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Cross Border Workers and Non-Domiciled Status: What Does it all Mean?Written on March 13, 2024 by Kirk Rice LLP

What happens when you pick your laptop up and carry on working in another country? You might think that if nothing about your employment contract and your pay changes, then you don't need to consider your tax position, but if you move to another country, then it's highly likely there will be a tax impact.

When looking at where your earnings are taxed, what matters is where you perform your work duties, even if your work benefits a company in another country and you are paid into a bank account in that country's currency. This is the case even if your employer withholds taxes. These things might be relevant, but the starting point is where you're physically present when working.

Basic principles of cross-border tax on earnings

Helpfully, there is a consensus on this point, with most tax authorities agreeing that when an employee spends time working in a country, that country has the primary right to tax their earnings. Where an employee has cross-border employment, then it’s necessary to consider the employee’s residence status in the country they’ve left as well as in any other country they spend time, the country where they spend their time working and whether that all means they are exposed to a tax charge in more than one country on the same earnings.

When an employee is resident in one country and spends a short period working in another, assuming there is a treaty between the countries, the treaty will provide protection so the employee doesn’t pay tax in the country they visit temporarily. However, treaties vary – the UK has about 130 – and they have to be individually agreed upon with the relevant country, so checking the details before relying on them is necessary. The treaty exemption for earnings generally only helps with short business visits to another country (and it’s important to note that treaties don’t provide an exemption from the paperwork – see below). Employees who leave their home country for enough time to be treated as non-residents (US citizens and nationals aside) will generally find they don’t have any ongoing tax in their home country and will start paying tax in the country they’ve moved to. The more complex cases are cross-border commuters or the people who move for too long to claim treaty relief in the country they’re visiting but not long enough to become non-residents in their home country.   Generally, if they face double tax and the treaty doesn’t apply, they will likely have to claim a foreign tax credit in the country where they aren’t physically performing the work duties.

Coming ito the UK – how does all of this interact with non-dom status?

The UK has long had a special tax regime for people moving here from abroad due to change in April 2025. Until April 2025, an individual who is not domiciled in the UK can, if they wish, use the remittance basis of taxation, where non-UK income and gains are taxable only when they are brought in or remitted to the UK. There are usually costs to using the remittance basis, but it can be a very preferential (if complicated) regime. However, the remittance basis doesn’t work in the same way for earnings: the remittance basis is available on earned income for a maximum of three years, and it is available only on earnings related to overseas workdays. This is referred to as ‘overseas workday relief’, and claiming the relief will require careful diary monitoring, complex apportionment of earnings, and monitoring of UK and overseas bank accounts and transfers between the two.    Defining a person’s domicile status is complex. It may need individual tax advice, but broadly, an individual’s country of domicile is in the country where they have their permanent home and where they have deep and enduring ties. If a person moves to the UK to live and work for a few years, they are highly unlikely to acquire a UK domicile at the outset, and it may be many years before they settle in the UK with a sufficient degree of permanence to acquire a UK domicile of choice.

From April 2025 onwards, the rules change, and anyone who moves to the UK having been not-resident for the previous ten years will benefit from a tax exemption on their non-UK income and gains for the first four years of UK residence. This new relief won’t require that money be kept outside the UK, so it will significantly simplify the tax system.

There are transitional rules for people who arrived before April 2025 and were using the non-domiciled regime.

Leaving the UK

A person who moves abroad and becomes a non-UK resident under the rules set out in the statutory residence test will generally not have to pay UK tax on their earnings, even if a UK company pays their earnings into a UK bank account. Where this is the case, it’s possible to ask HM Revenue & Customs to issue the employer with a PAYE coding to reflect that tax doesn’t need to be withheld. It will be more complex for the person who spends time working abroad but doesn’t qualify for non-resident status, so where this is the case, and foreign tax is payable, they will likely have to rely on claiming a foreign tax credit in the UK to avoid being doubly taxed. This can also be taken into account for PAYE purposes.

Several countries have introduced special tax regimes for “digital nomads” in recent years. Designed to attract people to live in the country for a temporary period, this type of regime varies but will tend to offer some short-term tax exemption or discount to a foreign employee who spends a few months or years working for a non-resident employer. To benefit the employee from a tax perspective, they must spend sufficient time abroad to qualify for non-resident status, or they will find they still owe UK tax on their earnings. Still, if carefully structured, this could be an attractive tax option.

National Insurance contributions (NICs) and Pay As You Earn (PAYE) withholding taxes

The rules for NICs and PAYE differ from the income tax treatment for earnings, and it doesn’t necessarily follow that an individual who becomes liable to income tax also has a NICs liability. Furthermore, an employer whose employee qualifies for treaty relief might still need to report the employee’s presence in the UK to HM Revenue & Customs. The NICs and the PAYE taxes, in particular, can create employer reporting requirements in different countries, which can make employers cautious about agreeing to international remote working.

This illustrates the complexity of cross-border tax issues and the necessity of getting individually tailored tax advice, ideally before any arrangements are made.

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If you have any questions about how this will affect your cross border or non-domiciled status, please email info@kirkrice.co.uk to arrange a call with the appropriate specialist.

Please note: This article is correct as at the publication date. The answers are given for general guidance only and specific advice should be taken before acting on any of the suggestions made. The information is based on current tax legislation which may change in future.