Managing the income tax and social security withholding and reporting obligations for internationally mobile employees can be a challenge, and the complexity and risk profile increase significantly when it comes to compliance for non-resident directors (NRDs).
Against the backdrop of a sharpened universal focus by the tax authorities on the tax governance of global businesses, this is an area of heightened scrutiny.
With the details of board members public domain information in many territories, NRDs are very visible to the tax authorities. The reputational risk of not getting the reporting correct has never been greater.
Among the most common misconceptions are that:
- Board members cannot be subject to tax in a territory where they are non-resident
- Directors are always treated for domestic tax and Double Tax Treaty (DTT) purposes the same way as employees
- Board members can be subject to tax only if they receive a directorship fee payable by the entity on whose board they sit, and not if they are remunerated fully by a group company in a different jurisdiction.
When you consider that different tax jurisdictions have different rules on the tax and social security position, it is imperative to ensure that you have carefully reviewed the position.
Many DTTs include a separate clause of the agreement that considers the taxation of employment income to that which determines the taxation of directors’ fees, hence the ‘183 day rule’ (among other conditions) will very seldom apply.
Insight into the tax and social security treatment in different jurisdictions
We have worked with our BDO colleagues across a representative number of territories to highlight some of the key aspects of how board members can be subject to tax and social security and the risks if companies do not review their withholding and reporting obligations. This information is by nature generic and should not be relied on as exhaustive guidance, and with the inherent complexities in the rules, specific guidance should always be sought. Please click on the links below to see our comments regarding the rules in each jurisdiction. For each territory we have detailed based on an individual being the non-resident director and not a corporate body.
Please contact Andrew Kelly or Steph Carr if you require assistance with reviewing the tax and social security payroll and reporting obligations of your company’s non-resident directors.