Global Mobility Services are specialised service offerings that help large multinationals manage tax and regulatory compliances with respect to their globally mobile workforce. Service providers operating in this space are usually paid by the employer, but they actually render services to select employees and their immediate family members. Let’s look at some of the common issues employees can face, in this area.
Tax residence
While taking up a cross-border assignment, it is crucial to understand how the tax residence (TR) status is determined under the home (local) and the host (foreign) tax laws.
TR may depend on various factors, such as the number of days of stay in that country, intention of staying or even citizenship in some cases. Based on such criteria, an individual may be regarded as a resident of that country and be taxable on the worldwide income. Therefore, if the assignment is timed right, there is a possibility of avoiding being taxed on the worldwide income in the host country. While there are double tax avoidance agreements, it is best if managed otherwise.
Ensuring tax neutrality
Another important question to know is whether the employee is protected against the incremental taxes of a higher tax host country. Generally, large multinational companies address this issue by putting in place a tax equalisation (TE) policy. This, in simple terms, means a contractual arrangement that ensures that the employee is neither better off nor worse off due to the changed tax circumstances arising out of taking up the assignment.
These policies generally cover taxes on incidental host income. However, in case of slightly longer assignments, it is important to know whether the policy covers home country investment income, as it is likely that one may trigger tax on worldwide income (as discussed above) and consequently, all of the employee’s home country income (not just salary income) may become taxable in the host country as well.
Social security
Most countries levy social taxes compulsorily, and these contributions go into a pool of funds, which are available for withdrawal, or yield benefits upon the employee attaining a minimum eligibility age (around 60 years). It can also be withdrawn after putting in a minimum contributory service.
Therefore, in case of short and medium term assignments, which are very common, these contributions may not yield any benefits to the employee. One must ensure that such social taxes have been factored into the TE policy as well. Many countries today are increasingly entering into Social Security Agreements, which largely help avoid contributions in multiple countries, and/ or facilitate withdrawal of contributions at the end of the assignment.
Immigration
Immigration compliance is another key concern area for an employee as well as the employer. Not much needs to be said around the need to obtain all relevant work permits and residence permits, since without these, one may not be able to work in another a country.
What also demands attention is that one needs to track the expiry of these permits and the employee’s dependents, applying for extension or renewal with adequate lead time to factor in contingencies that could arise.
Other important issues
We discussed a few common issues concerning an employee moving on an assignment. However, there are many other related challenges such as finding a house, ensuring school admissions for kids, managing the employee’s investments in home country, remittance of money abroad, trailing liabilities, and other issues, which need just as careful considerations as the other factors discussed earlier.
In today’s fast-paced, global, mobile world, taking up an assignment may no longer be a matter of choice. The flexibility to move is now more or less a pre-requisite for landing a job. Given the far reaching impact an assignment can have on an employee’s personal and professional growth, now is the best time to know and understand these issues related to international mobility.