Kasper Munkholm
Head of projects and partner
Asbjørn Vollmer Jeppesen
Head of legal
Table of Contents
Global mobility tax: 3 rules that can affect your deployed employees
There is often an economic incentive for employees to be deployed to sites in other countries, for longer durations at a time. But the economic compensation might be reduced if the employees personal taxation is increased, due to the taxation rules in both home and host country.
The interplay between home and host countries can be complex and without proper planning, the potential tax implications can mean a significantly reduced economic reward for the employee. In worst case identifying employees willing to travel might be limited.
Below is three global mobility tax issues that you need to take into consideration, when managing you employees taxation during deployment.
1. Double income tax
Tax residency is determined by the length of time an individual or company spends in a particular country and, in many cases, the nature of their activities. Countries have different criteria for defining tax residency, but the following are common factors:
Many countries use a standard where an individual becomes a tax resident if they spend 183 days or more in the country within a given tax year. However, this is not universal, and some countries may apply shorter or longer periods.
Residency can be determined by an individual’s declared intention to stay in a country, such as for long-term work or relocation, regardless of the number of days physically present.
If the employees family (spouse and children) also resides in the host country, tax authorities may treat that person as a resident, assuming the family is a significant tie to the jurisdiction.
Having a permanent job, or holding significant work contracts in a country can establish residency, even if physical presence is limited.
Owning or maintaining property, bank accounts, or investments in a country may influence residency, as it demonstrates ongoing economic ties to the jurisdiction.
Being embedded in a country’s social life—like having a permanent home, being part of community organizations, or having local memberships—can contribute to being considered a resident.
It is important to note that this does not apply to all countries. In a country like Indonesia you have to pay tax, in order to be eligible for a work permit.
Utilize double taxation agreements
When it comes global mobility taxation, many countries have double taxation agreements (DTA’s) that help mitigate the risk of double taxation. It is critical that you understand the DTA between the employees home country and host country, to minimize tax liabilities.
If your employee is exempt from paying taxes in their home country due to a DTA, it’s crucial to obtain a certificate of tax residency in the host country.
Without this document, the employee may still be required to pay taxes in their home country, potentially leading to double taxation. This can present a challenge in host countries where the certificate must be obtained in person at a local tax office. To avoid issues, it’s essential that the employee secures this certificate before returning home.
2. Double security contributions
Navigating social security obligations across borders can be complex due to varying regulations in different countries and even different regions. As with double income tax, your employees may risk paying for double social security contributions in the home country and host country.
Utilize totalization agreements
To prevent double contributions while still remaining compliant, many countries have signed totalization agreements. These allow employees to remain under their home country’s social security system.
In countries without totalization agreements, managing the social contributions becomes more complicated and employees and employers may have no choice but to contribute in both countries.
Therefore, it is important to be aware of these different factors before deployment, as these can significantly affect the overall cost.
3. Taxation of benefits
Your employees risks personal taxation of benefits such as travel expenses, accommodations, car, insurance and potential bonusses. These vary greatly from country to country and it is important to create an overview of the employee benefits and the tax benefit rules of the host country in question. Failing to do so can lead to double taxation, unintentional tax liabilities, or underreporting of taxable income.
Global mobility taxation is a complex and often daunting task, with hidden rules and potential pitfalls that can affect both employees and employers. However, with proper planning and expert guidance, these challenges can be managed effectively.
At Plant Supervision, we specialize in advising or even taking over the entire deployment project. This also includes the tax management process, ensuring that your employees’ deployments are both cost-effective and compliant with local regulations. Let us help you navigate the complexities of global mobility taxation and make your international assignments smoother and more rewarding.
Global Mobility tax faq
Global mobility taxation refers to the tax obligations and compliance requirements for employees and companies involved in international assignments, including income tax, social security, and double taxation treaties.
Tax rules vary by country, but expatriates in these industries often face complex regulations due to high salaries, long-term assignments, and specific industry-related tax incentives or exemptions.
Tax equalization ensures that an employee on an international assignment pays roughly the same tax as they would in their home country, with the employer covering any additional tax burdens.
DTAs prevent employees and companies from being taxed twice on the same income in different countries, reducing overall tax liability and ensuring compliance with international tax laws.
Companies must navigate risks and issues such as permanent establishment issues, compliance with host-country tax laws, payroll complexities, and social security contributions.
By implementing structured tax planning, leveraging DTAs, using tax equalization policies, and working with global mobility tax specialists to ensure regulatory compliance.
Key trends include tax implications of remote work, increased scrutiny on tax residency, and evolving digital tax regulations impacting mobile employees in technical industries.
