For international enterprises, an exchange of employees may be extremely valuable but may, on the other hand, also cause high costs and administrative efforts. The management of globally operating employees involves various questions which need to be answered both in terms of compliance and risk management.
A foreign assignment does not only affect the employee’s taxes, but also remuneration, social insurance and pension planning. The employee must know on whose payroll he is, whether the company is required to report his salary to the authorities and withhold taxes and social insurance contributions or whether this is the employee’s responsibility.
We comprehensively support you during your employee’s foreign assignments. For that purpose, we will act as central point of contact ensuring for your company’s compliance with all worldwide tax and social insurance requirements as well as immigration-related provisions.
Our close cooperation with our Baker Tilly International network’s Expat Tax specialists provides you with a full-service package, no matter where your employees work.
During a foreign assignment, the subtleties of a foreign tax system may be quite challenging for an employee. The most important questions include:
- WWhat are my obligations?
- How do I pay my tax?
- Is my entire remuneration subject to tax or are there tax exemptions?
- When is the deadline for my tax filings?
- What deductions can I make?
- Will I be jointly assessed with my spouse?
On the part of the employer, there is also a potential risk to violate applicable regulations if a requirement to report income or to withhold taxes is not met. Furthermore, corporate tax, indirect tax (such as VAT) as well as transfer pricing issues must be taken into account.
With our Expat Tax specialists’ support, both employee and employer can be sure to comply with all tax-relevant requirements.
Our Expat Tax sector’s employee-related tax consulting services include:
- Entry interviews for employees in order to inform about the target country’s tax and social insurance system
- Clarification of personal consequences resulting from such systems
- Consulting on personal tax planning measures favorable for the individual employee
- Registration as employee for tax purposes and communication with the tax authorities
- Preparation of the employees’ tax returns during the term of their foreign assignment
- Filing of other declarations and returns required during the foreign assignment
- Exit interviews at the end of the foreign assignment in order to clarify any open questions
Our specialists also provide employers with professional advice regarding all issues related with a foreign assignment, such as:
- Preparation of assignment contracts or local employment contracts for the assigned employees. In Germany, for example, our internal specialist lawyers for labor law are available upon request
- Adjustment of stock option plans in order to take into account the foreign assignment’s terms
- Corresponding adjustment of company pension schemes
- Effects on the expatriating employee’s payroll accounting
- Registration as employer for tax purposes and communication with foreign tax authorities
- Consulting related with the establishment or avoidance of a permanent establishment
- Preparation of payrolls (gross-net or net-gross)
- Tax protection and tax equalization calculations
The tax and social insurance position in the host country can differ from that in the home country. Furthermore, social insurance implications may differ from country to country and may be a substantial cost factor for an employer. We therefore recommend taking this into account at a very early stage when planning an employee’s foreign assignment.
In case of foreign assignments within Europe, an assignment contract is more favorable than a local employment contract as an assignment contract provides for the employee to remain registered in his home country’s social insurance system. This can be done, inter alia, by applying for form A1.
Our Expat Tax specialists do not only have long-standing experience with regard to tax legislation but have been advising for many years on the efficient handling of social-insurance-related requirements and applications for form A1.
An employee’s assignment often raises the question on whose payroll such employee is going to be. If a net salary has been agreed upon for the employee, the local payroll accounting department quite often cannot perform the calculations required in order to determine the gross salary and in order to withhold the correct tax amounts and social insurance contributions. Some host countries might not even have established payroll accounting systems.
It is decisive, in particular for the employee, that all payroll-related transactions will be professionally performed every month and that the payments are transferred as agreed.
Our Baker Tilly Expat Tax specialists do not only have long-standing experience in general payroll accounting issues but also in connection with payroll accounting during foreign assignments both with net and gross salary systems.
Our Expat and payroll teams also know how to efficiently use benefits in particular with regard to tax exemptions. Our consulting approach always keeps in mind what benefits are the most cost-effective for the employer and have the greatest value for the employee.
Senior Manager Certified Tax Advisor, Attorney-at-Law (Rechtsanwältin), Specialist Adviser for International Tax Law