Sending employees abroad and wondering where to begin or how to remain in compliance with international tax rules and regulations?
A well-organized global mobility program (GMP) may be the answer. A GMP consists of multiple pieces designed to help an employer remain in compliance with international tax rules and employment laws. They can also provide assistance to a foreign employee with housing and relocation services.
Below are our top four questions to consider about a GMP:
1. What are common risks associated with sending an employee to a foreign location, and how does a GMP help mitigate those risks?
Generally speaking, there are three common risk areas when sending employees across international borders: tax compliance, employee assimilation and travels risks.
Tax Compliance Risks
Doing business overseas can be challenging. Businesses not only need to understand their home country rules and regulations, but also those of the host country. It’s important to understand how foreign tax regulations apply, both to your operation and your foreign employees, so you can maximize profitability and minimize liability. If the company or the employee become out of compliance with local or foreign tax laws, you may wind up facing hefty penalties, loss of business or business reputation in the host country, or even the risk of prosecution.
Common compliance issues include:
These risks may all be present for both the employer and employee. Due to the complexity in this area, many companies will retain an accounting firm to provide the company and their employees with all necessary tax compliance services.
The human side of global mobility is also a risk area. Moving to a new country can be stressful for an employee and their families. It is all too common for people to have a difficult time adapting to a foreign environment. That’s why it’s important to look into the local culture and help the employee and their family prepare for the adjustment. Companies can do an analysis of potential expats and their families to assess any unique circumstances that may make adjustment particularly difficult. For example: health problems, special needs, or reluctance to move—but ultimately, cultural adaption is a subjective process, and no amount of preparation can fully assure comfortable assimilation. The leading cause of unsuccessful international work assignments is more about family members, not the employee, not adapting well in their host country location and becoming unhappy with the situation.
International travel always comes with a certain amount of risk. Common travel issues include immigrations/customs issues, lost passports, security concerns, and monetary issues. When travelling abroad, it’s important that all parties have the necessary documentation and visas applicable to the country. Many companies will retain an immigration attorney or specialty immigration firm for outsourcing all immigration and work visa issues related to employee foreign work assignments. It’s also imperative that employees are aware of what can and cannot be brought abroad with them or taken back to the U.S. so they can avoid getting held up at customs. If an employee loses their passport while abroad, they will have to replace their passport before returning to the U.S. The local U.S. Embassy or consulate can provide assistance. Security concerns include terrorism and natural disasters, which, unfortunately, cannot be entirely prepared for. Currency is another important consideration for employees. They need to confirm that their bank and credit cards will work abroad, and factor in any international fees that may apply. It’s also important to be aware of currency conversion rates and any laws for declaring the money that is brought to/from the host country.
A GMP will allow an employer to assess all of the above risks, develop a plan to address each of the common risk areas and provide that information to the employee prior to going foreign. This benefits the employee in the transition, particularly when a family is also moving, and helps the employer understand the potential liability issues before the employee embarks on a foreign assignment.
2. What are the costs associated with a Global Mobility Program?
The cost of sending an employee to a foreign location is a major obstacle. These costs can be broken down into three main categories:
Cost of Relocating
The initial relocation costs, including compliance costs, taxes and social security, wages, housing allowance, and any other moving fees, can add up. Oftentimes, companies find that it may be cheaper to hire new employees in the host country rather than relocating a current employee. However, there are certain benefits of relocation that outweigh this cost, such as specialized knowledge, better talent retention, personal growth and increased skill depth.
Cost of Living
Cost of living varies by country and must be taken into consideration when providing an employee with a reasonable salary, as well as allotments for housing and other expenses. Health care costs are also an important factor, as employers will need to look into medical coverage in the host country. Other considerations include education, transportation, personal care (food, clothing, toiletries, etc.) and utility expenses such as electricity, water and gas.
Cost of Operations
Operating a business in a foreign country can lead to unexpected expenses for both the business and employee. While direct foreign manufacturing costs may go down, if the market for the product produced is elsewhere, the taxes and shipping costs may overshadow those savings. Bookkeeping can also be more difficult when foreign currency and conversions are involved, so there may be the additional expense of hiring an accountant who is experienced in foreign transactions. If you don’t have an experienced team, you may be subject to even steeper costs if you find yourself out of compliance, with the resulting penalties and legal fees.
3. What are some common challenges when administering a GMP?
There are a variety of global mobility challenges to be addressed that aren’t financial in nature. For example, employers will need to perform certain screenings to determine if an employee is even allowed to work outside the country, and will also need to determine how many hours per week an employee is allowed to work abroad. There are also logistical considerations that must be addressed, including relocation resources (movers, shipping companies, insurance, etc.), as well as customs considerations for the move.
4. How should employee questions be handled?
Employees will have a lot of questions when considering a move abroad such as:
There are also local logistics, such as whether to sell or rent their home, and what to do with furniture and large goods (Can I bring them? Should I sell them? Will I be provided with a storage facility?). It is important that the employer be able to answer these and similar employee questions, or serve as a resource so employees can get these and other questions answered in a timely fashion. Open communication with employees is crucial to a successful GMP.
Our international tax professionals are experienced in the GMP environment and will work closely with you to understand your foreign activities goals. We want to ensure you’re connected to the information and resources you need to remain in compliance, and that you and your company implement relevant company policies to help you manage your GMP. Contact Jared Johnson, Global Mobility Specialist, at 801.456.5452 or Shannon Lemmon, Director of International Tax, at 303.459.6750 to learn more.
Eide Bailly will be hosting an International Tax: Inbound & Outbound Considerations webinar on July 10.