International Taxes for Remote Workers: How the Heck Do They Work?
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Why are remote worker taxes so complicated?
Remote worker taxes are hard to find information about because they’re multifaceted. When you work remotely, there are four factors at play:
- The country you’re working from.
- The country your company is based in.
- The citizenship you hold.
- Your tax residency status (place where you have residential ties, usually work or are expecting to pay tax based on their tax rules).
Each of these factors varies amongst remote workers and results in a ton of combinations. That makes it hard to find personalized content: What are you to do if you’re a US resident working in Canada for a company based in the UK?
Five remote worker tax scenarios
Here’s where Deel comes in. We help companies hire international employees all over the world, so we know how complicated it gets. To help workers get a better sense of how taxes, remote work, and travel interact, we’ll cover five common working types and discuss how taxes work for each remote worker.
In all scenarios, we assume you are a full-time employee (contractors have additional reporting requirements that would overcomplicate this guide). Disclaimer: while we’ve had this reviewed by our in-house tax experts, do not treat this as professional advice.
- If you work remotely for an international employer, you should be employed under a local subsidiary or EOR solution.
- Generally, you pay tax in the country where you primarily live and work—this defines your tax residency.
- If you travel while you work, generally by default you are also taxed in your location of travel—you need to check if your stay is short enough to qualify for an exemption or if you can benefit from a tax treaty to avoid double taxation.
- Some citizens have tax obligations no matter where they live (this is more of an exception than the norm). For example, US citizens have US tax forms and tax credits to complete each year.
Example case studies
US resident working at home for a US company
Permanently remote worker
US resident working at home for a UK company
Canadian resident working at home for a US company
Permanently remote worker, different tax residency and/or citizenship
US resident working in Canada for a UK company
Canadian resident living and working in Australia for a US company
Remote worker, traveling throughout the year
US resident working remotely in Spain and Japan for an Indian company
Canadian resident working remotely in USA and UK for a German company
Remote worker with same tax residence as company
US resident working remotely in France for a US company
Canadian resident working remotely in the Philippines for a Canadian company
The Citizen: Domestic worker
Who you’ll pay taxes to: your country of residence (where you live and work)
In the most basic scenario, an employee works with a local company. The Citizen receives a regular paycheck, which has tax deducted at the source. At the end of the year, most file an income tax return to reconcile their tax obligations (36 countries offer return-free filing options for some residents).
Case study: US resident working at home for a US company
Lauren is a data analyst in Seattle who works for 2nd National Bank, a US-based company.
Lauren will pay US taxes. She’ll get a W-2 slip at the end of the year. She will file a Form 1040 tax return.
Note: there are additional state tax obligations to consider for remote US workers employed across state lines.
The Virtualoso: Permanently remote worker
Who you’ll pay taxes to: your country of residence (where you live and work).
This scenario is the most common one we see at Deel—the virtual worker, or “virtualoso'', as we’re calling it. The Virtualoso is a remote worker who works permanently remote in their home country for a foreign company.
Foreign employers need to comply with the labor laws of the physical location of where their employee resides. If you’re a Virtualoso, because you work entirely in your home country, your employer is responsible for paying you according to your local employment standards. If you work for a large corporation, you’ll be employed under a local subsidiary or branch they’ve set up in your country. More commonly, you’ll be employed by an Employer of Record (EOR), which has set up a local entity of their own. They hire you on your employer’s behalf and help you stay compliant with tax and employment regulations.
Overall, your tax situation will be similar to that of the Citizen. You will receive a regular paycheck in your local currency, with tax deducted at the source.
Case study: US resident working at home for a UK company
Sarah is a recruiter who works from home in New York City for Corgico, a UK-based company. Officially, she is employed under Corgico USA, a subsidiary of Corgico.
Sarah will have US tax obligations, so she’ll pay US income tax, Social Security, and Medicare, which will be deducted from her paychecks. Sarah will expect to get a W-2 tax slip at the end of the year to report her employment income.
The UK only taxes non-residents if they have UK-sourced income (for instance, income from work performed in the UK). Sarah never visited the UK, so there is no need to file a UK tax return for this income.
Case study: Canadian resident working at home for a US company
Timothy is a customer support specialist living in Canada who works for The Daily Beagle, a US-based company. The Daily Beagle uses Deel, an EOR service, which means The Daily Beagle doesn’t need a Canadian subsidiary to legally hire Timothy. Instead, Deel Canada hires Timothy on The Daily Beagle’s behalf.
Timothy will have Canadian tax obligations, so he’ll pay Canadian income tax, Canada Pension Plan contributions, and Employment Insurance premiums, which will be deducted from his paychecks. Timothy will get a T4 tax slip at the end of the year to report his employment income.
Timothy is not a US citizen, never worked in the US and does not have any assets from the US, so there is no need for him to file a US tax return.
The Explorer: Permanently remote worker, different citizenship
Who you’ll pay taxes to: your country of residence (where you live and work), but check your country of citizenship for any additional filing requirements.
Explorers are unique and diverse—these are often ones who’ve found a new home in a new country, whether temporarily or permanently. The tax requirements for Explorers are similar to our previous example. You pay income tax in your country of residence.
People who live and work in a country other than their country of citizenship are often referred to as expats. Your citizenship status generally doesn’t play a factor when it comes to taxes, because tax residency is based on your physical location.
However, you may still be required to file a tax return in your country of citizenship. This is called citizenship-based taxation, and it applies to a handful of countries in the world, most notably the United States. That means US citizens are required to file a tax return with the IRS, no matter where they live in the world, and even if they earned no income within the US. Most US expats don’t actually end up owing any taxes to the US thanks to specific mechanisms like the Foreign Tax Credit (you can deduct taxes paid abroad) or Foreign Earned Income Exclusion (you can exclude a certain amount of your foreign earned income).
In your country of citizenship you’ll usually be able to claim a tax exemption or a foreign tax credit for the income tax you’ve already paid to your country of residence because most countries have specific tax laws for expats or tax treaties with other countries. A tax treaty is an agreement between two or more countries about how tax laws should apply to avoid double-taxing income.
Case study: US resident living and working in Canada for a UK company
Andrew is a claims adjuster who works at Viva Canada, a subsidiary of Viva, a UK company. Andrew holds US citizenship but has lived in Canada for the past two years.
Andrew lives and works in Canada and therefore has Canadian tax obligations, so he pays Canadian income tax, Canada Pension Plan contributions, and Employment Insurance premiums, which are all deducted from his paychecks. Andrew gets a T4 tax slip at the end of the year to report his employment income. He will file a Canadian tax return.
However, because Andrew is a US citizen, he is also expected to file a US tax return. He will need to report his worldwide income on his Form 1040 individual return. This income is subject to US taxes, but Andrew meets the conditions to deduct dollar-for-dollar the taxes he already paid in Canada. To do this, he will claim the Foreign Tax Credit through Form 1116. As in Andrew’s case his Canadian taxes were higher than the US taxes calculated on his Canadian salary, he won’t pay any US taxes on this income.
Andrew may also need to file state taxes, depending on the state he last lived in.
Case study: Canadian resident living and working in Australia for a US company
Kayla works as a marketer for Surfer Dude Pizza, a US company. Surfer Dude Pizza uses Deel’s EOR service, so Kayla is officially employed under Deel Australia. She’s lived in Australia for two years but has Canadian citizenship.
Kayla will have Australian tax obligations, so she’ll pay Australian income tax, Medicare, and Superannuation premiums, which will all be deducted from her paychecks. Kayla will get a PAYG payment summary at the end of the year. She will file an Australian tax return.
Canada does not tax people based on citizenship, so Kayla will not need to file a Canadian tax return. However, if Kayla still has residential ties in Canada (for example, her spouse remains in Canada), she may be considered a factual resident of Canada. If that’s the case, she may need to file a Canadian tax return and report her worldwide income. Kayla would be eligible to claim a Foreign Tax Credit for the income tax she already paid to Australia as part of the Canada–Australia tax treaty.
The Digital Nomad: Remote worker, traveling throughout the year
Who you’ll pay taxes to: the country where you have the most significant residential ties. You’ll need to check the tax residency guidelines for any country you’ve stayed in for an extended period. You may need to file multiple tax returns.
Remote work allows you to work from anywhere in the world, so many remote workers have become Digital Nomads, working in several countries throughout the year.
You will generally file a tax return with the country you maintain residential ties. Residential ties include:
- a home, which could be a house, an apartment, or a furnished room, whether owned or rented
- a spouse or children living in the country
- to a lesser extent, bank accounts or personal property in the country
When you file your tax return, you will generally report your worldwide income, which includes any income earned at home or abroad, to your country of residence.
Often, two countries may both consider you as a tax resident for the same period. This might occur if you resided for a significant period of time or established residential ties in both countries.
If you spend less than half the year (up to 182 days) in a different country than the one you are tax resident, you will generally not pay taxes there, only in your country of residence.
However, extensive travel could mean that you’ll be sojourning. To sojourn means establishing a temporary residence in a different country, potentially resulting in a different tax residence. This generally occurs once you spend more than half the year (more than 182 days) in a different country. If this occurs, you pay taxes in the country where you sojourned. You must still report your salary in the tax return of your country of residence. However, you will either not pay taxes on this salary from abroad (tax exemption) or deduct the taxes paid abroad on your foreign salary (foreign tax credit).
No matter how long you travel, you should get to know your countries’ tax treaties. Tax treaties are agreements signed between two countries to address double taxation. The treaty will outline criteria that will let you determine which country you should be considered a tax resident of, and what tax exemptions or credits exist.
If a tax treaty doesn’t exist between your two countries, then there may be a risk of double taxation.
Case study: US resident working remotely in Spain and Japan for an Indian company
Kimberly is a writer for Kingo Films, an Indian company. Kimberly normally lives in the US and is a US tax resident. She’s officially employed by a US subsidiary, but has spent two months each in Spain and Japan working remotely.
Kimberly would have American tax obligations, with deductions coming out of her paycheck. She’ll file a US tax return on her worldwide income.
Will Kimberly pay taxes in Spain and Japan as well? Not in this case, because she did not stay long enough, but if she had stayed for an extended period, she likely would need to.
But what if an employee works from multiple countries long enough to count as a tax resident in both? This brings us to our next example:
Canadian resident working remotely in USA and UK for a German company
Tyler is a systems analyst for TVA Canada, a subsidiary of TVA in Germany. Tyler normally lives in Canada but has spent two weeks in the UK and decides to spend more than half the year (184 days) in the US.
A Canadian who keeps significant residential ties in Canada while working out of the country is considered a resident of Canada for tax purposes. Tyler would be considered a factual resident of Canada. However, Tyler has also met the US requirements for tax residency. Because he’s stayed for 184 days in the US, he’s met the substantial presence test and is also automatically considered a resident alien of the US for tax purposes. That means the US considers Tyler as a US resident for tax purposes in the tax year.
In this scenario, Tyler needs to refer to the tax treaty between the US and Canada to determine his ultimate tax residency. The treaty will have tie breaker rules that will determine which country will claim Tyler as a resident. Here, although Tyler has residential ties in both countries, because his spouse lives in Canada, the treaty will allow Tyler to remain a Canadian tax resident.
Under the treaty, Tyler will be considered a US non-resident for tax purposes. He will still be taxed in the US on the salary earned for his work while in the US. This salary will be indicated on his W-2 and reported through Form 1040NR. Tyler will also file Form 8833 (Treaty-Based Return Position Disclosure) to claim his treaty exemption.
On Tyler’s Canadian tax return, he’ll report his full salary (earned from Canada and abroad) but he will not be taxed twice: he will offset the taxes paid in the US against his Canadian taxes. In other words, he will only pay the difference between the US taxes (which are generally lower) and the Canadian taxes.
Because taxation in the US is also at the state and city level, Tyler may also need to file additional returns if the state or city he resided in imposes income tax.
A short UK stay is not enough for Tyler to be considered a UK resident for tax purposes—in fact, stays under 16 days automatically make him a non-resident and Tyler will not need to pay UK income tax on this income.
The Scout: Remote worker with same tax residence as company
Our final worker type is The Scout. If you’re a Scout, your employer is based in the same country as your country of citizenship. Under certain circumstances, you may have additional tax obligations. From the government’s perspective, a local employer is paying a local citizen, even if you live in another country. So the government may require your employer to do local tax withholding.
Who you’ll pay taxes to: your country of residence (where you live and work), but check your country of citizenship for filing requirements.
US resident working remotely in France for a US company
Samantha is a sales rep for a US-based company. No matter where Samantha lives, if Samantha is directly employed by a US company, she has US tax withheld from her pay by default. That’s because the IRS requires US federal income tax withholding from all wages paid by a US person to a US citizen or resident. However, since Samantha does not live in the US, she could complete IRS Form 673 (Statement for Claiming Exemption From Withholding on Foreign Earned Income Eligible for the Exclusion(s) Provided by Section 911). This form asks the employer to not withhold any US income tax from her pay because she will qualify for the Foreign Earned Income Exclusion (FEIE). She will need to file this form each year with her employer.
Samantha is located and works in France on a permanent basis and is considered a French resident for tax purposes. Therefore, both Samantha and her employer are responsible for French income tax. In this case, Samantha should be hired through a local French entity, such as Deel France. That way, she won’t need to file IRS Form 673. Deel France can directly withhold French income taxes from her pay. She’ll file a French tax return and report her worldwide income.
Because Samantha is a US citizen, she will still need to file a US tax return—she’ll be able to claim the FEIE or Foreign Tax Credit, assuming she meets all the conditions.
Canadian resident working remotely in the Philippines for a Canadian company
Steven is an accounts manager for Shopall, a Canadian company, who has worked remotely in the Philippines for more than a year. Shopall uses Deel’s EOR service and hires Steven through Deel Philippines.
Steven will be subject to Philippine taxes on the salary he earns while in the Philippines.
Canadian citizenship doesn’t play a role in Canadian taxation. If Steven is considered a non-resident of Canada for tax purposes, he only pays Canadian tax on Canadian-sourced income. His work is not based in Canada, so there is no tax to pay on his salary. However, if Steven still has residential ties in Canada (for example, his spouse remains in Canada), he may be considered a factual resident of Canada and will need to report his worldwide income. No double taxation will arise: He will offset the taxes paid in the Philippines (usually higher) against his Canadian taxes.
What if Shopall hired Steven directly? Shopall has the obligation to deduct income tax from Steven’s pay in the Philippines—but this makes it look like they’re operating in the Philippines, creating a tax risk. That’s why a local entity should directly employ Steven.
What have we not covered?
There are still factors we didn’t dive further into that you may need to keep in mind:
- If you changed residency partway through the year (you immigrated/emigrated), you may be considered both a resident and a non-resident in a country and may need additional forms.
- We didn’t cover state, provincial, or city taxes.
- If you were forced to stay and work abroad because COVID-19 restrictions limited your travel, you might be eligible for tax exemptions or special tax residency rules.
- If during your employment you permanently moved to another country, you and your employer may have additional reporting requirements—in these cases, it’s generally a good idea to redo your employment agreement to account for the location change.
- If you stay in a country under a special visa or work permit, your stay may be treated differently for tax residency purposes.
- If you are employed by a government agency, you’re usually considered their resident, no matter where you are physically located.
- If you were granted equity (such as stock options or RSUs) and moved to or worked in another country, there are additional specific tax rules that vary country by country that may increase your tax liability.
- Equally important as taxes: your legal immigration status. You may need to obtain a visa or permit to enter and remain in a foreign country and comply with additional obligations on top of the tax obligations we cover here.
What if I’m an independent contractor working remotely?
Many companies find it easier to hire a foreign worker as an independent contractor instead, because the tax obligations shift to the contractor (the employer doesn’t need to bother with tax withholdings). Generally the same rules apply—you pay income tax to your country of residence, where you live and work—you’ll just need to pay it yourself.
Further reading for US contractors: Paying Independent Contractor Taxes in 2022: An All-in-One Overview
Where to look for more information
Tax authority references
An income tax calculator can be a helpful tool. While it won’t be able to tell you where you pay tax, you can enter your own income details and get a better estimate of what you’ll pay (20% of your income? More?). Third-party calculators are plentiful, so don’t hesitate to try out a couple.
A tax professional
Remote worker taxes can get complicated real quick—don’t rely on this guide as your authority on your tax return this year. We strongly suggest enlisting the help of an international tax professional to help you figure out all the details. They operate under terms like “cross-border tax planning,” “expat tax consulting,” or “international tax preparation”.
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Disclaimer: This guide is presented for informational purposes and should not be considered professional advice. Consult a professional such as a certified accountant or cross-border tax professional for help. Characters and companies presented in this guide are fictitious and any resemblance is coincidental.