Most companies recognize that sending an employee overseas for a long-term assignment or permanent relocation can create a broad range of issues for both the employee and employer. Those companies are aware that they will likely need to provide the mobile employee with assistance in addressing such issues as visas, work permits, and travel and relocation expenses. The fact that the employee and employer are likely facing a new tax environment following the move is sometimes unknown or may even be kicked down the road to be dealt with after the other issues have been resolved.
However, failing to recognize the employee and employer’s tax and reporting obligations in the Host country can lead to significant unforeseen risks and expenses beyond basic penalties and interest. In addition to financial costs, failure to understand and follow regulatory requirements can also create serious legal and reputational risks for both the employee and your organization. That is why companies with plans to expand their operations by moving employees from their Home country overseas need to consult with a mobility tax specialist who understands Host country requirements as early in the process as possible. Once the Host country has found that an employer or employee has failed to comply with their tax or reporting obligations, the issues can become far more difficult to resolve.
A good mobility tax specialist will have established partnerships with tax specialists across the globe and would be able to provide advice to a broad range of companies, ranging from software to manufacturing to the petroleum industry. Therefore, a single specialist can assist an employer with placing mobile employees in several Host countries.
Though a mobility tax specialist can generally assist a business with relocating any number of employees overseas, most companies assigning employees to a new Host country begin by moving only a few mobile employees to a location with the hope that more will follow once operations there have proven successful. Therefore, a company should partner with a mobility tax specialist to lay out a plan that can be followed by future mobile employees. Focusing on what is needed in the Host country for the first case can facilitate expansion and the company’s ability to remain compliant with their future assignees and mobile employees.
Businesses seeking the assistance of a mobility tax specialist are often just starting to utilize mobile employees and usually lack an in-house specialist upon whom they can rely. For those businesses, any issue they face related to the taxation of mobile employees will mark the first time they have needed to address the problem. A mobility tax specialist is able to walk them through that process.
A common example where mobility tax experts are a big help for a company's mobility program is payroll compliance. A business that is new to having mobile employees will rarely have the necessary global payroll infrastructure in place. A mobility tax specialist can assist with the set-up of the necessary payroll controls and a shadow payroll in the Host country. The shadow payroll will allow the necessary reporting and withholding to occur in the Host country for an employee who remains on their actual Home country payroll for purposes of Home country pay delivery, tax reporting and withholding, and participation in benefit programs (e.g., pension plans).
In addition to addressing tax issues, mobility tax specialists can often serve as general global mobility advisors who can help outline a business’s processes for moving employees overseas and assist a business in foreseeing common issues that might occur in a Host country. For example, the specialist may know from experience that it might be advisable for a business to consult with a relocation management company or an immigration attorney well in advance of sending a mobile employee to a Host country. Although not able to directly provide these services, the mobility tax specialist can provide referrals to companies that can assist in these non-tax areas, thereby, helping to set the program up for success.
Assigning an employee overseas will not necessarily eliminate that employee’s tax and reporting obligations in their Home country. In addition to reporting the income of mobile employees in the business’s Home country, the company may be obligated to report non-cash benefits it provides and pay social security taxes on behalf of the overseas employee. A mobility tax specialist can assist an employer with the Home country obligations for reporting, tax withholding, and payroll so that a global eye is maintained throughout the assignment and beyond in the case of payroll obligations after repatriation.
The information provided in this newsletter is for general guidance only and should not be utilized in lieu of obtaining professional tax and/or legal advice.