Imagine starting a new job with a company in the IT sector, who are about to send their first employees overseas. You have been hired to develop their global mobility policy.
On your first day, you meet with the Finance Director and HR Director who inform you about their recent big project win. The project involves integrating a software system for a client with operations in multiple countries across Europe, Asia, the USA, and Canada. They have three key engineers who will be based in each continent for 2 to 3 years. The engineers are already debating who should be based in Singapore due to its advantageous tax system.
In addition to the three key engineers, there are 50 other engineers and project managers who will visit various countries at different times during the project. Due to the pandemic, they have shifted to remote work for their clients, but 10 to 15 employees will still need to be based in the locations. Some engineers have expressed interest in working from different countries, noting the favorable tax in Spain, Italy, Portugal, and the UAE.
The HR Director is concerned about workforce dispersion impacting team cohesion and the inability to monitor the safety of employees' remote work environments. The Finance Director on the other hand, is concerned about reputational issues and potential project losses due to non-compliance and the need to closely manage costs.
Now, where do you begin?
First and foremost, it's important to reflect on your previous experience and fill in any knowledge gaps with the help of our Know How content. Based on your experience, whilst there are many variations, you will have likely boiled it down to 5 different ways of structuring a move:
Local "plus" contract (offering benefits like housing for a short period)
Local employment contract
EOR - Employer of Record
Tax equalisation: a closer look
Whilst tax equalisation is less popular these days, it does have benefits, including enabling the company to move the three key individuals from location to location, without them “cherry picking” based on their personal tax situation. You will recommend that they remain employed in the home country and have their pay reduced by the amount of tax they would have paid if they were still resident and working in that country. This is usually referred to as hypothetical tax. Throughout the period of the move the company will be responsible for the taxes in the host location(s). Given the seniority of the individuals and their importance to the success of the project you will also recommend that they receive certain other allowances such as housing and perhaps cost of living adjustments. You are aware that this is an expensive option and will recommend that full cost projections are undertaken for each of the individuals.
Options for long-term overseas staff
For the 10 to 15 individuals who will be based in the overseas locations for a prolonged period you are likely considering two options:
The individuals are also tax equalised, however they receive fewer benefits compared to the more senior individuals. The advantage of this approach is that the individuals can remain in the home country pension, other benefits and social security programmes, subject to further research.
The individuals transfer onto terms with the local businesses and receive some additional support with housing and subsistence for the period of the project. The benefit of this approach is that it is more straight forward for the company to administer, although you are mindful that the company does not have operations in all the countries in which the client is based.
Cost estimates and decision making
Given the importance of having visibility on costs, you recommend that cost projections are undertaken for each scenario, so that an informed decision can be taken on the best option for the business.
Tax advantages for periodic visitors
For the population of employees who will be visiting the client locations periodically and for the rest of the time delivering the work remotely, you recommend research is undertaken as to which countries offer tax advantages to individuals but not additional costs to the employer (such as costly visas, minimum salary requirements etc). You're conscious that this group has critical skills, and so a pragmatic solution has to be found -one that works for the employees and where the risks and costs can be managed by the employer.
Mapping potential countries
Once you have a list of potential countries, this can be mapped against the countries in which the company has a presence, to identify where it might be relatively straight forward for the individuals to work remotely. You will consider whether it is better for the individuals to become employed locally by those entities, to ease the administration and provide them with more support “on the ground” in those countries. To the extent that employees are permitted to work in countries where the company has no presence, you will recommend that an Employer of Record is utilised. This will ensure that the business is compliant with local filing and reporting requirements. You will also recommend that an assessment of the safety of these locations is completed before employees are allowed to work in those countries.
A shortlist of suitable options will be made available to individuals, and they will be able to work remotely from those locations only. It will be necessary to make it clear to the individuals that they will be responsible for their taxes whilst working in these overseas locations. You might consider an upper limit on the number of days that an individual can work in a particular location.
Technology is your friend
You recommend that a suitable technology solution is introduced, which the employees are required to use. This technology will enable the company to track the whereabouts of the individuals to ensure that they are compliant with all tax filing requirements. It will also ensure that the company is aware of where the workforce is, which is essential from a safeguarding perspective.
Having reached your initial conclusions in terms of the recommendations that you would like to make, you decide to catch up with a good friend and former colleague to talk through your ideas over dinner one evening. What advice do you think that the friend will give. What other points need to be considered? Please share your thoughts and suggestions in the comments section below 👇.
The opinions expressed in this article are those of the authors and may not reflect the opinions or views of Workia. Always seek professional advice based on actual circumstances before acting.