Tax Planning

Relatively high marginal tax rates in many countries, increasing corporate governance and closer control by the tax authorities are factors leading to greater demand for tax planning for expatriates. Proper management of tax cost is an important task for a HR/Tax manager dealing with International assignments.

The actual taxes to be paid by the employer on behalf of the employee are depending on the structure and type of compensation package provided to the employee going on international assignment. As a general rule, any cash payment made by the company directly to the employee will be considered as taxable income. By adopting the appropriate tax planning techniques, companies can reduce the excess tax costs associated with an international assignment:

Benefits-in-Kind

The direct payment of certain expenses by an employer is considered a benefit-in-kind. In many countries certain benefits-in-kind will not be fully taxable to the employee. Examples of common benefits-in-kind are housing, cars, and club dues.

Timing of an Assignment

The start date and end date of an assignment may have an impact on the tax and administrative cost of the assignment. The administrative burden of filing an additional tax return and the extra tax costs should be taken into consideration if your company is planning to start an assignment right before year end or ending an assignment shortly after the beginning of a new tax year.

Tax treaty between home and host countries

In some countries tax treatiesmay provide benefits if the assignee is in the country less than 183 days in a tax year. For countries using a calendar year for the tax year, this means an assignment should start after July 1 and end before June 30. In other cases, it may be possible to achieve tax savings if the assignment is less than a specified amount of time under a country’s domestic law.

If your assignees’ income and benefits earned during the assignment period is considered taxable in the host country, the pro rata portion of the annual tax is normally deducted from the assignee's pay-check throughout the year. The company should therefore seek advice and start the process already from the day one of assignment in order to comply with the local tax rules.

Click here to contact KICHANS for a quick review of your needs and how we can assist you with the process of relocating your assignees in a safe and cost-effective way.