15 Jul When to Hand-hold Assignees with their Taxes
There’s no easy way to put it: global mobility managers must as a matter of habit hold the hands of their assignees (metaphorically speaking) once they start working in their new country, city, or region of employment.
The process of communicating to an expatriate worker about their taxes does not stop once the contract has been signed. Neither can both global mobility manager and assignee relax and assume that everything will be taken care of.
There are still a dozen important details to understand, remember, and possibly execute. One miscalculation or an act of omission and the hardworking assignee can find themselves facing a financial nightmare.
Burdened by the sudden knowledge of taxes that they did not realize they would have to pay, their productivity would be inevitably impaired. The same would be true of their morale. In this scenario, the global mobility manager would end up doing a lot of unnecessary remediation which could have been avoided in the first place.
There are always a few key points to keep in mind:
Always check how many countries your assignee will pay tax to. Never let your assignee assume that their income tax will be subjected solely to the tax laws of their home country or their host country.
Chances are they would have to comply with both — and it may no matter where the salary was earned, given, or accepted.
For example, a foreign national working in Silicon Valley may have opted to send a huge bulk of their monthly income to their families in Asia. Without proper guidance, this breadwinner might think that they would be taxed only by their home country which after all is receiving a lion’s share of his pay.
Again, not necessarily — and unless they are informed, they would be sadly surprised to see deductions made in their pay slip which is being made in their current city of employment.
Second, now that the importance of the locations that can be taxed has been determined, Mercer advises the global mobility manager to provide the assignee a checklist of the expenses that could be taxed from them. This checklist might have to be checked regularly in order to let the financial facts sink into the assignee’s mind.
Aspects of income that can be taxed range from cost-of-living allowances, additional monies for housing, more funds for kids’ education, gas and other automobile-related allowance, etc. If there are equity plans and executive compensation, these might be subjected to tax even though the assignee has finished their contract and returned home.
Third, brief the assignee about any possible tax refunds or remittances that they might have to return to the government at year’s end. As the Global Tax Network points out, employment contracts, complying with government laws, may hold an assignee liable to tax refunds up to a year after their resignation.
The global mobility manager would have to sit down with the assignee and explain everything in detail. Aside from the amounts that would have to be taxed, dates of taxation would have to be noted down. Most important, the global mobility manager would have to explain the reason behind this law. A tax lawyer or a third-party financial services provider might be able to help.
Taxation is a field that is not easy to navigate. If the assignee is not adequately informed, it can turn into a minefield. That’s why it’s best to always keep an eye out for them as they cross this particular path — and hand-hold them the rest of the way.