xPatriate Solutions

The globalised economy commands international taxation exposure and risk management for expatriate employees or foreign nationals as they are called these days. Aligning international best practices with initial policies and ensuring best practice approach is crucial in the success of an expatriate assignment. The aim of mobile workforces ultimately rests on the need to upskill and transfer knowledge for the benefit of a group of companies. However, this initial arrangement may very well be confused as multi-national corporations constantly refer to secondment or transfer arrangements, both leading to specific employment, taxation and legal issues. For instance, consider a secondment arrangement, the employee remains employed legally by the sending company. However, in the case of the recent economic downturn, what happens if the seconded employee is retrenched whilst on assignment? How is the retrenched package calculated? Is there perhaps a hard currency benchmark applicable? Additionally, what are the cross charges to the receiving entity? Who ultimately bears the cost of the employees' secondment? What are the work permit arrangements?

These issues are pivotal on various interrelated factors and the initial planning phase of an expatriate assignment. The International Policy framework or International Assignment Policy as most multi-national corporations adopt is crucial in placing certain parameters in the overall expatriate assignment management process and lays the foundation for success.

What about management of the home and host country payroll intricacies? Should the home country continue withholding Pay-As-You-Earn and what are the specific requirements and underlying contractual arrangements that ensure compliance in the home and host locations?

Over the years and gained from past experiences, the cost analysis factor cannot be underestimated. Establishing an xPatriate Project Cost Analysis is of vital importance for project costing and other purposes.

With the evolving tax landscape, reputational risk is to be guarded against. Hence, managing risk in the home and host locations should ultimately rest with the employer.

At xPatriate Solutions, we are able to provide services relating to the expatriate management process as follows:

initial planning phase

• Review of Expatriate Policy or International Assignment framework in line with international best practices

• Review and suggested wording to be included in employment contracts and review of the underlying inter-corporate agreements, including management fee agreements, etc.

• Initial Project Cost Analysis, including salary, benefits and allowances, and overall Cashflow/Cost-to-Company calculations

• Review of the tax methodology of pay, consistent with the theme of encouraging international mobility and reducing resistance to work in certain locations based on tax relief.

implementation phase

• Conclusion of underlying contractual arrangements including secondment / transfer letters

• Establish home and host country withholding and reporting obligations

• Application of respective Double Taxation Agreements between South Africa and host country (where applicable)

• Inclusion of specific taxation clauses

• Best pay methodology matrices to ensure tax planning and tax saving opportunities in home and host locations

• Roll out of International Assignment Policy framework and guidelines

management phase

• Compliance matters in home and host locations - entrance and exit meetings to explain tax regimes and requirements from assignee

• Payroll calculations and management of year-end reporting and withholding obligations

• Tax return filing - and ongoing assignment assistance

• Tax equalization settlement and regularisation calculations at year-end

putting the brakes on xPatriate Assignment Costing

Recent surveys conducted by Human Resource Management Consultants and Specialists conclude that Expatriate assignments are on the increase with a marked percentage increase into Africa.

However, at the backdrop of the activity following official confirmation of being awarded a project in say, Africa, sometimes the salient features including selection criteria as well as detailed project analysis and costing is neglected.

One of the significant factors related to the rising cost of expatriate assignments is insufficient planning which sometimes can also run the Company into significant costs in later years, post project costing. For instance, non-compliance with host country tax compliance requirements may only be brought to the attention of the Company 2-3 years post project and is therefore a "hidden" cost that should be avoided at all cost. Consequently, pre-project and assignment research and analysis should be conducted and detailed within Country Specific Policies aligned with host country best practices, e.g. the manner in which home leave is structured may be such that in the host country a single return air ticket may have potential saving opportunities if structured appropriately. Hence these are factors that must be considered when drafting the policy framework to ensure potential tax saving opportunities are not forgone.

Essentially, one of the crucial elements for multi-national corporations as well as companies that are expanding into Africa and the rest of the world is to adopt international policy framework that encapsulates key Human Resource and Compensation philosophies that define the parameters surrounding these international assignments. This Policy should not be designed with the "one size fits all" concept, but should create a rigid outline to ensure overall consistency.

Extremely mobile workforces have also resulted in complex cross-border taxation issues which often requires input from specialists in the home and host locations. Tracking of days of physical presence has become the way of life for most Assignees as a day on or day out can have adverse taxation consequences for both the Assignee and the Company. Most Companies therefore align tax policies based on the host  location's taxation regime to ensure compliance and a reduced reputational risk in the home and host locations. The assignment policy framework should ideally set out the applicable taxation policy and outline the Assignee's obligations in ensuring compliance with home and host country taxation requirements.

Management of the expatriate payroll from home and host locations with dual input from both ends will ensure overall compliance and at the same time will give the Company sufficient guidance to tailor-make compensation packages aligned with best practices with potential tax-saving opportunities.

Efficient management of an international assignment project should rest in the fact that advanced project cost estimation can be obtained based on specific data captured from the Assignment Policy.

 

 

Tax table summary - 2006/2010