Non-resident directors (global)
The taxation of non-resident directors globally.
When companies appoint non-resident individuals to their board of directors, they need to pay close attention to:
- Employment tax and payroll withholding requirements
- Visa or work permit compliance
- The corporate income tax reporting that may be triggered by the director
Failure to comply with any one of these obligations can lead to fiscal penalties and reputational damage.
Our approach
Payroll income tax
The company that appoints the director needs to consider their withholding obligations, in both the country where the company is registered and in the director’s country of residence.
For the country in which the company is registered, there will almost always be a tax withholding requirement if the director performs some of their duties in that country.
Whether the company will be required to operate tax withholding in the country where the director is tax resident, is usually dependent on whether the director creates a corporate presence (a Permanent Establishment) in that country (see below).
These situations can often lead to double withholding unless steps are taken to address the problem which will usually require approval from the local tax authority.
Social security contributions (SSC)
Social security payments may also be needed, depending on factors such as:
- Whether there is a social security agreement between the countries concerned
- The portion of the director’s duties that are performed in each country
If there is a social security agreement in place, contributions are normally limited to only one country and the agreement helps to determine which country that is.
Where there is no social security agreement in place between the two countries concerned, there is a risk that employee and employer SSC’s will be payable in both countries. Domestic exemptions may be available to provide some relief.
Immigration considerations
It is often possible for the director to travel legally to that employer’s country to perform their duties under a tourist/business visitor’s visa.
However, where directors undertake duties that go beyond attending board duties and are more akin to employment duties, and/or they make frequent trips to the country the company is registered in, it may be necessary for the director to obtain a formal work permit.
Permanent establishment
If a non-resident director undertakes any of their duties in their home location, then due to the seniority of most board directors and the nature of their duties, there is high a risk that they will create a Permanent Establishment of the employing company in that country.
This could result in the company needing to report and be taxed on the portion of their profits that are deemed to relate to the director’s activities in that country.
Our services
- Designing and implementing policies and processes to manage these risks.
- Effective tax structuring of the contractual arrangements
- Ensuring full compliance with withholding obligations.
- Immigration and compliance.
- Provide technology solutions to track directors’ activities across the globe and identify tax and immigration compliance risks before they arise.
- Permanent Establishment analysis and consultation.
Get in touch
If you need support with any of the above, please get in touch with the team.
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