Managing Cross-Border Workforce Mobility: Tax Considerations for Middle East Businesses and Employees in a Changing Environment

Recent geopolitical developments in the Middle East have led to businesses established and operating in the region adopting remote working arrangements, including permitting directors, senior management and employees to work from abroad.

While these arrangements are often intended to be temporary, the presence of individuals in other jurisdictions can give rise to tax consequences in those jurisdictions, even where the business has no formal legal presence there.

This article assesses the corporate and individual tax implications arising from such arrangements.

Why Workforce Relocation Creates Tax Risk

As a result of relocation, directors, senior management and employees may perform functions in jurisdictions other than where the business is incorporated or managed.

This may impact corporate tax residence, create a permanent establishment for the business, and give rise to personal tax exposure for individuals.

During the COVID-19 pandemic, some tax authorities issued administrative guidance to address temporary relocation, including providing relief in relation to corporate tax residence and permanent establishment risk. That guidance reflected a coordinated global response to an exceptional situation.

No equivalent relief has generally been introduced in the context of current regional disruptions. As a result, tax implications depend on domestic law and applicable treaties, and are determined by actual activities rather than the reasons for relocation.

Corporate Tax Implications

Company Residence

The relocation of directors and senior management may result in a company becoming tax resident in another jurisdiction.

This risk arises because many jurisdictions determine corporate tax residence based on where central management and control is exercised. This depends on where key strategic decisions are made, rather than where the company is incorporated.

Relevant indicators include:

• where board meetings are held and decisions are taken
• where senior executives direct and control the business
• where high-level policies and strategy are determined

If these activities take place in a different jurisdiction, that jurisdiction may treat the company as tax resident there, potentially taxing worldwide income.

More than one jurisdiction may assert tax residence. Where this results in dual residence, applicable double tax treaties may include tie-breaker provisions based on effective management or similar criteria.

Permanent Establishment

Even where corporate tax residence does not change, the presence of individuals in another jurisdiction may create a taxable presence.

A permanent establishment may arise where a business has:

• a fixed place of business through which it carries on activities; or
• a dependent agent acting on its behalf

A fixed place of business generally requires a location at the disposal of the enterprise with sufficient permanence. Working from home, hotels, or temporary accommodation does not automatically create a permanent establishment. The key question is whether, in substance, the location is used on a sustained basis to carry on business activities.

A dependent agent permanent establishment may arise where individuals habitually negotiate or conclude contracts, or play a principal role leading to contracts being finalised.

Risk is typically higher where individuals are client-facing, generate revenue, or have authority in commercial decision-making.

In some cases, particularly for services, a permanent establishment may arise based on time thresholds. Even where no specific rule applies, duration may still be relevant.

Temporary or involuntary relocation does not prevent a permanent establishment from arising.

Employee Tax Exposure

Relocation may also create tax exposure for employees, who may become taxable in the jurisdictions where they work.

Key considerations include whether an individual becomes tax resident in another jurisdiction. This is often determined by physical presence or personal and economic ties.

Where tax residence is established, individuals may be taxed on worldwide income. Even where residence is not triggered, employment income is typically taxable where the work is physically performed.

This can result in overlapping tax obligations. While double tax treaties may provide relief, they do not eliminate compliance requirements.

Employer Compliance Obligations

Employee presence in another jurisdiction can create compliance obligations for the employer, even without a legal entity in that location.

Businesses may be required to:

• operate payroll withholding and reporting
• register as an employer
• account for social security or similar contributions

Employers may also be liable for employer social security contributions, which can be a significant cost.

Failure to comply can result in backdated liabilities, interest and penalties. These risks are often identified after the fact where employee movements are not assessed from a tax perspective.

Indirect Tax

Employee presence may also create indirect tax obligations.

Where a business is considered to be making supplies from a jurisdiction, or has sufficient presence, it may be required to:

• register for VAT or similar taxes
• account for local supplies
• comply with reporting obligations

These obligations should be assessed alongside corporate tax and payroll exposure.

Transfer Pricing and Documentation

Cross-border employee presence can affect how profits are allocated between jurisdictions.

Where a permanent establishment arises, profits must be attributed based on functions performed, assets used and risks assumed, applying arm’s length principles.

More broadly, the location of economically significant activities may shift due to employee movements, requiring corresponding adjustments to profit allocation.

Businesses should assess whether existing transfer pricing policies remain appropriate and update intercompany arrangements where necessary.

Appropriate documentation should be maintained, including evidence of:

• where key activities are performed
• where decisions are made
• how value is created and profits are allocated

Without contemporaneous documentation, positions are more likely to be challenged.

What Businesses Should Do Now

Businesses should assess their position based on current facts and implement processes to manage cross-border tax risk.

This includes:

• identifying where employees and decision-makers are located
• monitoring movements on an ongoing basis
• determining activities performed in each jurisdiction
• assessing corporate residence and permanent establishment risks
• reviewing payroll, social security and indirect tax obligations
• updating internal policies on cross-border working
• reviewing transfer pricing policies
• maintaining contemporaneous documentation

Where cross-border arrangements are expected to continue, these issues should be addressed proactively. Where misalignment exists, prior period exposure should also be considered.

The analysis should consider the cumulative presence of employees at the company level, rather than individuals in isolation.

Ultimately, tax outcomes are driven by actual activities rather than intended structures. Businesses that align their operations with how work is carried out in practice, and maintain proper documentation, are better positioned to manage risk. Those that rely on form alone face increased exposure to challenge, adjustment and penalty.

How can we help?

Managing cross-border workforce mobility requires consideration of corporate tax, personal tax, employment tax, transfer pricing, and indirect tax implications. Our dedicated tax team supports businesses in assessing, structuring, and managing their position to ensure alignment with applicable tax rules and to mitigate cross-border risk.

Our support includes:

• assessing tax exposure across jurisdictions, including corporate tax residence, permanent establishment, and employee tax risk
• structuring arrangements and transfer pricing policies to align employee activities, business operations, and profit allocation with actual conduct
• implementing processes to track employee movements and maintain appropriate documentation

We work with businesses to align legal structures, operational arrangements, and tax positions with actual conduct, and to address risks proactively before they give rise to challenge or adjustment. For any further information, advice or assistance, please feel free to contact the key contacts.