Tax, Payroll and Compliance – The Challenges of an Overseas Workforce

On any given Sunday, Ireland’s international airports see many construction and engineering workers coming through their doors. Many of these people are staff members of Irish-headquartered companies that are operating throughout Europe or further afield. This wealth of knowledge and expertise is helping construct some of the world’s biggest projects. Mark Graham Chief Commercial Officer at Immedis 

The movement of this skilled workforce must be managed correctly with companies paying attention to the complexities of having employees overseas, be it expats or local hires.

HR, Finance and Payroll departments must navigate an unfamiliar landscape beset with challenges in taxation, payroll and compliance. The challenge of ensuring compliance with both domestic and international tax laws can lead to a rise in costs.

Travel and Subsistence

Travel and subsistence are key areas to focus on.

The difference between paying an accommodation allowance to an employee as compared to paying the landlord directly can result in a tax difference of circa €20,000 per employee per annum. It’s worth checking out the tax position from both the home country perspective and the host country perspective to try to obtain the best result possible in both locations.

In addition to travel and subsistence type arrangements, many countries have special expatriate regimes whereby, for example, a specified percentage of the employee’s employment income may be relieved from tax. The Netherlands is one such country. Ireland also has such a regime known as the Special Assignee Relief Programme (SARP). It is important to review such issues as early as possible as there may be a requirement to make an application for this relief within a specified period of time.

Tax Equalisation Policies

For employers operating tax equalisation policies, tax savings opportunities can often be worth almost twice what they seem. This is due to the fact that the tax on an assignment benefit will most likely be paid by the employer. This tax in itself is treated as a taxable benefit meaning that there is a “tax on tax” effect. This is generally taken care of via gross up arrangements but can mean that the underlying tax cost of the provision of such a benefit could be as much as 100% rather than the 50% effective tax rate (i.e. the cost to the employer of providing such a benefit could be 220% of the initial benefit if we include also employer social security costs). If the benefit can be delivered in a more tax efficient way the savings are generally significant.

Social Security Contributions

Social Security cannot be ignored and if not carefully considered at the outset of each assignment can result in large costs. In general, an employee is only required to pay contributions in one jurisdiction but it is vitally important to ensure that the charges are being paid in the correct jurisdiction and that the relevant documentation is in place.

If an employee’s contributions are not in the order they may run into difficulties down the line when they need to claim certain benefits (illness benefit, maternity benefit, unemployment benefit).

Fees and penalties

So what happens when companies don’t do their homework? It can result in an unpleasant bill. Failure to comply with the tax rules in a jurisdiction will result in the application of penalties and also interest on late payment of taxes.

Mark Graham of Immedis is of the opinion that to be forewarned is to be forearmed.

Penalties on their own can amount to as much as 100% of the actual tax charge and when combined with interest charges, employers can find themselves paying much more than they would have done if they had got the correct tax advice at the outset. Many countries apply a daily interest charge so it can mount up.

If you’re sending staff abroad, it’s safer to assume that there will be a tax and social security issue to be considered and as an employer you will have obligations. We recommend considering your tax position as soon as the decision is made to send staff on secondment.

However, if you’ve not done this before the assignment begins, you should do it sooner rather than later in order to minimise the final outlay.

Immedis has seen a marked increase in the number of global mobility enquiries they have received over the last 18 months. With Ireland’s construction and engineering companies continuing to expand and penetrate new markets, this trend looks set to continue.

Quick Facts

If your company has staff working from foreign tax jurisdictions in a given year, or relocating to a different jurisdiction for a period of time, ensuring compliance with domestic and international tax laws is essential. Key considerations are as follows:

• Tax and social security applications for both employees and employers in home and host country

• Applications to authorities for exemptions or reductions in withholding taxes

• Home and Host country personal tax returns for employees

• Foreign payroll withholding obligations

• Foreign Tax credit claims and treaty relief claims

• Claims for income tax refunds

• Cross Border relief claims

• Tax equalisation/ tax protection calculations

Immedis is a specialist division of The Taxback Group, a multi award-winning global financial services group, with over 1,100 employees in over 33 offices worldwide, providing cost effective payroll and tax services to organisations and individuals in over 100 countries every day.

About Immedis

The Immedis team currently assists a number of Ireland’s leading construction and engineering companies with managing the tax requirements of their global workforce.