HR professionals, mobility managers, and high-earning international employees have a tax problem – and it’s only getting worse.
As return-to-office mandates potentially start to wind down, many experts expect remote work to increase.
However, most business leaders and employees aren’t prepared to handle the tax risks this upswing in global mobility triggers.
But failing to prepare could ruin business reputations, overwhelm HR departments, and create surprise tax obligations.
So how can CHROs and other HR professionals begin to navigate global taxes for international employees? Fortunately, there are plenty of steps leaders can now take now to avoid tax violations in the future.
Working across international borders creates tax complexities for globally mobile employees. Each country has its own set of tax laws, immigration requirements, and reporting regulations. These rules can carry extra investment responsibilities or reporting obligations – especially if these employees are high-earning ones.
Here are a few risks that high-earning international employees may face:
Investment losses
Staff that hold investments can create complications to their tax situation during international assignments. When they live in one country, it’s typically an advantage for them to invest in financial assets that are tax-efficient in that country. However, when they then move to a new country, those same investments may lose their tax advantages.
For instance, in the United Kingdom, an employee may opt to invest in an Individual Savings Account (ISA), which is a tax-efficient vehicle in the UK. However, if they move to the United States for work, that investment turns into passive foreign income, and these staff could end up losing the ISA’s tax benefits.
The bottom line? Every country has its own tax rules. They could change tax considerations and it’s vital HR explains this for them.
Tax mis-reporting
When employees work abroad or from multiple countries, their tax reporting obligations can shift, but even small misunderstandings can lead to reporting mistakes.
Misreporting can be costly, especially for high earners.
Consider the recent tax troubles of the pop singer Shakira. She’s an official resident of the Bahamas, but she was accused of owing taxes in Spain; prosecutors alleged she spent more time living there than she reported, according to a National Public Radio report. She ultimately struck a deal with prosecutors and was ordered to pay 7 million euros in fines.
Equity compensation complications
Managing equity compensation is another challenge that arises from international work.
Different countries will have different tax payment points, making it difficult for employees to know when they’re supposed to pay taxes on equity compensation or who to pay.
For instance, take employees who live in Israel – a major tech hub that many US employers tap into. Here restricted stock units are taxed only when they sell them. However, if this employee is a US citizen living in Israel, they may still need to pay US taxes on the date of vesting, leaving them vulnerable to under- or overpaying in either country.
This is just one example in a long list of mismatching country-by-country equity compensation rules.
Here are a few tips HR can pass on, to help international employees concerned about navigating taxes:
Talk to a mobility tax advisor before you move:
These professionals can help identify potential issues with an employee’s personal investment portfolio.
Get to know the country an employee is working from:
Research a destination’s general tax rules. Even a basic understanding of the country’s rules can help you predict what tax obligations employee might run into. This can help an HR team avoid nasty surprises. Laws and tax positions can change, so make sure you stay up to date and continue to leverage professional help throughout the assignment as appropriate.
The challenges of navigating international taxes don’t just plague employees.
They can also impact HR professionals, business leaders, and entire corporations.
Here are a few examples of corporate risks that arise out of international work:
Tax losses and violations
If you don’t have a tax expert who understands the nuances of complex global tax rules on your staff, it’s difficult to identify withholding or reporting obligations.
The assignment could create an unexpected taxable presence for the company, while failure to withhold or report can cause financial and legal penalties, among other corporate tax losses or violations.
Turnover from lost income
Even when it’s an employee’s obligation to manage investment or equity compensation taxes, resulting tax losses can affect the employee’s work incentives.
For instance, if an employee’s compensation diminishes due to an unexpected tax bill, they may ask for additional compensation or consider leaving the organization.
Reputational damage
High-profile tax violations can put a corporation on a tax authority’s radar, increasing the potential for audits.
It can also damage the company’s reputation and spoil HR’s chances of hiring top talent.
If you’re an HR professional or business leader, there are ways to navigate international taxes and avoid violations.
Here are a few tips to help you manage international taxes:
Restrict un-monitored movement
Unregulated remote work can trigger an avalanche of tax issues for businesses. If an employee works from multiple countries, it’s difficult to track their whereabouts and know where they are working – let alone abide by each country’s specific tax rules. That’s why it’s important to create policies that identify which countries remote employees can work in, how long they can work there, and how they should report their work location.
Create or refresh your work travel policy
To avoid tax non-compliance, update your international work policies. Make sure there is a clear approval process set up for international work, along with points of contact where employees can direct their questions. This can help employees feel supported as they navigate tax issues.
Work with third-party professionals
Many companies simply don’t possess the internal resources to manage immigration, international taxes, and other international employee complications. That’s why it’s important to work with mobility tax and relocation management experts who understand how to overcome the challenges that affect mobile workforces.
International work complicates taxes and increases risk for employees, managers, and corporations.
By adopting a proactive stance on tax risk, the company and its employees can avoid tax violations, fines, and reputational damage.
With a little preparation now, it’s possible to bypass the international tax problems that could cause significant turmoil in the future.
