It is not uncommon for businesses expanding their operations across international borders to discover that moving employees abroad has created tax issues—and unfortunately, they often don’t discover this until they receive notice that overseas employees are noncompliant in either their Home or Host country.
The easiest way to avoid these compliance issues is to get out in front of the problem and hire a mobility tax services provider or an in-house mobility tax specialist before sending employees abroad to ensure the employer and its employees are meeting their filing and withholding obligations in both countries. When looking for mobility tax help, here are four things an employer should consider.
Do You Currently Have an In-House Expert Who Can Handle the Additional Workload?
If your company is sending a mobile employee to a country where it already has operations, it is possible your company’s compliance staff already has a working knowledge of the tax issues both an employer and its employees will face in the Home and Host countries. However, it will still be necessary to determine whether the current staff can handle the additional workload that will be created by additional international assignments.
It is important to have a conversation with key internal stakeholders, including the compliance staff, to determine whether internal resources have the knowledge and capacity to handle additional mobility scenarios or if it is time to bring in an outside mobility tax services provider. By bringing in outside assistance, your internal staff can outsource needed tasks, while maintaining strategic oversight and management responsibilities.
Is Hiring an Outside Mobility Tax Services Provider Less Expensive Than Adding Staff?
Scaling up to handle the additional compliance complexities and workload relating to your mobile workforce can be difficult. The skillset required to handle the tax and payroll complexities in both the Home and Host countries is unique, so finding qualified candidates can be challenging.
In addition to the salary and benefits involved in hiring an employee, it is also important to consider the additional costs your company will incur for training employees and keeping them abreast of the changing tax laws, rules, and regulations in multiple countries. An outside mobility tax specialist will not need to be “brought up to speed” on best practices when it comes to tax compliance for mobile employees.
A good mobility tax firm will also have access to an established international network of firms with expertise in mobility tax compliance and advisory services. Having access to this network will allow your organization to understand the tax rules and planning opportunities in new locations as your organization expands its global footprint.
Are Your Current Payroll Systems and Processes up to the Task?
Your company’s payroll and accounting systems may do a great job with employee reporting and filing obligations in its Home country, but its capabilities may not extend beyond the Home country’s borders. Some software packages only work for employees in a single country, and others require expensive add-ons to address international tax compliance. New software and systems upgrades can be expensive and need to be factored in when considering whether to bring mobility tax services in-house.
Payroll tax rules will vary by location and individual scenario, making it even more difficult for organizations to handle cross-border payroll compliance without assistance from outside specialists or technology solutions. A mobility tax firm can help guide you in understanding the reporting and tax payment requirements in both the Home and Host country and can help set up a process that works for your organizational needs.
Does Your Company Need Help with Tax Planning?
The services offered by a mobility tax specialist go beyond simply finding and timely filing the forms necessary to keep your international employees compliant. Specialists also offer assistance with tax planning that can substantially reduce the tax costs and risks that can accompany an employee’s move abroad.
The tax costs for an international assignment can be significant. For example, an employee on a tax equalized, three-year assignment with a $100,000 base salary and typical expatriate benefits package could have total assignment costs of $1,000,000, with tax costs of up to $300,000. Under tax equalization, this is a company cost that can be unexpected.
A mobility tax specialist can assist with identification of planning opportunities to help keep these tax costs down. Here, a mobility tax firm may be able to provide advice on how many days an employee can travel to another location before triggering a taxable event or becoming a tax resident in that location. If the employee will become subject to tax, the specialist may be able to advise on ways to change the compensation package to achieve a lower overall tax bill.
A mobility tax specialist can work with you to run tax cost projections to show the tax impact of an assignment over different scenarios. In this way, your organization will have the information necessary to make informed business decisions, reduce overall cost and risk, and avoid surprises.
Download our Outsourcing Evaluation Checklist for Your Mobility Tax Program which will guide you through the questions you need to answer before your employees leave the country.
The information provided is for general guidance only and should not be utilized in lieu of obtaining professional tax and/or legal advice.