To ensure tax and social security conformity, IPM and our partner network provide tax return compliance support.
We provide bespoke tax solutions using specialist tax software that we have developed in-house. This enables us to complete the tax planning required at assignment initiation. Many of our clients have adopted the tax equalisation approach to pay and benefits. We prepare the balance sheet calculations for you taking into account all components of the tax and social security planning. Once assignments are initiated, we will manage home and host country tax briefings and will then coordinate the preparation of home and host country tax returns. This service closes the circle on our total tax and social security offering.
Home and host hypothetical tax calculations
Overseas workers who are not working in a tax-free location will have to pay tax. Tax will potentially be due in both the home and host country. Many of our clients have adopted the tax equalisation approach to pay and benefits. We prepare the balance sheet calculations for you; we take into account all components of tax and social security planning. As part of the balance sheet preparation we will calculate hypothetical taxes for both the home and host country. Generally, an employer will try to ensure their employees are no worse off as a result of an overseas assignment, in relation to tax. This can be achieved in a variety of ways, and is also linked to the assignment salary structure in place. Where a home-based or HQ salary is the starting point, the two main options for a tax reimbursement structure are tax protection and tax equalisation:
- Tax protection: employee pays all home and host country taxes, however as part of the year-end tax reconciliation the company reimburses any excess tax over and above that which they would have paid had they stayed at home (i.e. will be no worse off).
- Tax equalisation: employee pays hypothetical tax via withholding based on the home country tax they would have paid had they stayed at home, with the company paying actual worldwide tax via gross up or direct tax payment (i.e. will be no worse or better off).
Where a host-based salary structure is utilised, the assignee is usually liable to deductions for actual host country tax. IPM will identify withholding liabilities and will quantify the amounts to be withheld.
Balance sheets and assignment costings
To encourage mobility and to manage your international assignment costs, you need precise information to calculate fair, consistent expatriate compensation packages. Globalisation has created a growing need for effective international assignment programs. Companies face many challenges with a global employee population, and a move which is not structured correctly, or does not succeed can have a significant effect on their bottom line.
Calculating the overall assignment cost will depend on a vast array of criteria. This will vary considerably, dependant on the host country as well as the requirements and legislation of the tax and social security position of the home country. It is important to calculate the overall cost of an assignment. This will enable you to establish an acceptable return on investment prior to commencement of the assignment. The cost of the assignment will vary considerably based on the host country location and requirements. In calculating the overall cost an array of criteria need to be taken into account. IPM calculates the cost of each assignment on an individual assignee basis; this means that you can see the true cost of each and every assignment, year by year.
Tax and social security calculations
Where the income tax and social security liabilities are paid, how much and how often the payments are due will depend on the assignment type and the combination of home and host countries and employee nationality.
We understand the complicated tax and social security rules, requirements and laws. The individual assignees’ tax status will dictate how much tax they pay and to whom. It may entitle them to capital gains or even income tax breaks. However, it may mean they encounter double taxation issues or issues relating to their residence/work visa status. We use our expert knowledge to incorporate these complicated issues and plan for every eventuality. We help you avoid being caught out, by ensuring your requirements are fulfilled in both the home and host country.
Certificates of coverage
The general principle is that social security contributions should be paid in the country where work activities are being carried out. If, however, the assignment is within the European Economic Area (EEA) or there is a social security agreement between the home and host country, it is possible to apply for a certificate of coverage to remain in the home country scheme and exempt the employee and employer from host country contributions.
As part of each assignment initiation, we will determine the appropriate Social Security cover and will, sometimes in conjunction with a client’s chosen tax provider, make appropriate applications for continuing cover as appropriate.
Home and host country payroll often find it difficult to handle split payrolls. We will liaise with the payroll department in both the home and host countries to ensure that the correct payments are being made and that the tax and social security is being correctly accounted for. Our instructions will cover all income elements and will identify all withholding obligations as home and host payrolls run.
Your policy will provide for the tax treatment that you will be applying across your assignee population. By having IPM prepare the tax calculations as part of the assignment initiation, you will see the tax and social security implications of each assignment. You will also know that all tax and social security planning opportunities have been utilised in quantifying these costings.
You will receive a full breakdown of the costs involved in the assignment; this means that you will not encounter any hidden costs along the way. This will help you determine whether a good return on investment will be achieved. It will help you to understand the full cost of your International Assignment programme and to budget accordingly.
We offer bespoke tax solutions using tax software that we develop and update in-house. This enables us to complete the front end tax structuring of pending assignments effectively. Having this capability in-house, also means that we can respond quickly to you, as home and host country tax calculations are prepared simultaneously.
We take care of all tax and social security issues on behalf of you and the assignee. This ensures full compliance with all rules and requirements. You can be confident that your assignees are maintaining their standard of living by your operating a COLA in this way. You can be confident that you are offering a competitive assignment package which will compensate and incentivise prospective assignees.
You can be sure that your assignees are paying contributions to the appropriate authorities and that you, as employer, are similarly meeting your filing requirements in the correct jurisdiction. You can be confident that your home and host country withholding obligations are being met in a timely fashion.