Working in Bali, Mexico or Spain is popular. But digital nomadism involves a number of legal risks – from tax payments to detention pending deportation.
Not many people in Finn’s company know that he now works from Spain for a large part of the year. As he recently told the “Süddeutsche Zeitung”, he often has to make sure in meetings that the beautiful weather outside his window cannot be seen via the webcam. According to company regulations, Finn is allowed to work 180 days a year in other EU countries – but the bureaucratic effort is too high for him. There is also the worry of having to pay taxes in Spain.
Isabelle Wildhaber believes that some employees probably did the same as Finn. “Many companies operate according to the motto ‘don’t ask, don’t tell’. The stay abroad may have been secretly agreed upon with the team leader, but not with the human resources department.”
Wildhaber is a law professor at the University of St. Gallen and founder of the startup Vamoz, which supports companies in the legal implementation of remote work abroad. She says: “The legal risks that come with working abroad can affect employers even if they act as if they had not noticed anything.”
Problems with taxes and social security
For example, there is a risk of accidentally setting up a permanent establishment, which would have tax consequences for the employer. Employees can also run into problems: If they stay abroad for too long, they become subject to tax or social security contributions and are removed from the Swiss insurance system.
Which regulations apply in which case varies from country to country. The complexity of the issue is one reason why many companies do not allow working abroad – for fear of falling into a legal trap.
This can then lead to employees secretly disappearing abroad. “It often only becomes apparent that someone is abroad when problems arise,” says Gordana Muggler, who is responsible for global mobility services at the auditing and consulting company Mazars. During the corona pandemic, some employees in international companies in particular moved their jobs abroad. “If the company then wants to restrict the home office options again, it turns out that some people are no longer in Switzerland.”
According to Muggler, media coverage has also contributed to employees disappearing abroad without knowing anything. “We always read that anything is possible and that nowadays you can work from anywhere. But that’s not serious.”
Mugglers and Wildhabers essentially define five areas that must be taken into account when working abroad:
Immigration and visas
When it comes to visas, there are big country-specific differences. Thailand, which is popular with digital nomads, is a particularly rigid example: anyone who works there without a work visa and is caught during a check can even end up in detention pending deportation. Wildhaber advises always clarifying whether a tourist visa is sufficient for remote work or whether a work visa is necessary. Some countries, including Brazil, Malaysia and the United Arab Emirates, also offer special visas for digital nomads.
Due to the free movement agreement, people with Swiss or EU citizenship can work in other EU countries for up to 90 days. Nevertheless, there are also some country-specific regulations here. For some time now, there have been separate regulations for cross-border commuters who live in Italy or France and want to work from home there.
“My rule of thumb is to take a closer look at any stay that lasts longer than a month,” explains Muggler. Where the employee comes from also plays a role. “If someone is in Switzerland with a residence permit, you have to check how long that person can stay abroad without losing their permit.”
Tax law and permanent establishment risk
If you set up a permanent establishment abroad, the employer has to pay company taxes there. In addition to the additional costs, this means considerable administrative effort.
“Every country has its own rules as to when something becomes a permanent establishment,” says Wildhaber. However, she has some tips on how to minimize the risk: If possible, you should not carry out sales and marketing activities in the host country, do not sign any contracts, do not include the office address in emails and do not hold meetings with local companies and authorities. An important rule of thumb is often not to stay longer than six months.
Of course, employees do not want to have to pay additional taxes in the host country. Here it is important to check when you become liable for tax. This is often 183 days, i.e. half a year. But taxes can also be due for shorter stays: Muggler cites the example of the case of a Swiss employee who was supposed to supervise a project in Portugal for a few months and wanted to take his family with him. The local tax office explained that the family would move their center of life to Portugal and become liable to pay taxes there. “The costs and risks were too high for the employer and another solution had to be found.”
Social Security Law
Anyone who wants to work abroad should ensure that they continue to be subject to Swiss social security law. Otherwise there is a risk that medical costs will not be covered or that you will have to pay social security contributions in the destination country.
Legally, remote work abroad corresponds to a posting by the employer. With an A1 form that proves the posting, employees from Switzerland can work in the EU and EFTA states for up to 24 months. The situation is similarly simple for countries with which Switzerland has concluded a social security agreement, such as Brazil, Canada and Australia.
In the case of countries that are not contracting states, such as Bolivia, Egypt or India, precise clarifications must be made. Even if nothing happens, an inspection can result in fines. Muggler believes that it has now become a business model for the authorities in some countries to carry out checks on remote workers and business travelers in order to collect taxes or social security contributions.
Data protection and data safety
The issue of data protection is also important to consider when working from abroad. In principle, the employer remains responsible for handling customer and employee data in accordance with data protection regulations. “For this reason, many companies that offer remote work exclude countries such as China,” says Wildhaber. The security of data is simply not guaranteed there.
International labor law
The protection of labor law is regulated territorially. This means: Anyone who works abroad is subject to the local regulations. However, in a jurisdiction clause, the employer can specify that the place of jurisdiction is in Switzerland in order to enforce Swiss labor law.
Muggler also recommends a set of rules that determine how cooperation with the posted employee should work. “It should state how the process for an application works, when the employees should be available and how labor law is complied with.” Ultimately, employers have a duty of care towards their employees and must ensure that they can work well abroad.
Human resources departments are overwhelmed
One thing is clear: whether and for how long an employee can work abroad must be reassessed on a case-by-case basis. “That’s the nasty thing about it,” says Wildhaber. “Every situation is different.” Most HR departments are overwhelmed by this. Muggler believes that this makes it more difficult, especially for smaller companies, to offer remote work on a large scale. Many have decided to limit themselves to a few weeks in other EU countries.
According to Wildhaber, this is often enough: “Most of the inquiries we receive are limited to a few weeks and relatively close destinations.” But in her experience, more exotic destinations are also becoming more popular, including South Africa, Mexico, Thailand and Bali.
Due to the shortage of skilled workers, companies would not be able to forgo working abroad in the long term, explains Wildhaber. “In our surveys, many say they would be more willing to give up a bonus than the opportunity to work abroad.”
Wildhaber cannot confirm the often-made claim that the desire for remote work comes primarily from Generation Z, who would like to lie on the beach after work: “Many requests come from older employees, and two thirds are family-oriented – people want relatives visit or accompany your family on a longer stay abroad.”
Most wishes, says Wildhaber, can be made possible without any problems. But there are limits: “If someone wants to travel around in a van or go on a trip around the world, it will be difficult. Then maybe you should take unpaid leave.”