even where the total time spent in the country is limited, including where that pattern is built up across repeated short visits. Occasional negotiation, without authority to conclude and without a habitual pattern, generally would not.

3. Social Security Jurisdiction

Cross-border remote working can also affect which country’s social security system applies to the employee.

Within the EU and EEA, Regulation (EC) 883/2004 provides that an employee is subject to the legislation of only one country at a time. Where someone habitually works in two or more Member States, the 25% test determines which: if a substantial part of the work, meaning 25% or more of working time or remuneration, is carried out in the employee’s country of residence, that country’s legislation applies instead of the employer’s. Temporary postings are governed separately under Article 12.

The position changes where both countries have signed the EU Framework Agreement on cross-border telework, in force since 1 July 2023 and covering 23 signatory states as at February 2026. Under that agreement, an employee who teleworks from their country of residence for less than 50% of their working time can remain in the employer state’s social security system, rather than the 25% threshold that would otherwise apply. It applies only on application, only between two signatory states, and only to habitual cross-border telework.

The United Kingdom is not a signatory. UK employers with employees teleworking from the EU therefore fall outside the Framework Agreement and must rely instead on the social security coordination provisions of the UK–EU Trade and Cooperation Agreement, including its detached worker and multi-state working rules.

An A1 certificate is not simply an administrative document. It evidences which country’s social security legislation applies and, in practice, is what prevents contributions being sought in the host country. It does not itself determine the applicable legislation, which follows from the Regulation. Without one, however, an employer may face significant practical difficulty demonstrating home-country coverage, and host-country authorities may pursue contributions from the first day of work.

Because A1 certificates often take several weeks to obtain, and retroactive applications under the Framework Agreement are limited to three months, employers should apply before the remote working arrangement begins rather than attempting to regularise the position afterwards.

4. Immigration and Right to Work

Immigration compliance is often the most immediate consideration because, unlike tax or social security rules, there are generally no grace periods.

Following Brexit, UK nationals no longer have an automatic right to work across EU Member States. An employee working remotely from an EU country may require work authorisation from the first day, depending on the jurisdiction and the nature of the work being performed. Similarly, a UK work visa does not grant a non-EU national the right to work elsewhere in Europe.

Immigration compliance is also becoming easier for authorities to monitor. The EU’s Entry/Exit System (EES), which began operating in October 2025 and has been fully deployed across the Schengen external border since 10 April 2026, replaces passport stamping with digital records of every entry and exit by a non-EU national, including UK nationals. The system records presence rather than work activity, but it gives authorities a reliable travel record, which they may use within the applicable legal framework to test employer and employee declarations. As a result, relying solely on manual tracking or employee declarations is becoming increasingly insufficient.

Common Situations That Increase Compliance Risk

While every cross-border remote working arrangement should be assessed individually, certain scenarios are more likely to create compliance challenges if they are approved without a structured review.

Short-Term Arrangements

Short-term remote working requests are often viewed as low risk because of their limited duration. However, many compliance obligations are not determined solely by the length of the arrangement. Immigration requirements may apply from the first day of work, social security obligations can change depending on where the employee performs their duties, and tax residency may be influenced by previous time spent in the same country during the relevant tax year. The duration of the arrangement is only one factor; the applicable legal thresholds are what matter.

Cumulative Presence Across Multiple Trips

Compliance risks are also frequently overlooked when an employee’s time in another country is spread across several separate visits. For example, an employee may work remotely from Italy for three months during the summer, return for business travel later in the year, and spend several additional weeks working there the following spring. While each request may appear reasonable in isolation, the employee’s cumulative presence could exceed important tax or regulatory thresholds. Without a centralised process for tracking international travel and remote work, these risks can easily go unnoticed.

Employees with Contract Authority

Employees who negotiate or conclude contracts on behalf of the organisation require additional scrutiny before overseas remote working is approved. Even relatively short periods of work in another country may increase the risk of creating a dependent agent permanent establishment, depending on the employee’s responsibilities and the local legal framework. For this reason, assessing the employee’s role and authority is often just as important as assessing the duration of their stay.

A note from Raj Inda, CEO of Beyond Borders HR:
"The question that should be asked before every arrangement is: what are the specific trigger points for this employee, in this country, for this duration? Not 'is it long enough to matter?'. That is the wrong question, and the answer almost always underestimates the risk."

A Practical Assessment Before Approval

Before approving any cross-border remote working request, employers should carry out a structured assessment to identify potential compliance obligations. As a minimum, organisations should consider the following questions:

Which country will the employee work from, for how many days, and have they already spent time working there during the current tax year?
Does the employee regularly negotiate or conclude contracts on behalf of the organisation?
What is the employee’s nationality, and what immigration or work authorisation do they currently hold?
What proportion of the employee’s total working time will be spent in the host country?

Answering these questions before approval can help organisations identify potential tax, payroll, social security, immigration, and corporate tax obligations before they become compliance issues.

Cross-border remote working sits at the intersection of employment law, tax, social security, payroll, and immigration. Because each country applies its own rules and thresholds, employers should ensure these arrangements are reviewed using a structured, country-specific framework rather than a one-size-fits-all approach.

Beyond Borders HR supports organisations by helping them assess international remote working requests, identify country-specific compliance obligations, and coordinate with local tax, immigration, and employment specialists before employees begin working across borders.

Have a cross-border remote work request you need to assess?

This article reflects the position as at August 2026 and is general guidance rather than legal or tax advice.

Article Authored By:

Raj Inda

Raj Inda is CEO of Beyond Borders HR a UK based Global Human Resources Consultancy specialising in people strategy, employment law, International HR compliance, Global Mobility, HR Outsourcing and workforce transformation. He writes on the future of work, responsible AI adoption, and employment risk in global organisations.

When Your Remote Employee Becomes A Compliance Problem

When Your Remote Employee Becomes A Compliance Problem

Here are 4 ways how your remote employee becomes a compliance problem the moment they start working from another country