Sending an employee overseas provides a great opportunity for the business to grow and gives that employee the chance of personal development. However, the planning phase does not end with just the travel arrangements; there are some key points to follow, and classic pitfalls, in making sure your business is both compliant and fully aware of the cost implications of the move.
* Immigration – understand the immigration requirements in the host country and make sure you comply. Getting this wrong can have disastrous consequences for your employee and may severely reduce your future chances of doing business in that country. Does the employee need a work permit, a visa or both? Does this require sponsorship from a local company, and do they need to be employed locally?
* Tax advice – know the tax implications of the assignment for employer and employee in both home and host countries.
Your tax adviser should start by looking at the options for the business (eg where to pay the employee, where salary costs are booked) and provide you with the tax implications of these options.
For example, paying the individual locally may have withholding tax implications for the company. You should also have an idea of what the company is prepared to pay for and the cost implications (see below).
Once the company has determined the structure of the assignment, the employee will also need tax advice, tailored to the assignment structure you have decided upon. Employers do not typically want to be involved in their employee’s personal tax position, but the tax adviser should flag any obvious complications after meeting your employee.
For example, significant additional overseas taxes might be due off the back of a personal investment portfolio.
* Social security – make sure you and your employee are paying social security in the right place. The world is basically carved up into three distinct areas for social security purposes – the EU, countries with which the
UK has a social security agreement, such as the USA and “other”.
In some circumstances you may be able to choose where social security is paid, and this can impact the overall assignment costs. In other circumstances, there is no choice at all.
* Who pays what? – be clear on what the business is prepared to pay for and the resulting costs for the company. This will depend to some degree on how much the employee is needed in the business overseas.
For example, if the employee is moving with his family, will you pay accommodation costs overseas? Is this limited to the first year of assignment? Do you take into account that they are renting their UK home out and therefore gaining rental income whilst abroad?
Does the host country tax that accommodation and who pays the tax? The same questions need to be asked from a social security point of view.
And remember, if you know you will be sending more employees overseas, decisions taken now will be seen as a precedent for future assignments, so bear this in mind!
13 July 2011 Sarah Robert
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Posted on July 14, 2011