Paying your way: International tax and benefits
Ensure your overseas employees’ benefits match up to domestic ones, and that they’re legally sound
When sending UK employees overseas companies must consider where their duty of care starts and finishes. There is no universal rule but the standard approach is to ensure that such individuals are no worse off than if they were on a UK benefits package, and that their remuneration complies with local tax laws and is structured tax-efficiently.
Sue Robinson, partner at EY Human Capital Services, says: “The issue is trying to match UK benefits to overseas ones. So, for example, how do you compensate employees for not having a UK car or flex scheme?”
Employee benefits strategies tend to be fairly centralised whereas approaches to taxation need to be more country-specific to reflect the particular tax laws in the locations concerned.
Employee benefits packages
For employee benefits much depends on the nature and length of the assignment. But most workers sent abroad will still enjoy retirement, life cover and healthcare benefits.
Issiah Sakhabuth, principal consultant in the international retirement and investment team at Aon Hewitt, says: “Healthcare is likely to be a primary focus for those going to Asia Pacific or the Far East, so top-ups may be added to standard international private medical insurance schemes.
“Similarly, Dubai does not require a pension plan but in Australia a pension is mandatory. And if an employee is going to France, where mandated pension plans are quite good, it might be better to put them in one rather than a UK scheme.”
Countries can vary enormously on how they tax overseas employees so taking expert advice is essential. Various nations are trying to make it easier to import talent through favourable tax regimes, and some Arab states require no tax to be paid at all. But it will depend on the company’s policy whether it is the employer or individual that benefits from this.
Andy Robb, a partner at Deloitte, says: “In Hong Kong and Singapore tax rates are quite low so many people might be quite happy to pay their own tax there, and their employers may allow them
to do this in certain circumstances. Additionally, countries like Singapore, Spain, the Netherlands and Belgium have their own expat tax regimes so that temporary workers aren’t necessarily taxed on all aspects. With countries like the US and China, on the other hand, there is not much difference between the taxation of expats and nationals.”
Employees going abroad for under one year will normally continue to pay UK tax. They may receive significant additional support for travel and relocation costs, and accommodation will be covered. But, because their family will not normally accompany them, education costs are not included.
If a staff member is commuting rather than relocating much depends on whose choice this has been. If the company has suggested the commute then it may cover any tax differentials and subsidise the travel. But if it is the individual’s choice then they may have to foot these bills.
For the standard two- to five-year overseas assignment the worker typically gets the same basic salary as in the UK and pays the same tax, but the company makes up the tax difference and also picks up taxes on all employee benefits. Such staff are normally left in domestic employee benefit schemes, although these may need international extensions, and they will also generally be given a mobility allowance, housing allowance and support, educational support for any children and language help for the family.
When employees relocate for the long term it is standard for employers to pay their costs of moving but leave them to pay their own taxes. They may also shift them to employee benefits schemes in the host country. For career-mobile staff the business may use global schemes that allow them to move around easily.