Taxation and working abroad: what you need to know as an employer and employee
Working abroad sounds appealing; for many professionals, it is the ideal way to achieve a work-life balance. For employers, it opens doors to new talent and international growth.
But as soon as borders fade, new questions arise. Where do you pay tax when you work abroad? And how do you avoid double taxation or administrative hassle?
In this blog, we explain how tax and working abroad are related, what rules apply, and how a partner such as Parakar helps to arrange this in a simple, compliant, and carefree manner.
In this article, we discuss:
- Why working abroad is more popular than ever
- What determines where you pay tax?
- How do double taxation treaties work?
- The role of employers: obligations and risks
- EOR as a solution for working abroad
- How Parakar helps companies remain compliant
- Conclusion: working internationally without tax worries
Why working abroad is more popular than ever
More and more Dutch people are choosing to work abroad, either temporarily or permanently. Remote working has made the world smaller. Whether it’s an employee working from Portugal or a new team member living in Spain, working across borders has become the norm.
For companies, this is an opportunity to attract talent worldwide. But that international flexibility also comes with tax responsibilities. As soon as someone works abroad, the country in which they reside can levy tax on their income.
That is why it is important for employers and employees to understand how tax and working abroad are related, so that there are no surprises for the employee or the HR department.
What determines where you pay tax?
One of the most frequently asked questions is: “Do I pay tax in the Netherlands or abroad?”
The answer depends on various factors, such as:
- The length of stay abroad
- Whether someone becomes a tax resident of another country
- Where the work is actually performed
- And whether there is a double taxation treaty between the Netherlands and that country
Tax residency
In most countries, if you stay in that country for more than 183 days per year, you are considered a tax resident there. This means that you must declare your income in that country and pay tax on it.
Place of work determines tax liability
Even if an employee is employed by a Dutch company in the Netherlands, the country where they physically work (e.g. Spain, Germany or Portugal) may levy tax on that income.
It is therefore important to determine in advance where the work will take place and how this should be arranged for tax purposes.
How do double taxation treaties work?
No one wants to pay tax twice on the same income. That is why the Netherlands has concluded double taxation treaties with many countries. These treaties determine which country has the right to levy tax.
In practice, this means:
- The country where someone works (the country of employment) may usually levy tax on the salary.
- The country of tax residence (e.g., the Netherlands) prevents double taxation through exemption or offsetting.
For employers, this means that payroll administration must be adjusted accordingly. Does someone work partly in the Netherlands and partly abroad? Then the tax often has to be calculated on a pro rata basis.
This is exactly the kind of issue where an EOR (Employer of Record) or international payroll partner can offer a solution.
The role of employers: obligations and risks
When an employee works abroad, the employer has to deal with local laws and regulations. These can vary from tax payments to social security and labor law obligations.
Some risks when working abroad:
- Incorrect tax payments can lead to fines or additional tax assessments.
- Incorrectly assessing where someone is a tax resident can result in double taxation.
- Long-term presence of staff abroad can lead to a ‘Permanent Establishment’ risk, which means that the company is considered a local taxpayer.
In short: working abroad sounds simple, but it requires a good understanding of local rules and responsibilities.
EOR as a solution for working abroad
An Employer of Record (EOR) is an organization that acts as a local employer on behalf of your company. This means that employees can work legally abroad without you having to set up an entity there yourself.
What exactly does an EOR do?
- Arranges local employment contracts in accordance with the legislation of the country of employment.
- Pays taxes and social security contributions correctly.
- Prevents risks related to tax and legal compliance.
- Enables international employment without complex administration.
EOR and tax: the perfect combination
With an EOR, you can be sure that tax payments are made correctly in accordance with local rules and that employees are properly registered with the relevant authorities.
This ensures that the company remains compliant, while employees can work abroad without any worries, with clarity about their tax position.
How Parakar helps companies stay compliant
At Parakar, we understand how complex international employment can be. We ensure that working abroad and taxes do not hinder growth.
With over 20 years of experience in international HR, we offer:
- EOR services: we are the formal employer abroad, ensuring that everything is properly arranged from a tax and legal perspective.
- Payroll and HR Support: correct payroll payments and guidance on local legislation.
- Consultancy: advice on tax implications, double taxation, and social security.
- Immigration support: assistance with visas and residence permits, if necessary.
Whether you want to send an existing employee to work abroad temporarily or hire new talent in another country, we ensure that everything is compliant, efficient, and stress-free.
Ready to grow internationally?
Working abroad and taxes are closely linked. Both employers and employees need to know where taxes are due and how double taxation can be avoided.
With the right guidance, this doesn’t have to be an obstacle. A partner like Parakar helps companies organize international employment smoothly and compliantly, from taxes and payroll to contracts and local registration.
Want to know how Parakar can support your organization with working abroad and taxes?
Contact our experts. We’re happy to help you find the best way to make your international team work compliantly and worry-free.
