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I will be asking my employer for whom I work for and who is

physically based in NYC, NY...
I will be asking my employer for whom I work for and who is physically based in NYC, NY, USA to let me work remotely full-time from outside of the US in South America (either Colombia or Ecuador). I want to know what the tax implications of this would be for both myself and for my employer. Would they have any reservations in doing this? Would I be required to pay taxes in the foreign country to which I relocate? What about State and City taxes I was previously paying by living in New York City? Thanks!
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Answered in 33 minutes by:
2/1/2009
Ed Johnson
Ed Johnson, Tax Preparer
Category: Tax
Satisfied Customers: 10,760
Experience: GPHR Cert; U.S. Treasury Tax Advocacy Panel appointee
Verified

DearCustomer

 

Thank you for your question.

 

The article can not be more specific, because everthing depends on your circumstance which produces fact on which the decision is made.

 

So in order to start there are two prime factors that we have to consider and I need to know in order to proceed:

 

1. What is your status to the U.S.? citizen, permanent resident, temporary immigrant, etc.

 

2. Where wil the work be performed? I understand you would like to be phyiscally sitting in another country adn work from there, but where are you perfomring services to?

 

For example: an IT professional sitting in Ecuador delivering serviced to the NY employer's customers and corporate in New York?

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Customer reply replied 8 years ago
1) US Citizen

2) My employer is a multi-national corporation with two headquarters, one in the UK and one in Canada and offices throughout the world. I work at their offices in New York City which is their headquarters for their US operations. I am in the services sector (finance mainly) and I guess it is fair to say that the work I do is done on a global basis as far as my company is concerned. That being said, for all intents and purposes, I am a US worker, taxed as a resident of New York City/State. Irrespective of where I am currently based out of physically (NYC), I could technically be located anywhere in the world and perform the same exact services.

You are right, I would like to physically sit in another country with a high-speed Internet connection. I'd fire up my PC every morning, connect to our company's VPN, I'll have a Vonage device which will afford me a US based # XXXXX basically work as if I was actually sitting in one of our offices.

To summarize: Finance professional sitting in Colombia/Ecaudor delivering services to my employer's customers throughout the world and corporate offices.

If it adds anything to the discussion, I own a house for which I pay a mortgage in NYC and have investments stocks, CD's, bank accounts, 401ks, all located in the US.
Customer reply replied 8 years ago
One other item to note -- if I do end up in either Colombia or Ecaudor, I would be there on a tourist visa with the hopes of trying to apply for a more temporary visa, obtained possibly through the purchase of a property which would yield an investment visa and provide more permanant temporary rights. Until something like that works out, I would be in the situation of having to file for extensions and/or leaving the country for a few days and reentering to gain additional extensions.

DearCustomer

 

1. As a U.S. Citizen you would be required to report and pay taxes on your world wide income. This does not matter how the tax treaties treat your employment. The saving clause in U.S. tax treaties allow the U.S. to continue to tax its citizens world wide.

 

2. The tax treaties would prevent double taxation based on source of income. What ends up happening is you only pay additional taxes based on the difference in the way the two countries determine adjusted gross or taxable income and tax rates. The treaties allow countries in which you have country sourced income to tax you first, then you report the income to the U.S. and get a tax credit for paying taxes to the other country. So in your situation, you would still have income sourced in the U.S. because of the following:

 

a. You are hired by the U.S. company, and you are not a permanent resident of the country you are living in.

b. You have a nexus established with the U.S. country through the server connection and .

c. your income is sourced from or effectively connected to a U.S. business. (even when servicing clients around the world)

 

THE BOTXXXXX XXXXXNE: you are going to still have a tax obligation to the U.S. If the country where you live in is not going to tax you, the U.S. will tax it all.

 

3. NEW YORK City: AS long as you can show you are not physically living within the 5 boroughs of NYC, you can avoid New york city tax.

 

4. NEW YORK State: unless you can divest of all connected ness to New york, New YOrk will consider you temporarily away and will attempt to tax you on world wide income. The assumption of NY and other states is that if you are working overseas, you are temporarily away. The states do not follow U.S. tax treaties.

 

5. Foreign Earned Income Exclusion. The question becomes, at what point, if any you would be entilted to take foreign earned income exclusion. According to the rules, you would still be eligible for foreign earned income exclusion if you live and work from overseas for 330 days in any 12 month period. http://www.irs.gov/businesses/small/international/article/0,,id=97130,00.html

 

This is 91,400 in 2009. It gets adjusted for inflation every year.

 

6. SS and MC taxes.If you are an offshore employee of a U.S. corporation, that employer will normally have to pay Social Security and Medicare taxes on your W-2 earnings. If you are working for a U.S.-based employer in one of the 20-plus countries with which the U.S. has established a Social Security Totalization Treaty, you may cite a closer connection to the foreign country and participate in that country's social insurance system, and not have U.S. Social Security and Medicare taxes withheld from your U.S. pay.

 

The key is participating in the other countries system. If you are not emloyed by a country employer, and remain employed by the U.S. employer; then you will be required to pay into SS and MC.

 

References:

 

1. There is no tax treaty with Columbia though one is pending.

2. There is no tax treaty with Ecuador

3. There are no totalization agreements with either country: http://www.ssa.gov/international/agreements_overview.html

4. http://www.irs.gov/pub/irs-pdf/p54.pdf

5. http://www.irs.gov/businesses/small/international/index.html

 

 

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Customer reply replied 8 years ago
2.
THE BOTXXXXX XXXXXNE: you are going to still have a tax obligation to the U.S. If the country where you live in is not going to tax you, the U.S. will tax it all.

Question/Comment for clarification: My employer will I assume withold the normal Federal taxes based on my salary and the country within which I live in (let's say Colombia) will most likely not tax me since I earn nothing locally and have no bank accounts, etc. For clarification, will my company feel any liability/obligation to inform tax authorities in Colombia or at least research the tax laws there?

4. NEW YORK State:
Question/Comment for clarification: So even if I am gone for 330+ days out of the year, NYS will still tax me at the full rate? http://swz.salary.com/salarywizard/layouthtmls/swzl_statetaxrate_NY.html

Would it be worth it to ask my employer to just change the State I am registered as an employee (i.e. Texas or Nevada) to avoid the taxation?

5. Foreign Earned Income Exclusion. The question becomes, at what point, if any you would be entilted to take foreign earned income exclusion. According to the rules, you would still be eligible for foreign earned income exclusion if you live and work from overseas for 330 days in any 12 month period. http://www.irs.gov/businesses/small/international/article/0,,id=97130,00.html

Question/Comment for clarification:
Based on how I read the FEIE, I would actually need to be making the money from an employer in the foreign country in order to qualify for this. So since I will be paid by my US employer to a US bank account, am I correct in saying most likely I do not qualify for this?

Thanks in advance, and I will accept the answers after this last bit of clarification.

DearCustomer

 

I apologize for taking so long to get back to you. I had started an answer and then my computer crashed.

 

1. My employer will I assume withold the normal Federal taxes based on my salary and the country within which I live in (let's say Colombia) will most likely not tax me since I earn nothing locally and have no bank accounts, etc. For clarification, will my company feel any liability/obligation to inform tax authorities in Colombia or at least research the tax laws there? ANSWER: Your company has good cause to throughly research Columbian tax law. The issue here is that the U.S. does not have a tax treaty. IN the world of international tax, countries tax businesses based on the level of corporate activity that goes on within the country. If your presence after 183 days creates a Nexus or physical presence in Columbia, becasue of the type of activity you are doing there, your company's world wide income, or at least income derived by you, becomes exposed to Columbian corporate taxes. This is why, companies, especially with regard to south american and the carribian, make sure employees do not conduct corporate business longer than certain number of days per country. 60 days here, 30 there, 183 in other places etc. They also watch what kind of work they do. Without tax treaties your company is flying blind. They need to retain Ernst & Yound, KPMG, or PWC to design this assignment for them to provide the least amount of exposure and the best tax situation for you. Your company may even consider establishing a local company to handle just your salary and activities.

 

2. So even if I am gone for 330+ days out of the year, NYS will still tax me at the full rate? http://swz.salary.com/salarywizard/layouthtmls/swzl_statetaxrate_NY.html. ANSWER: NY will still tax you, and under current law would base the State return on the federal return.

 

From the NY State web site:

 

A change of domicile is clear and convincing only when your primary

ties are clearly greater in the new location. When weighing your

primary ties, keep in mind that some ties may weigh more heavily than

others depending on your overall lifestyle. If required by the Tax

Department, it is your responsibility to produce documentation showing

the necessary intention to effect a change of domicile.

If you move to a new location but intend to stay there only for a limited

amount of time (no matter how long), for work, school, or any other

purpose, your domicile does not change.

If your domicile is New York State and you go to a foreign country

because of a business assignment by your employer, or for study,

research, or any other purpose, your domicile does not change unless

you show that you definitely do not intend to return to New York State.

 

http://www.tax.state.ny.us/pdf/publications/income/pub88.pdf

 

Howver two things happen. When you have been overseas 450 days and meet other requirements you can then be considered non-resident in NY.

 

Also if you are entitled to the Federal Foreign Earned Income Exclusion, you can also cliam it on the State return. http://www.tax.state.ny.us/pdf/2008/inc/it203i_2008.pdf

 

Would it be worth it to ask my employer to just change the State I am registered as an employee (i.e. Texas or Nevada) to avoid the taxation? If you change your addres with the employer, and do not concurrently change your physical domicile, as described in the references I have provided, it makes no difference; you will still owe taxes to NY.

 

Foreign Earned Income Exclusion: Answered above.

 

Clarification: US. contractors and employers hire people overseas, and they still qualify for the foreign earned income exclusion. It is based, under current law, on where you reside when you work.

 

 

Ed Johnson
Ed Johnson, Tax Preparer
Category: Tax
Satisfied Customers: 10,760
Experience: GPHR Cert; U.S. Treasury Tax Advocacy Panel appointee
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Customer reply replied 8 years ago
Thanks for this!

DearCustomer

 

You are welcome, thank you for your comments and feedback. Best of luck to you.

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Ed Johnson
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