In the midst of widespread economic uncertainty as a result of the COVID-19 Pandemic, many organisations are using this time to re-evaluate their global business model and consider new strategies which will allow international business and trade to continue to grow, not just within Europe but all around the globe. Facilitating that growth, employee mobilisations to corners of the globe previously considered ‘unreachable’ will continue to become commonplace. Although the expansion of an organisation’s global footprint, undoubtedly brings exciting opportunities, it also brings a spectrum of challenges - not least those falling into the category of ‘employee taxes’.
Preparing for Global Mobility
From fledgling companies taking their first steps into an overseas territory - to established multinationals with far-reaching commercial interests, achieving a satisfactory standard of global tax compliance is never an easy process. Whenever a business reaches out into a foreign jurisdiction and mobilises employees from their home location, a variety of important, universal factors must be reviewed, analysed and documented - and that process is complicated by the notion that each factor is intrinsically linked to the others.
Critical factors for consideration in the preparation of a global mobility strategy include:
- Immigration: Work permits, residence permits, visas, etc.
- Employment Law: Contracts, assignment letters, local legislation, etc.
- HR: Having access to country specific support in relation to all aspects of HR including onboarding, management, appraisals, grievance etc.
- Income Tax and Social Security Liabilities and Obligations: Responsibilities in both home and host locations.
- Relocation: What to provide and how to provide it - identifying housing and schooling in the host location.
- Pensions: Identifying home and host location requirements, or opportunities and interaction between each.
- Benefits: As with pensions, identifying opportunities and interaction between home and host locations.
- Payroll: Issues regarding location of payroll, payment currency, split or shadow payroll requirements, tax withholding, reporting and remittance obligations in home and host locations.
What is a Global Mobility Strategy?
The term ‘global mobility’ is expansive - to the extent that some organisations may not be aware of the degree to which it applies to their employee populations, or even that they employ a ‘mobile workforce’ at all. Practically, your organisation’s mobile employees may be defined by a range of scenarios, such as:
- Permanent transfers to an overseas location
- Long term assignments or secondments (usually defined as greater than 1-year duration)
- Short term assignments or secondments (less than 1-year duration)
- Business travellers
- Commuters (employees who live in one country but work in another)
Developing a unique, global mobility strategy is key to your organisation achieving and maintaining employment tax compliance on a global scale - irrespective of the nature of its mobile workforce, number of mobile employees, or the shape of its global footprint. Intrinsically-linked to your corporate blueprint, vision, and values, a robust global mobility strategy should be a guiding force and deliver structure, efficiency, consistency, and compliance in all your cross-border employee mobilisations.
What Does Global Mobility Involve?
Global mobility strategies involve policies, procedures and methodologies which may be designed to apply worldwide, or to be region, country, and even location-specific. There is no one-size-fits-all solution to global mobility: the strategy implemented by a Fortune 500 or FTSE 100 organisation is going to differ dramatically from an SME with a minimal employee roster and operations in only 2 international locations.
With that in mind, issues like global footprint, industry sector, geographic limits, and employee numbers should all factor into your strategy development process - and it is obviously prudent that you take the necessary time to decide on and build a system that fits your business needs, and the needs of your employees.
Key Strategic Considerations
Regardless of a business’ size, shape and industry field, developing a unique global mobility strategy means thinking carefully about its content and structure. The following areas represent some of the key considerations:
Legal structure of overseas operations:
- If your organisation needs to establish a physical entity in its overseas territory, you will need to consider what kind of legal structure it assumes. The type of work undertaken by your overseas employees, the nature of your business, and the local legislative environment, will determine whether a physical entity is required.
- Rather than establishing a physical entity, in order to comply with all relevant compliance obligations, it may be possible for a foreign organisation to simply register for employment and payroll tax purposes in the overseas territory. This option may be preferable for smaller organisations with employees spending only a limited time in an overseas location.
- Conversely, it may be preferable to establish an entity in the overseas jurisdiction in order to facilitate growth and the hiring of local employees - and potentially take advantage of any local incentives.
- Work and residence permits may be required before employees can legally assume their roles in an overseas location.
- Criteria for work and residence permit applications vary by location, but may depend on issues such as the duration of the mobilisation, employees’ nationalities, and a variety of domestic laws in the home and host locations.
- When immigration obligations do exist, an in-country employer-sponsor is typically required to facilitate applications for work permits. If an organisation has no legal entity or physical presence in the host location (as considered above), the administrative process may become lengthier or more complex.
Overseas employment tax legislation:
- The attractiveness and viability of an overseas mobilisation often depends on contextual factors in the host location. While these may include geographic or societal issues like climate and culture, in most cases businesses, and employees, will be concerned about the territory’s income tax and social security rates.
- A low employment tax rate jurisdiction (such as Dubai or Singapore) may be an attractive proposition for a Europe-based employee. Conversely, a Hong Kong-based employee mobilising to a high tax rate jurisdiction (like the UK) may be less inclined to make the move.
- It is crucial your organisation's global mobility strategy identifies, addresses and manages both the positive and negative impact of host location’s tax rates and any pertinent cultural factors. Ensure you research your target location well prior to commencing employee mobilisation.
- Compensation should be central to your global mobility strategy - and details of the structure you decide upon should be communicated to internationally-mobile employees clearly.
- The details of your mobility compensation structure will depend on a range of related items relevant to the needs of your cross-border employees - such as housing, schooling, cost of living, location allowances, and relocation packages.
- With a suitable compensation structure in place, a global mobility strategy must also account for your mobilising employees’ personal responsibility regarding home and host country tax liabilities.
- A variety of tax structures and mechanisms can be implemented as part of a global mobility strategy, including tax equalisation, tax protection, ‘local plus’ taxes, and more.
- Your mobilising employees may require differing tax structures - tax policy for a long-term assignment will obviously differ from a business traveller staying for a matter of days or weeks.
- Ideally, your strategy should be able to scale to accommodate a variety of global mobility needs.
Perfecting Global Mobility
This guide only scratches the surface of the issues and information your organisation should consider when sending employees across international borders - but should point to the advantages and opportunities of devising a strategy which works for you. Bear in mind that perfecting global mobility is an ongoing process - ensure you take the time to create a system which both incentives your internationally-mobile employees, while remaining loyal to your business’ blueprint for sustained, prudent growth.
Are you unsure how to manage the tax and payroll needs of your international employees? Find out more about our specialised Global Mobility Team and how they can help to ensure you achieve Employment Tax compliance globally.