Don't 'do-it-yourself' when sending employees abroad
Ever heard the expression: “it’s what I don’t know that concerns me?” This could not be a more appropriate truism than when it comes to sending your employees abroad on assignment.
Most of us consider our own country’s laws to be complex enough and the bureaucracy frustrating. However, imagine dealing with these issues in a foreign country.
The cost and frustration of operating in an unknown legal and tax environment is often daunting and fraught with risk. As a result, most companies tend to seek guidance from professional advisers familiar with the host country.
The risks of non-compliance
The issue that probably causes the most concern for employers (second only to immigration and worker documentation requirements) is the income and payroll tax exposure they face – both at company and employee levels.
At employee level, most countries place the burden of ‘agency’ on the employer. This makes it the company’s responsibility to withhold and remit the proper amount of taxes, with failure to follow the proper procedures falling squarely on the shoulders of the employer. Interest and penalties for non-compliance can be significant; moreover, the right to continue doing business in the host country can be jeopardized.
One thing is certain in terms of compliance: the cost of getting it right ‘in arrears’ is much greater than the cost of getting it right ‘in advance’.
Identifying tax benefits
Beyond legal compliance, there are significant opportunities for very real savings when it comes to structuring employees’ compensation properly, employing best practices in long-term assignment policy development and effectively reducing double taxation. For example, a non-cash benefit in kind may be tax free if paid directly to a third party, eg a landlord, and fully taxable if paid or reimbursed to the employee. On balance, the cost of losing such a benefit can and often does, offset the cost of using a skilled service provider.
Failing to implement a tax equalisation plan can be among the most costly mistakes a company makes when it expands overseas. Tax equalisation – ensuring that employees pay no more or no less tax than what they would have paid, had they remained in their home country – can be a huge source of savings for a company. Yet smaller companies often believe (wrongly) that implementing such a plan will be complex. While this may be the case for a multinational company sending hundreds or thousands of assignees to and from dozens of countries, it need not be so for a company with a limited expatriate assignee population. The do-it-yourself approach or, in this case, the not-doing-it-at-all approach, can often result in an unnecessary burden on the employee, the employer or both.
Of course, the most valuable intangible asset every company seeks to protect in any international assignment is its relationship with an employee. Nothing will diminish that asset more quickly than a failure to provide competent, independent, professional guidance on matters that can involve legal jeopardy for the employee and his/her family.
It is important to acknowledge that no one office in any country can be an expert in the tax laws of every other country. With over 250 firms worldwide, Nexia International can leverage the expertise of its members within the network to provide home and host country tax compliance and planning services to its clients seamlessly.
For more information, contact:
Washington DC, US
The Wolf Group
T +1 703 502 9500