COVID-19 – Tax impact on Employers and Employees

Loren Chan

As the Coronavirus (“COVID-19”) sweeps across the globe, the number of confirmed cases of COVID-19 has been increasing at a tremendous pace in different parts of the world.  In light of the rapidly evolving epidemic, many jurisdictions have declared national emergency and introduced a series of control measures including refusal of entry and departure of international travellers of affected countries, compulsory quarantines for 14-days of visitors and / or returning residents and suspension of international flights.  Some cities in the affected locations are subjected to internal travel bans or have their public transport suspended. These measures have caused unprecedented interference to international traffic, resulted in significant economic and social impact. 

To cope with the increasing restrictions imposed by the local government and to facilitate social distancing, companies are required to implement business continuity plans and flexible work arrangements to minimise the effect of the COVID-19 outbreak. Apart from business interruption, workplace arrangements have also been seriously affected.  A lot of employees are affected by emergency arrangements such as workplace closure, mandatory self-quarantine after arrival, recall of non-critical employees and their families from affected countries, cancellation or postponement of international assignments. As a result of these,  
  • employees’ assignment / secondment plans may have been affected / postponed
  • expatriates who have returned home prior to the outbreak of COVID-19 may not be able to return to the workplace as originally planned
  • employees who plan to commence on an overseas assignment may have been forced to work in the home jurisdiction or in other countries
At this stage, it is still uncertain when COVID-19 would come to an end.  Employers should review on the impact caused by the above situations, in particular:
  • Is the original tax planning still valid?
  • What would be the tax impact if an employee has a prolonged stay in a particular jurisdiction?
  • In situation where an employer would bear the tax for an employee working in a foreign jurisdiction, what would be the tax impact caused by the above changes?
  • Is there any additional social security contribution obligation / reduced social security contribution burden due to change in an international assignment?
  • Is there any tax relief offered by governments on individuals?
Given the fast evolving situation of COVID-19, close monitoring and revisiting of current employments with employees and expatriates are highly recommended. When in doubt, businesses are encouraged to seek professional advice to consider if there is a need to reconstruct the employment contract / revisit the tax positions of the corporation and its employees in order to minimise their potential tax exposure.