Employment Tax Considerations

The first and most important question when an employee starts working overseas is whether that person will acquire local residence status. Typically, employees who reside in a foreign country for more than 183 days a year may become tax residents of that country. Tax residency, in turn, triggers obligations to declare earnings and pay relevant payroll, income, and other employment-related taxes. Similarly, hiring local workers may also trigger local-country payroll reporting and compliance requirements for the George Washington University.

Like the U.S., most countries have instituted mandatory income tax and social security withholding, which requires employers to withhold taxes and pay them over to local authorities. It may be necessary for the university to register in the country as an employer in order to comply with the local country payroll tax reporting and withholding requirements.

Departments and schools should build the cost of maintaining a staff abroad into any plan for expanding internationally.

Worker Classification

Rules governing the classification of local staff members as employees or independent contractors require careful attention. Because tax and benefit burdens can be quite high in countries outside the U.S., there is sometimes pressure for local administrators to classify local staff members as independent contractors rather than register them as employees. That should be avoided if possible.

See ENGAGING WORKERS section for guidelines on how to initiate the process to review how an individual should be engaged (i.e. employee or consultant).