EXPLAINED: The rules for working abroad remotely for a Czech-based company

In the wake of Covid-19, Czechia's workforce has experienced a profound shift. What was once a temporary measure during lockdowns has transformed into a newfound desire among office workers: the longing for a more flexible work lifestyle – abroad. Interest in cross-border remote work is growing in Czechia and Czech companies are increasingly responding by offering this option as an employee benefit.

Indeed, a study by the Association of Business Service Leaders in the Czech Republic found that 44 percent of employers in the fields of IT and business services already offer this option. One-third let their employees work from abroad for up to 30 days, 8 percent allow it for between 1 and 3 months, and just 3 percent allow it for longer.

From taxation issues as well as legalities for both employees and employers to consider, working remotely from a country other than Czechia isn't without its administrative and tax burdens though. However, current trends suggest that doing so could become easier in the future.

According to Jonathan Appleton, director of the Association of Business Service Leaders (ABSL) in Czechia, over 40 percent of employees in the IT and corporate services sectors nationwide are foreigners who “like to extend their visit to their families in their home country and work from there.”

Other employers are following suit: "We respond to the needs of our employees, so we have introduced a new benefit that allows them to work from abroad for two weeks a year from any country that they choose,” said Paul Melmon, director of technology firm Pure Storage that operates a research center in Czechia.

Some companies offer temporary remote work opportunities from abroad. The Czech branch of the multinational software company SAP has a “global flexible work model,” which allows employees to work from different countries “for a short period of time,” according to Czech director of services Iveta Chválová.

Currently, the legalities of working remotely from abroad for a Czech company represent a bit of a gray area. Employees must be aware of whether or not they need to pay tax and employers must know whether they are required to keep payroll records in compliance with domestic tax regulations. 

As EU countries exchange tax information with one another to prevent tax evasion, employees risk hefty fines for failure to pay tax appropriately, and companies are also subject to hefty fines, as they are responsible for knowing exactly where and how employees pay their taxes.

Due to these administrative obstacles, director of Grafton Recruitment Martin Malo says that while almost 90 percent of specialists in the business services industry are interested in working from abroad, only one-quarter actually can.

As working from home becomes more common, some European countries have implemented bilateral treaties with neighboring states on working from home – one example is Germany and Luxembourg.

A German citizen employed by a Luxembourgian firm and normally living in Luxembourg is (for a short period of time) exempt from paying tax if they work from Germany, explains Lucie Filingerová, a senior manager at Deloitte, in a news release.

Other countries in the EU – including Czechia – have so-called double-tax agreements that prevent the double payment of taxes. Confusion still exists though as to exactly where tax should be paid. 

Czech employers believe that work-abroad rules will be simplified in the near future, Appleton says, mainly due to growing demand and an increasing trend of working from abroad. The ABSL survey also reveals that around 80 percent of business services companies in Czechia would support cross-border remote work in the future.

The International Chamber of Commerce, in cooperation with the European Commission, has suggested a more unified, harmonized, and simpler approach to EU-wide taxation for cross-border remote workers. There is no set timeline, however, on when this could come about.

Despite the muddle of different countries' tax legislation, employees must remember one vital aspect. If employed by a company in Czechia, you may work remotely without paying other taxes – but only if you do so for less than six months per year.

Expats.cz reached out to attorney Hračja Grigoryan of MELKUS KEJLA & PARTNERS to ask about the legal and tax implications for Czech residents who work remotely in a different country while employed by a Czech-based company.

“Generally, employees in Czechia may work abroad for Czech employers. The Czech Labor Code primarily focuses on foreign business trips rather than long-term work abroad, but this does not prevent employees from working remotely.

Typically, there are two model situations. In the first model, Czech employees work abroad and their wage is paid by a local permanently established branch of the Czech company that employs them [in the country they are working]. In this case, the employee’s income will be taxed abroad.

In the second model, Czech employees work abroad (remotely) for a Czech company without having their wages paid by a local branch in the foreign country. They are instead paid just like they would be if they were working in Czechia. In this case, the ‘rule of 183’ applies: if the employee works from abroad for more than 183 days in a 12-month period, their income will be taxed abroad. Otherwise, it will be taxed in Czechia,” Grigoryan explained.

Working from abroad for a Czech company is mainly limited by tax legislation rather than technology or workplace policies. While companies are aware of the legal risks that arise when allowing employees to work remotely in different countries, an increasing trend in allowing them to do so and potential EU reform on cross-border taxation may soon make the practice a norm, rather than an exception.