For businesses with an international workforce, tax equalisation can be a successful way to protect your employees from the complications of tax management.
When employees relocate across borders, they may become liable for new tax systems and reporting obligations that could affect their net income.
Tax equalisation can provide financial certainty and allow employers to plan international projects with greater accuracy.
What is tax equalisation?
Tax equalisation is a policy commonly used to help international employees’ tax burden remain consistent, regardless of the country they are working in.
Instead of an expatriate paying tax in each jurisdiction, the employer will calculate a hypothetical tax, often referred to as a hypotax, which reflects what they would have paid if they remained in their home country.
The employer must take responsibility for any additional tax costs that arise in the international jurisdiction and keep any windfalls that result from lower tax rates.
This is set to create a fair and predictable compensation structure for both parties.
Employers have an obligation to manage tax filings and planning associated with international projects and should seek financial help to stay compliant.
When does your company need a tax equalisation policy?
A tax equalisation policy is needed when employees travel frequently or relocate internationally.
It is also required when senior leaders are assigned to overseas roles and when businesses operate in jurisdictions with different tax systems.
Tax equalisation is a valuable way for companies to forecast the costs of international projects and attain employee satisfaction.
In more complex jurisdictions, businesses may need tailored advice to understand the jurisdiction’s legal and financial obligations for expatriates.
What are the benefits of tax equalisation?
Tax equalisation requires careful governance and businesses must consider the risk of double taxation on expatriates.
Companies must stay informed on how their international projects are affected by local restrictions, as it may limit the use of hypothetical tax models.
However, employers can benefit from tax equalisation, as it can provide efficiency for global operations, a reduced risk of tax-related disputes and make global postings more appealing.
With professional support, you can manage multi-jurisdiction tax filings effectively and help reduce the risk of administrative disputes.
How can we help?
When companies are growing internationally or relocating employees, tax equalisation can help take the confusion out of tax management.
Tax equalisation can help businesses attract and retain global talent and allow businesses to focus on their operations and growth.
Our experienced team can help draft and review policy frameworks and prepare hypothetical tax and reconciliation calculations.
We can also advise you on how to comply with different jurisdictions and provide dispute resolution support if any issues arise.
Contact our team for advice on tax equalisation arrangements for expatriates today.