Contractors’ Questions: Is overseas contracting dead, with Germany, Sweden and Denmark now on UK quarantine list?

Contractor’s Question: Given that three popular overseas contracting countries have been declared ‘covid unsafe’ by the UK, Germany, Sweden and Denmark -- meaning they all require self-isolation when returning from them, does this put the kibosh on international contracting, from a UK IT contractor’s perspective?

Are there any pertinent tax considerations or announcements relating to these three new countries which brave Britons considering travel to either to work need to know? I saw back in September that Spain, for example, made an announcement about the residency test clock.

Expert’s Answer: According to the latest Covid-19 travel corridors list, you are correct to say that three major EU markets for contractors have been declared unsafe from a UK traveller’s perspective.

It is certain that we are all going through trying times due to the covid-19 pandemic, so international contracting would not be an exception. Almost all commercial activities are impacted by travel, local or national restrictions (often referred to as lockdowns or curfews in many countries). Some more, some less.

Despite all the difficulties, not everything is lost. Contracting for overseas clients across different countries is still viable, mainly because of the very nature of this economic activity -- it can be done entirely remotely in most of the cases, unless security concerns or other constraints dictate otherwise.

Cross-border workers and on-site work

With cross-border workers in particular, due to travel restrictions and closed borders, many employees are now in quarantine in their country of residence. This can lead to a situation where employees will be working from a country other than the country in which they normally conduct their work.

And since the rules for taxation and social security are often based on where the work is physically performed, the taxation and social security liabilities need to be reviewed almost case-by-case, taking account of an individual’s circumstances. Similarly requiring review or querying before you work or agree to a contract is employer/workplace compliance with that individual country’s guidance on work being carried out during the coronavirus pandemic.

As far as on-site work is concerned, there are some tax considerations that have changed in the three countries you mention.

The contracting trio: latest covid tax announcements

Germany has come to a temporary consultation agreement with neighbouring states. The effect of this is that, as a result of increased working from home, salaries and wages become taxable in the country of residence of the cross-border commuter.

And further according to the German government, such cross-border commuters are to be treated during this period as though they have pursued their work as usual at their actual place of work. There are agreements already made and in place which you can read up on between Germany and Luxembourg; the Netherlands, Austria, Belgium, France, and Switzerland. 

As to Sweden and Denmark, it is common practice in the Nordics (for Nordic residents) to use the so-called ‘Resund-corridors’ to commute and work in one country, while living in another Scandinavic country.

Are you a Resund-commuter?

Since many Resund-commuters are working from home as a result of the coronavirus crisis, their tax status may have changed, shifting the right of taxation to Sweden or Denmark, depending on where the employee is living as a result of government self-isolation regulations introduced to help stop the spread of coronavirus.

The usual rule is -- if the employee is performing more than 50% of their worktime at home as a result of those regulations then, under the terms of the agreement, they would no longer be eligible for taxation in their employment country.

With that in mind, the Danish and Swedish tax authorities have pointed out that Danish residents working in Sweden under the Resund Agreement may no longer be exempt from making tax and social security contributions in Denmark and vice-versa.

The Danish and Swedish tax authorities suggest that employers and employees carefully review the amount of work that employees (that are subject to the Resund Agreement) are performing at home, and make the appropriate changes to payroll in order to remain compliant. Such changes could only be achieved by reducing the number of working days at/ from home -- although please note, this approach is subject to re-evaluation.

Almost all workplaces now going the way of the contractor -- working remotely

Standing back from the many country-specific agreements or announcements that have been made, generally-speaking, it’s fair to assert that overseas contracting has dramatically changed under covid-19.

But these radical changes should not be misconstrued to be a gravestone for international contracting. In fact, a shift towards remote working – the pre-pandemic work mode of choice for many contractors – is now being more and more widely applied in workplaces, in Europe and beyond. The uncertainty which is unfortunate stems from it still remaining to be seen whether some of these covid-driven work and services supply changes will shape a different tax environment in the long run.

The expert was Nik Papageorgiou, EU country manager for overseas contracting advisory Access Financial.