What are the tax implications for somebody working abroad through the lockdown?

I run a venture capital fund with my business partner and we have a small team usually based in the UK. During the last lockdown, a member of the team was working out of Israel who we had no problem with as it did not interfere with their work. However, we now know that there may be tax ramifications. Is that true, and if so, what steps should we take?

Charlotte Hobrough, Senior Manager at the auditing and management consultancy firm BDO, According to remote work abroad, obligations can arise for both an employer and an employee.

As an employer, you could be responsible for paying Israeli income tax on behalf of your employee. Your employee may also need to file an income tax return in Israel.

Charlotte Hobrough, Senior Manager at BDO

If your employee spends less than 183 days in Israel during the Israeli tax year (January 1 to December 31); continues to be paid by the UK fund; and the presence of the individual in Israel does not create a permanent establishment such as a permanent address for the Fund, then no Israeli income tax filing or tax return should be required. This assumes that your employee is a UK tax resident and not considered resident under Israeli tax law.

If they exceed 183 days, they will trigger an income tax liability on their income. Under Israeli tax law, this could mean that income tax would be payable by your company and a payroll would need to be set up in Israel. Previous legal cases indicate that this does not apply to a foreign employer who does not do local Israeli work. In this case, your employee would pay their tax debt simply by filing an Israeli tax return.

However, if the individual’s activities create permanent establishment in Israel, both income tax and corporate income tax registration are required. These activities may include an employee who works in a permanent place of business (including a home office) and an employee who is empowered to essentially negotiate contracts for his or her employer. This is a complex tax area that requires detailed analysis. Therefore, independent professional advice should be considered.

Your employee can continue to pay UK social security contributions and be exempt from Israeli social security contributions under an agreement between the UK and Israel for up to two years, provided the individual does not choose to remain in Israel permanently. You can also be exempt from foreign income tax for the first year in Israel if there are tax breaks for returnees or new immigrants after 10 years of foreign residence.

In addition to the tax implications, you also need to consider your employer’s obligations under Israeli labor laws regarding pension, minimum wage, vacation entitlement, and health care. Regulatory and data protection issues as well as the question of whether the employee has a right to work in Israel must also be taken into account.

Should I look for a pre-nup?

I am getting married for the second time. Should I protect my children’s heritage with a pre-nup?

Charles Hale QC, Attorney at 4PB, says yes in one word. Pre-wedlock agreements, or “pre-nups”, are becoming increasingly common, especially with a second marriage, and can be a useful way to protect children’s inheritance when properly carried out. Even in marriages with less wealth, they can be an important avenue in deciding what to do financially when the marriage ends.

Charles Hale, Attorney at 4PB

I am often asked to advise whether or not marriage contracts are enforceable. The answer is likely.

The UK Supreme Court in 2010 in Radmacher v Granatino upheld that a marriage agreement freely entered into by either party should be respected unless it would not be fair for the parties to uphold their agreement.

This will largely depend on the circumstances in which it was drafted and signed, and provided that the agreed division of property meets the future needs of both spouses. If a spouse wants to contest it, they must say why it is not fair.

Both parties should seek independent legal advice prior to signing. This should be done well in advance of the wedding. Signing a pre-nup in the morning – yes it does happen – is not recommended as a court wants to be sure that both parties willingly entered into the agreement.

The agreement can cover either the entire asset base or a specific asset, such as an inherited family art collection. However, the parties should ensure that their assets are held in accordance with the terms of the pre-nup. Usually this means in their own names for separate properties that will not later be shared or in common names for assets that are likely to be shared.

However, if you are planning to have children with your new spouse, consider adding conditional clauses to accommodate their needs upon arrival or a formal review of the pre-nup triggered by the birth of each new child. The conditions can be changed by agreement.

In a second marriage, your new spouse may acquire legal inheritance rights in relation to assets held on your behalf. So if a marriage agreement is one side of the coin, there should be a carefully crafted will on the other. It might not be romantic, but these arrangements can greatly reduce costly procedures across the board.

The opinions in this column are for general informational purposes only and should not be used as a substitute for professional advice. The Financial Times Ltd and the authors are not responsible for any direct or indirect results, including any loss, arising from any reliance on any response, and disclaim all liability.

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