• Rui M. Teixeira

What is Shadow Payroll?

Today’s workforce is mobile, and COVID-19 pandemic has accelerated this trend.


France, Italy, Germany and even Belgium, Netherlands and UK… It is not unusual to hear that people returned to their home country and are working remotely.


Can this practice have an impact on companies and the way payroll is handled? Yes, it does.


As the current situation may last longer than expected, if a company has employees working from a different country they have to be considered as “expats”.


Nations are more demanding and local tax jurisdictions are increasing pressure on people’s income tax and shifting the burden of taxation to employers, many things can go wrong for companies which will be required to pay heavy fines.


Let’s use the following example: “Max is British. He lives in Basel and works for a Swiss based pharma company (home country). In March 2020, because of the COVID-19 pandemic, Max decides to work from his home in the UK (host country), and travel to Switzerland when required , usually one day per month for on-site meetings. Max’s plans are to return to Switzerland when his company’s office opens again, which is planned in March 2021.”


How shall this case be treated? Generally, double taxation treaties apply for assignments that are less than 6 months.


As the stay is longer than 183 days, it is considered a long-term assignment and Max’s income may be subject to tax in the host country (UK). In this case Max’s company is required to implement a shadow payroll and pay for the social security in the host country.


What is Shadow Payroll?


Shadow payroll is a method to assist and comply with international payroll and tax regulations while an employee has a different host country.


As the payroll is shadowed in the host country, it generally requires the home country company to register as taxpayer in the host country or to have a local subsidiary or branch to be registered.


It is a complex process, which requires detailed knowledge and expertise!


For further information, contact us here.

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