There are several factors that can impact the overall cost of having employees working abroad. A good mobility tax specialist will be familiar with planning opportunities that may be available to set up the scenario in a tax efficient manner.
The amount of time an international employee spends in a Host country is a key factor in determining whether that employee has established a tax filing requirement there. For example, a company may view an international assignment as simply a prolonged business trip, but that does not mean the Host country will agree.
Many companies expanding their operations internationally are aware of the so-called “183-day rule” for determining whether an employee has established a tax filing obligation in a Host country for income tax purposes. However, this rule does not automatically apply to all scenarios. An income tax treaty between the Home and Host country would need to be in place, specifying this specific threshold.
In addition, any treaty will likely have additional rules that need to be met, often requiring the employee’s payroll to be maintained in the Home country with compensation expenses being deducted by the Home country employer. It is critical to understand both the domestic tax rules in the Home and Host country and the possible impact of any bilateral agreements prior to sending employees to a location.
Employers should also be aware that not all countries treat income in the same manner, so items such as a mobile employee’s housing expenses may be non-taxable in one country, but included in income in another. Properly structuring international assignments to take advantage of available tax planning opportunities is critical to ensuring the overall tax cost of the assignment is minimized.
A mobility tax specialist will know the tax positions of both the Home and Host countries, as well as the availability of any other income or social security agreements that could apply to the scenario. In this way, they can guide you in structuring the scenario in a tax efficient manner both for assignment duration and in setting up, documenting, and delivering the compensation and benefits packages.