While most of us struggle with taxes in our native country, imagine what it must be like trying to determine your tax obligation in another country. Making sure you stay square with both the home and host countries requires professional assistance so most companies offer tax services as a part of their general employee relocation services package.
Your tax-savvy employees want to know that their new assignment is not going to end up costing them more in taxes than they paid at home. Tax equalization ensures that those employees will not be paying any more or less than they would have if they had stayed in their home location. Typically, this is accomplished by utilizing previous tax records along with current data to create a hypothetical tax evaluation. This holds the tax rate steady regardless of the amount actually due. The company makes the required tax payments to the home and host country tax authorities and absorbs any tax obligations above and beyond the employee’s withholding.
In addition to payroll withholding and tax equalization, most companies also offer tax preparation services to global assignees. Companies should expect to cover tax preparation fees for each year that the employee is abroad, including partial years and the year after they return from their assignment. If an employee returns from his assignment in January 2018, your company will cover his tax preparation in April 2019, because even one month spent abroad can greatly impact his taxes for the entire year.
Tax preparation for assignees is almost invariably complex, given the need to prepare two returns and the understanding needed of both countries’ laws and obligations and any applicable tax treaties. By offering assistance, you eliminate this source of distraction and stress for your employee and also help to ensure the employee—and your company—remain in compliance.