The tax implications of a global workforce

Compliance rules around expats and overseas workers are complicated, but the stakes can be high if employers fall foul of the law. Dinesh Jangra explains the tax implications of working abroad

There is no doubt that global mobility is one of the most complex areas of HR and reward. There are at least two countries, many specialists, stakeholders and suppliers that have to work in harmony to deliver the right experience to the employee and enable the right outcomes for the business. 

Among the many risks that global mobility professionals have to manage is compliance, and key among them is tax. Taxes can be both a significant cost and compliance risk to an employer. In the modern world, global mobility work arrangements come in a number of different shapes and sizes – all with their own set of compliance obligations and challenges to overcome. Therefore, it is more important than ever for HR professionals to have a good understanding of this area. 

The key issues that need to be considered for different types of globally mobile work arrangements include: (NB. A number apply to all arrangements such as payroll, tax filings and social security, so are only mentioned once.) 

Locally hired expats

The acquisition of a non-local national to work on a local employment contract.

  • Do any special expat tax exemptions apply that could provide beneficial tax rates or taxation to the employee?

Intra-country business travel

Work duties performed in new locations within a country.

  • In some countries with city, state, local or cantonal taxes (USA, Switzerland, Scotland) payroll reporting and tax returns may be triggered.

Cross-border business travel

Work duties performed in new locations beyond national borders.

  • Are payroll deduction and reporting obligations triggered? 
  • Is social security due – is it possible to prevent dual contributions and cost?

Cross-border or regional role

A role with ongoing requirements to work in particular locations or geographies outside the normal home country.

  • Are the business travel, hotel costs etc, taxable? Is the cross-border aspect of the role really a permanent office or work location?
  • Are there any local directorship appointments? These can trigger payroll and tax return reporting requirements.
  • Is a permanent establishment for corporate tax purposes being created by the employee?

Commuter work arrangement or short-term assignee

A role where the employee lives in one country but regularly works in another.

  • Are dual payroll deduction and reporting obligations triggered? 
  • How will cash flow for the employee be managed?
  • How can double taxation costs be avoided?
  • Is a tax equalisation arrangement required?

Long-term assignments

An assignment that usually involves a relocation from one country to another.

  • Have the right expatriate tax concessions or reliefs been correctly applied to keep overall employer costs down?
  • How is global compensation from all sources (relocation providers, payroll, home and host expenses) being corrected reporting in the home and host payrolls?
  • How are costs in one country cross-charged to the other? What policy and mechanism underpins this?

The tax issues that require consideration can differ by global mobility work arrangement type and the locations involved. There are a number of core considerations such as payroll, tax filings and social security that almost always need review. 

Non-compliance could lead to interest, penalties and negative publicity and attention that should be mitigated by proactive up-front review. Up-front review of the arrangements may also highlight tax planning that could significantly reduce overall costs. 

Whenever you see work arrangements become cross-border in nature always consider what this means in terms of compliance obligations changes for you and for employees. 

Dinesh Jangra is a partner and head of global mobility at Crowe