Tag Archives: Expatriate Payroll

Two Tax Planning Strategies to Reduce Expatriate Costs

Author:
Eric Loff – Global Tax Network

The tax cost of an international assignment can be significant and companies struggle to find ways to manage these costs.  This article outlines two straightforward strategies for reducing the tax costs of your expatriate program.

Where do those excess taxes come from anyway?
Excess tax costs associated with an international assignment include the actual taxes paid by the employer on behalf of the employee which exceed the employee’s tax burden as calculated under the company’s tax equalization policy. But don’t worry. There are a variety of tax planning techniques that can reduce these excess tax costs. Two common ones are:

  • Paying benefits-in-kind in lieu of cash payments
  • Proper timing of the assignment

Read on to learn how these tax savings strategies work. Continue reading

Expat Lump Sums – Trap or Panacea?

Author:
Mary Lou Stockton – Global Tax Network

A US company sends an employee on assignment to the UK.  The company informs the employee that they will pay X amount for his UK housing.  The employee wants to spend more, because he wants a larger, nicer flat.  He feels the allowance is not enough for the type of flat he wants considering his family needs, including the fact that his wife wanted to live near other Americans.  

The HR Director works with the business manager to determine whether the company would pay more in this case.  The employee is told that he will have to reimburse the company for excess housing cost through payroll.  The employee contends that he should get a tax deduction on his hypo tax for the excess housing that he funded.  The issue went to the tax accountant and finally to the company VP for resolution.  The VP asks why he is being asked to resolve assignment allowance issues and tells HR that they should “handle it”.  The HR Director considers transferring to something less complicated, like nuclear engineering or cell biology.

It does seem expats take a disproportionate percentage of HR’s available time, and require much more administration than one would expect.  The trend in HR today is towards “self-service”.  Why do we need such detailed and centralized control of assignment expenses and allowances?  

Why can’t I just give assignees some extra money to handle the costs of an international assignment?

Continue reading

10 Killer Reasons to Attend the North East Totally Expat Show

The International HR Forum is proud to be a Partner Organization for the upcoming North East Totally Expat Show on 3 April in New York.  The event is just three weeks away! It will be the largest global mobility event ever held in New York.  So, if you are in the New York Metro area, or if you are able to travel, register now!

Here are 10 killer reasons why you should register today: Continue reading

NY Totally Expat Show

Author:
Warren Heaps – Birches Group LLC

Have you heard about the Totally Expat Show sponsored by the Forum for Expatriate Management? This group has hosted several very successful exhibitions designed for global mobility professionals.

This year, the International HR Forum will be represented at the New York Show on April 3rd.  Birches Group LLC will have a booth in the Exhibition Hall — stop by and introduce yourself as one of our loyal readers.

Check out the details on our NY Totally Expat Show page.

When you register, please be sure to mention you saw the event on the International HR Forum!  And if you want to, leave a comment if you will be there, so we can look for you.

New York Totally Expat Show – April 3, 2012

Join us at the New York Totally Expat Show on 3 April

The Forum for Expatriate Management’s Totally Expat Show will be returning to New York on 3 April 2012. We will also be visiting Chicago for our Mid West Show on 1 June 2012.

  •  North East USA at the Metropolitan Pavilion in New York on 3rd April 2012 – Register to Attend
  • Mid West USA at the Sheraton Hotel & Towers in Chicago on 1st June 2012 – Register to Attend

The International HR Forum is a proud partner organization of The Forum for Expatriate Management, and Birches Group LLC will be attending the New York Totally Expat Show on 3 April 2012. Do come along and visit us. With over 500  attendees, this is likely to be the biggest Global Mobility event  ever held in New York.

These truly unique global mobility events will include a major exhibition with a large number of leading service providers and a rolling program of seminars (which will be certified by HRCI for GPHR credits).

Entry is entirely FREE for corporate HR professionals.  Just  Register to Attend!

Service Providers can attend for just $290 for FEM Members ($350 for non-Members). Just Register to Attend!

Topics to be covered are listed below.  For full descriptions of the topics, see the seminar program.   Additional speakers and topics will be announced shortly.

  • Meet the Experts – Global Immigration Compliance Trends
    Experts from Fragomen and other leading specialists
  • Latest Trends in Global Mobility Policy and Practices
    Debra Frost, Vice President, Client Services, Cartus
    William Sheridan, Vice President, National Foreign Trade Council
  • Business Process Automation in Global Mobility
    Mark Rabe, VP Business Development, Equus Software
  • US Reporting Requirements for Foreign Assets – What Global Mobility Managers need to know
    Beth Penfold and Katrina Haynes, Grant Thornton
  • An Overview for Companies new to Expatriation
    Pat Jurgens, Director of Tax for AIRINC
  • Emerging Trends in Global Mobility Transformation
    Glen Collins, Senior Manager, International Executive Services, KPMG
  •  Technology and Global Mobility – The Next Generation
    Frank Patitucci, CEO NuCompass Mobility
  • Strategic Intercultural Support: Insuring the ROI on the International Assignment
    Dean Foster, President and founder, DFA Intercultural Global Solutions
  • Is Cross Cultural Training really worth it?
    Diane McGreal, Director Berlitz Global Leadership Training, Americas Region
  •  Spousal assistance : overview of best practices based on a global sampling of 200 multinational corporations
    Alain Verstandig, President and Denise Michelle Starrett, Senior Consultant NET EXPAT Inc
  • Managing the Global Mobility Function
    Brian Friedman, Founder and CEO, Forum for Expatriate Management

Register to Attend!

 Just these Corporate Attendees

AIG * Amphenol TCS * Associated Press * AXA Equitable * Axiom Law * BNP Paribas * Boehringer Ingelheim * Bunge Limited * Citibank * Citicorp * Coach * Columbia University * Corning Incorporated * Covance Inc. * Criteo * D&B * Deloitte * Discovery Communications * Dragados USA * DSM Services USA * Fidessa corporation * Foot Locker Inc. * Harris * HSBC * IBM * ING Financial Services * Ingersoll Rand Company * JPMorgan Chase * KPMG LLP * Marsh & McLennan Companies * MetLife * Milbank, Tweed, Hadley & McCloy LLP * Morgan Stanley * Nielsen * Novartis Pharmaceuticals Corporation * NYSE Euronext * NYU * PTC * Ralph Lauren * Resources Global Professionals * Sikorsky Aircraft Corporate * Sony Music Entertainment * Teach For All * Terex Corporation * The Hershey Company * The NPD Group Inc. * The Royal Bank of Scotland * Tiffany * Towers Watson * Toys’R’Us * UNDP * Unilever * United Technologies Corporation * White & Case LLP * William J. Clinton Foundation *

Equalization or Protection – A Taxing Question

Guest Author:
Jennifer Stein – Global Tax Network

[Editor's Note:  We are happy to welcome Jen Stein as a Guest Author.  Jen is the Managing Director of the Global Tax Network Chicago office.  She has more than 15 years of experience in expat and foreign national tax preparation and consulting, starting her career with Arthur Andersen, and then Ernst & Young, where she served for over 14 years.]

Taxes are one of the most complicated and expensive aspects of an international assignment.  To control these costs, most companies utilize a tax policy as part of their international assignment process.  The two most common approaches are tax equalization and tax protection.  How do you decide if one of them is right for your company? Let’s start with some definitions.

Continue reading

Ten Ways to Simplify Administration of Your International Assignment Program


Jennifer Stein – Global Tax Network

[Editor's Note:  We are happy to welcome Jen Stein as a Guest Author.  Jen is the Managing Director of the Global Tax Network Chicago office.  She has more than 15 years of experience in expat and foreign national tax preparation and consulting, starting her career with Arthur Andersen, and then Ernst & Young, where she served for over 14 years.]

International assignment administration is complex. Sometimes it’s useful to take a step back and review basic components.  The list below, while not exhaustive, is a good starting point to help review your international assignment process and procedures.  Adopting one or all of these components may make your life easier when administering international assignments.

Continue reading

Ten Tax Tips for Twelve-Thirtyone: Year-End HR and Payroll Actions for Global Mobility

Author:
Claudia Howe – Global Mobility Tax, LLP

Wow!  Where did the year go?  Now that it’s almost over, HR and payroll professionals are working hard to finish out the year.  In the world of expatriate compensation and taxation, here is a reminder list of 10 things to do before December 31 (for our international readers, I realize this will be a bit US-centric, but hopefully useful nevertheless):

Tip #1: Pay all taxes due for jurisdictions that do not have a 12/31 year-end
Some countries have different year-ends, for example:  Australia = June 30,  Hong Kong = March 31,  New Zealand = March 31,  UK = April 5,  South Africa = February 28.

If taxes are not paid throughout the year or by 12/31 (especially in the first year of assignment), the employee or the company (for tax equalized assignees) may lose out on claiming important foreign tax credits on the US tax return and could have a nasty surprise at April 15.  This is due to the fact that the US only allows tax credits on the US return against taxes paid or accrued during the tax year.

For example:  Suppose you have an expat from the US in the UK since June 2009 and have not quite been able to get regular monthly UK tax payments set up.  If  UK taxes have not been remitted to Her Majesty’s Revenue and Customs (aka UK tax authorities) before 12/31, they cannot be claimed as a credit on the US return, causing temporary (and potentially permanent) double taxation!

Tip #2:  Pay all US taxes due through payroll
Perhaps you are aware of a very large January bonus that was not withheld at the top marginal rate and on which a US tax payment  should be made to avoid the underpayment penalty.   What are the options to make the payment?

  • Option 1:  send a check in the mail to the IRS with an estimated tax payment voucher (1040-ES – Q4, due January 15).
  • Option 2:  make the payment through payroll before 12/31.

Best choice?  Option 2.  When making payment through withholding, the IRS will treat it as evenly paid throughout the year and this will minimize/eliminate estimated tax penalties that could otherwise apply.

Tip #3: Update your tax accruals
Year-end budgeting is in progress.  If there are liabilities out there – be it US or foreign tax liabilities that will come due, it is important to accrue for them so that the financials are correct and also to avoid surprises later on.

Tip #4: Review relocation Gross-ups
For folks that were relocated during the tax year but are not tax equalized, a relocation gross-up should be processed if the company promised to pick up the taxes on the taxable items such as temporary lodging, temporary transportation, etc.  Many major relocation companies will do this for you, or will at least give you the amounts to be grossed-up.  Tax professionals can also be useful here especially if you are relocating an executive with the expectation of no tax detriment:  your 25% supplemental rate would likely not cover that tax bill and you could end up with a disgruntled exec at tax time in April.

If you process gross-ups at year-end, don’t forget to send a courtesy email to the employee informing him/her why the last paystub or the W-2 looks so much higher all of the sudden.  And be sure to process the payments of withholding through payroll (see Tip #2, Option 2 above!).

Tip #5: Review expatriate compensation details for W-2 inclusion
The tricky part of expatriate compensation is that it is usually not delivered all from one location;  many items such as housing, children’s education, local tax payments, etc.  are paid from the host location and are not channeled back to US payroll for inclusion in the W-2 (which, of course is required by law:  all compensation no matter where or how paid must be reported to the IRS on the W-2).

It is especially at year-end that I am reminded that our colleagues in payroll are indeed the unsung heroes of corporate America:  they are expected to deliver correct payroll on-time with 100% accuracy all the time – talk about stress! And no-one stops by to say:  “Thanks, Andrea, for getting my W-2 right – I know it must have been a challenge”!

Tip #6: Review withholding on US bonus, commission and equity compensation payouts
For US expatriates on assignment in a foreign location, remaining on US payroll, usually federal (and sometimes state) withholding will be turned off.  In lieu of the actual withholding, a hypothetical tax withholding for tax equalized folks is implemented or a fixed withholding amount for the foreign jurisdiction is taken out of the pay.  Since oftentimes these are fixed dollar amounts per paycheck, the withholding on bonuses or commissions are easily overlooked. Better late than never – now is a good time to review and ascertain that the correct amount of withholding has been taken out of these type of payments to ensure that the employee does not owe the company or the governments any underwitheld amounts.

If actual federal/state taxes are withheld from executive or high-income taxpayer’s bonus and commission payments, and if the person is tax equalized, you will want to ensure that taxes were withheld at the highest marginal rates, not the 25% supplemental rate.

Tip #7: Finalize your Authorization List
Make sure to finalize the list of employees that are eligible for tax services and let your tax service provider know before 12/31.  Delays beyond that date could delay the kick-off for the tax season.  Then your employees could be left wondering if their taxes will be taken care of – or not?

Tip #8: Sign your Engagement Letters

Your tax firm may not be able to provide services until they get that signed engagement letter back from the company.  So better check with the person who signs the letter to make sure it get out and not hung up in legal or procurement.  Again, delays could cause problems for your employees.

Tip #9: Solicit the completed 2009 travel calendars from all assignees
This can be coordinated with the tax firm you are using; the travel calendar is one of the most important items in the tax preparation process.  Most will supply you with an automated calendar at the beginning of the year to make this process easy, but of course, your assignees have to use the tool!  Tax firms spend almost half of the tax preparation time on reporting compensation in the correct format and sourced to the correct jurisdiction.  The travel calendar is a key item needed for this exercise as well as to determine tax residency status, qualification for tax exclucsions, etc.  The earlier the tax professionals can get their hands on it, the better!

Tip #10: Don’t forget to enjoy the holidays!
We all tend to get very stressed at year-end – it is a hectic time, after all!  But sometimes we do have to remind ourselves that we need to take a deep breath, sit back, and relax…and enjoy the Season!

Happy Holidays!

More about Claudia:

Expats…What tax?

Claudia HoweAuthor:
Claudia Howe – Global Mobility Tax, LLP

You are an HR professional (or a VP of Tax or a CFO) and you have just been told that your company wants to send an expat (oh horror!) to the UK.  “Expat,” you think to yourself – “what now?  How can we understand the costs, and what about taxes – isn’t that a really expensive and complicated area?”

Understanding the Basics

Understanding the basics of an expat assignment is critical, especially the tax costs.  As many already know, the tax costs can be the most significant line item on the cost projection worksheet.  But don’t worry; there are ways to manage it!

If your company does not have an international assignment policy in place, you will have to determine the whole package including housing, COLA, education cost for the kids, and what tax reimbursement philosophy is to be employed.  Without a policy, many of these items will be subject to individual negotiations.  This can work for a few assignees, but once you expand your program beyond one or two, it’s a good idea to establish a formal policy to help manage costs and reign in the negotiations.  While all of the aspects of an expat policy are interesting, my expertise is in the global tax arena, so this posting will concentrate on how to decide the best approach to managing taxes for your expats.

Tax Reimbursement Methods

When an employee goes overseas, there is always an impact on the employee’s taxes – income taxes and social taxes.  If left unmanaged, there could be unforeseen consequences, either positive or negative, from the employee’s perspective as well as from the employer’s viewpoint.  Expat tax policies address these issues with tax reimbursement methods including tax protection, tax equalization, or the “simplest” of all:  laissez-faire (aka “do nothing”).

While laissez-faire keeps the company’s costs down, it usually gets the expat worried about the tax implications of the assignment as any incremental costs will directly hit the assignee’s bottom line.

Tax equalization and tax protection are alternatives which help both employees and employers manage the costs of assignments.  If you are not familiar with tax equalization or tax protection, it is easy to get them confused.  Here are the basic definitions:

  • Tax Protection – Employees are “protected” from any additional taxes that may result from the international assignment but can benefit from any decrease in taxes which may occur when, for example, moving from a high-tax country to a low-tax country or no-tax country.  So, the employee may pay less tax, but will never pay more than if at home.
  • Tax Equalization – Employees are “equalized” so they pay the same amount of tax – no more, no less – as if they were at home.  The company pays any difference and also benefits from any tax reductions.  This method is the most equitable for a workforce and the employees can easily understand the tax impact on them:  none – the employees pay the same tax as if at home.

Both methods are designed to help the employee, and if the host country tax rates are higher than the home country tax rates, then they technically will result in the same bottom line to the employee and the same cost to the company in the long run.  The fine distinction between the two is that with tax protection the company promises the expat that he will be reimbursed for any excess tax costs over his “stay-at-home tax,” i.e. he will pay no more than had he stayed home.  Tax equalization says that the employee will pay “neither more nor less” than had he remained in the home location.  And, unless they are going to Dubai, the host country will have the right of taxation and will tax the income (yes, even if paid from the home country and even if the work performed is for the benefit of some other location).  Because the host country tax system is unfamiliar, it is not always easy to know how much tax will be due in that country.

Tax Equalization vs. Tax Protection

Here you are, with your first expat, and you now wonder:  “hmm – tax protect or tax equalize” – how should we decide this?

The answer is usually more complex than meets the eye.  When you are in the infancy stage of your expatriate program you usually can afford customization to each expat’s situation.   We often see in practice that the first few assignments in an organization are custom built.  Tax reimbursement policies are often written once the first few assignments are already underway.

Here are some examples to help illustrate the two approaches.

Tax Protection Example

Let me give you an example where I would clearly recommend tax protection:  you are moving a young single line manager from the UK to Spain for 2  years; she will not receive any allowances, only relocation benefits.  The tax protection gives her the additional assurance that she is not going to pay more tax than had she remained home, but if she pays less in Spain than what she would have paid in the UK on the same income, then she gets to enjoy the windfall (and spend the extra money on something nice).

Tax Equalization Example

However, on the other end of the extremes, for example, when you are moving a US executive with wife and school age children from the US to Singapore, I would highly recommend tax equalization.  You ask:  why?  Well, it usually will take a bit more financial incentive to get the executive to accept the “risk” (financial and otherwise) of taking such an assignment (so he is doing the company a favor).  The assignment costs will increase due to the family’s need for financial assurance, there is a cost of living differential, and housing is a lot more expensive.  So, the cost projection worksheet is filling up quickly and the total compensation reportable in both countries becomes staggering.  All the numbers will make everyone’s heads spin, but the company really needs this executive to focus on the task at hand.  The easiest way calm this person’s financial anxiety is to tax equalize; promise him that he will pay the same amount of tax as if he had stayed home.  This will tie his personal bottom line to a tax system he is familiar with and leaves the tax planning and tax risks in the hands of the company (and their trusty tax advisors).  This approach also allows the company to pursue expatriate tax planning strategies to help manage the tax costs, therefore reducing the overall cost of the assignment.  Such strategies are available in many countries but require expert assistance and a full examination of income, social and corporate tax impacts.

How To Get Started

So, what about this first expat you are told is going to the UK next week (or wait, did they say he had moved already?  Or was that just a business trip?)?  It is best to break it down into the big components first:  immigration, payroll, taxation, relocation etc.

Then consider the needs of the company and the needs of the employee and find out the costs to each party under a couple of scenarios.  Once the costs have been established (and you may need assistance with some of the items) then it is time to go back to management to get the costs approved.  And don’t forget the tax costs!

Yes, managing expats is a complex and daunting task at first.  But if you prepare yourself with good information, helpful advisors, and most importantly gain strong support from your line managers, your company can reap the benefits of international assignees and, at the same time, manage the costs effectively.

More about Claudia

Payroll for Expatriates – How Hard Can This Be?

Author:
Dave Leboff – Expaticore Services LLC

Why does it seem that expat payroll administration is so hard to get right? Why is it so hard to deliver pay correctly and timely to this class of 50 or 150 important employees when it seems so smooth for the other 10,000 or 100,000? The answer lies in the reality that payroll for expatriates often seems to be the second job of those involved.

Expat policies are developed with care and designed to compensate the employee fairly, facilitate mobility, be competitive with peer companies and are sensible economically. Policy development usually sits within the HR function. Executing that policy always requires the involvement of your payroll function which has to deliver and record expat compensation and benefits correctly and compliantly, in one or two countries concurrently – and often multiple two-country permutations.

Payroll professionals are talented, hardworking experts who handle thousands upon thousands of domestic pay transactions with 99+% accuracy. But their success is dependent upon the efficient application of rules to situations – many of them coded in the software they use. For example, limits for FICA or 401(k) contributions in the US require no effort by the payroll professional. They correct limits and computations are part of the tools they rely on.

With expatriates, the rules are not built in. For example, a US employee working on assignment in Mexico may have US payroll running every two weeks. In Mexico it may run every month. In Mexico there may be requirements to deliver 13th month and vacation pay as well as other legislated perquisites. How should this be reflected on the US payroll? Should the expat receive the extra Mexican benefits or should the payroll delivery be manipulated to eliminate them from the gross deliverable? There are foreign exchange interplays. Splitting pay is often involved. Paycodes and general ledger coding relevant to expat benefits need to be organized so that the underlying accounting gets done correctly.

As you can see from this simple example, payroll professionals must not only clearly understand how the company wants to address compensation and benefits for expats, they need to drive many decisions relating to how the compensation and benefits are delivered, how they are accounted for, how changes will be authorized and instructions presented to them. They need to ensure that there are proper codes set up so that items that may be exempt from tax in another jurisdiction show up as taxable in theirs if appropriate. They must understand when and how to “gross up” for taxes, which is not a simple process in many cases and software managing payroll around the world does not often have grossup capability built in.

So the next time you ask “why can’t the payroll department get the expats right?” understand that they are handling expat concepts that are unusual and complex. There are ways to reduce the burden on payroll professionals who deal with expatriates. We will continue to address these issues over time within this International HR blog.

More About Dave:

Dave Leboff

Dave on LinkedIn

Email Dave

Expaticore