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Robert Lim

By: Aimee Mccurdy

Have you ever thought about working remotely from a tropical island or a picturesque European village? Thanks to the popularization of remote work during the Covid-19 pandemic, this dream can now become a reality. However, before you start packing your bags, it’s crucial to be aware of the potential tax obligations and visa considerations of working remotely abroad.

What are the potential tax considerations?

The tax implications of working remotely from outside of Canada will be determined by various factors. It is crucial to be familiar with tax laws applicable in both Canada and the country of remote work to avoid any uncertainties. Here are a few things to look out for:

Tax residency

Being a tax resident necessitates filing a tax return and paying taxes on all income, regardless of its origin. Generally, you will remain a tax resident in Canada if you have considerable residential connections with Canada. These include factors such as owning a home in Canada, having dependents in Canada, having a spouse in Canada, or working from abroad temporarily.[1]

Sometimes secondary ties may also be enough, such as having a Canadian bank account, driver’s license, passport or health insurance with a Canadian province. 

The risk of dual taxation

Even though you might still be on the Canadian payroll, living in another country may result in supplementary tax responsibilities.[2] When working in a foreign country, you should be aware that you may be subject to dual taxation, which entails paying taxes in both Canada and the foreign country. Usually, if a tax treaty is in force, you can typically avoid dual taxation. Canada has hundreds of tax treaties with different countries around the world, and you and your employer should review them when considering where to travel.[3] Even if the employee is exempt from paying foreign income tax due to a tax treaty, the compensation paid to them may still be subject to foreign payroll withholding obligations.[4]

What is a ‘permanent establishment’?

Working remotely could lead to the unintentional creation of a permanent establishment. If your remote work location is deemed a permanent establishment, your employer may have to pay taxes and follow employment laws in that country. Given this, many HR departments are cautious about authorizing employees to work abroad.

The consequences of creating a permanent establishment include paying back taxes, having to set up in-country payroll, learning local labor laws, potential reputational damage, and complications with employee immigration.[5] Employers usually want to avoid this.

Simply stating that ‘Canadian law applies’ in the employment contract is not enough. The creation of a ‘permanent establishment’ usually happens in cases where an employee has the power to make contracts on behalf of their employer.[6] To avoid any inadvertent establishment of permanent establishments, make sure your employer evaluates the level of authority you have while working remotely.

Do you have to apply for a visa?

The regulations surrounding remote workers differ from country to country. In certain instances, remote work may be permitted under a tourist visa, while others may have different visa requirements. Below we discuss the different kinds of visas you may want to consider:

Tourist Visas – Some countries may consider remote work as an activity that only requires a tourist visa. Tourist visas, like business visas, are meant for 30-to-90-day stays.[7] These visas are intended to cover a broad spectrum of activities that do not pertain to gaining employment or doing business in that country, such as vacationing or visiting family or friends.[8]

Business Visas – A business visa is intended for travellers who want to conduct business activities and attend meetings that do not constitute gaining employment in that country.[9] Activities include attending meetings, business events, and investigating business opportunities. Some countries won’t consider foreign remote work as gaining employment or doing business.

Digital Nomad Visas – This is a new type of visa authorization that permits remote work in a foreign country, specifically designed for these circumstances. Digital nomad visas allow visitors to stay longer than tourist or business visas, they permit extended residency for a period exceeding 90 days up to a year, with the option to extend further.[10]

Generally, to be eligible, you must meet the following criteria:

  • You must not be a citizen of the country you’re applying to and must not have criminal record.
  • You must have contractual arrangements with clients or parties located outside of the country.
  • You must possess the ability to provide your services using digital technology.
  • You must meet the minimum monthly income requirement established by the country to support your living expenses.[11]

Right now, approximately 50 different countries offer digital nomad visas.[12] These visas are available in some of Europe’s top working destinations, including Portugal, Germany, Hungary, Greece, Italy, Malta, Romania, Spain, and Norway.[13]

Disclaimer: The information provided in this response is for general informational purposes only and is not intended to be legal advice. The content provided does not create a legal client relationship, and nothing in this response should be considered as a substitute for professional legal advice. The information is based on general principles of law and may not reflect the most current legal developments or interpretations in your jurisdiction. Laws and regulations vary by jurisdiction, and the application and impact of laws can vary widely based on the specific facts and circumstances involved. You should consult with a qualified legal professional for advice regarding your specific situation.

[1] National Bank, “Working remotely from another country: What you need to know” (08 June 2022), online: National Bank of Canada < https://www.nbc.ca/personal/advice/career/working-remotely-from-another-country-tips-and-rules.html>.

[2] Bruce Ball, “Breaking down the implications for remote work on taxes” (18 June 2021), online: Chartered Professional Accountants Canada <https://www.cpacanada.ca/en/news/pivot-magazine/2021-06-18-remote-work-risks>.

[3] Government of Canada, “Tax Treaties” (29 August 2019), online: Government of Canada <https://www.canada.ca/en/department-finance/programs/tax-policy/tax-treaties.html>.

[4] Kim Maguire and Illana Ludwin, “Managing the Tax Impact of Cross-Border Remote Work Arrangements: A Canadian Perspective,” (09 January 2022) 51 Tax Mgmt. Int’l J No. 9.

[5] Steven Sitcoff, “Remote Working Arrangements: Tax Planning & Pitfalls” online: McMillan <https://mcmillan.ca/covid-19-resource-centre/remote-working-arrangements-tax-planning-pitfalls/#:~:text=While%20employees%20working%20from%20their,could%20constitute%20a%20permanent%20establishment.>.

[6] Convention Between Canada and France for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and on Capital , 2 May 1975, Can TS 1953 No 8 at article 5, paras 1 and 5.

[7] Visa Guide, “Worldwide Travel Visa Guide” (2023) online: <https://visaguide.world/>.

[8] Ibid.

[9] Ibid.

[10] Ibid.

[11] Global Citizen Solutions, “Digital Nomad Visa Europe – Everything You Need to Know” online: Digital Citizen Solutions<https://www.globalcitizensolutions.com/digital-nomad-visa-europe/>. 

[12] Ward Williams, “Countries Offering Digital Nomad Visas” (23 November 2022), online: Investopedia<https://www.investopedia.com/countries-offering-digital-nomad-visas-5190861>.

[13] Global Citizen Solutions, supra at note 7.