Managing expatriate taxes in an age of global business

The global nature of business today, and the growing importance of emerging markets, has created a significant shift in staff mobility patterns.

International staffing of individuals with the right skills is a crucial and strategic issue for many employers, particularly multinational companies (MNCs).

In its recent report, Talent Mobility: 2020 and Beyond, PwC notes that expatriate levels have increased by 25 per cent over the past decade, and predicts a further 50 per cent growth in mobile employees by 2020.

In Kenya alone, the number of expatriates is estimated to be more than 30,000.

International staff mobility is largely driven by investor interest. The lack of qualified local personnel has forced companies to cross borders for knowledge and expertise transfers.

International assignments by their nature are costly and estimated at millions of dollars annually. Therefore, mobility strategies need to be agile and constantly evolving to meet the needs of business and expatriate expectations.

Most complex

It is against this backdrop that employers must manage expatriate taxes to guard against global mobility failures.

Expatriate taxes are the most complex of employment taxes. Though tax is generally complicated, it becomes more complex when it involves more than one jurisdiction. Thus, expatriate taxes generally require a comprehensive guide and understanding.

Several years back, the global mobility strategy simply involved securing work visas and residency permits, but as tax regimes and immigration departments increasingly share information about MNCs, global mobility is becoming more complex by the day.

Integral to achieving an effective global mobility strategy is an understanding of the compliance landscape of the various tax territories and industry sectors in which companies operate.

The expatriate mobility process typically starts with considering a variety of factors that directly affect expatriates, such as transfer planning, execution of the transfer and post-transfer management.

Bearing in mind that what works in one jurisdiction may not necessarily work in another, corporations are trying to minimise global tax liabilities by trying to understand the effects of non-compliance. To streamline the global mobility processes, many MNCs have established elaborate staff mobility programme policies and guidelines.

The multinationals have engaged professionals to address both home and host country processes for their assignees. The process may be daunting to some assignees, but generally very helpful and important to individual tax compliance.

MNCs must begin understanding the structure and nature of international work assignments, the location, nature of work and duration of the assignment. They must gauge the level of enterprise tax risk by jurisdiction.

It is absolutely important and necessary for companies to recognise and start working closely with personnel in monitoring risks for global mobility programmes.

Global mobility

Global mobility has become a fundamental part of the corporate tax department’s risk management activity. To mitigate some of the global mobility risks, multinationals need to engage International Assignment Services (IAS) professionals, who have the technical knowledge and practical experience to help address the complex tax issues.

Employers must thoroughly examine their expatriate tax programme, assess if it achieves individual tax, statutory compliance, and payroll reporting requirements, and minimises tax authority reviews and challenges.

An effective global mobility tax management programme must be able to manage and mitigate assignee taxes, corporate tax and compliance risks inherent in global deployments, thereby enabling employers to achieve various business strategies.

As businesses expand into new regions and economic sectors, there is a strong need for employee mobility. It is, therefore, important that employers get arm themselves with effective and integrated immigration and tax advice.

The writer is a tax manager at PwC Kenya. [email protected]