There are number of potential tax implications that could arise through engaging the services of an EOR. These include:
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•ÌýÌýÌýÌý the creation of a permanent establishment (PE) in the country in which the employee is locally contracted (1.1)
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•ÌýÌýÌýÌý exposure to diverted profits tax (1.2)
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•ÌýÌýÌýÌý increased social security costs that can't be mitigated via a bilateral agreement (1.3)
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•ÌýÌýÌýÌý exposure to general anti-avoidance rules (1.4)
1.1ÌýÌýÌýÌý Permanent establishment
It is a common selling point from EORs that permanent establishment (PE) risk ceases to be a consideration for the business engaging an EOR (the 'company'). However, as always, things are rarely so simple.
Most countries have domestic rules that determine if a PE exists in their jurisdiction, creating a nexus for the imposition of local corporate tax. If there is a double tax treaty, then the rules in the agreement take precedence over domestic rules.
The OECD Model Tax Convention is adopted to a large extent by most countries, but it is important to note that domestic
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Web page updated on 28 Aug 2024 12:08