Essential Guide to Expatriate Payroll Reporting Obligations

What do you mean by “expat”?

With expanding businesses and growth of businesses, “expat” is one of the largest complexities faced by the HR department of any company. Now, to explain the term literally would be to say that “expat” is any person who is outside their home.

With companies expanding overseas, they send a lot of their employees to the newer branch. And these employees, who work outside their home country, are known as expat employees.

What do you mean by “payroll”?

The term payroll is generally used to define or refer to the money paid by the company to their employees. Although there are many components to the term “payroll,” the most common one of all of them remains to be the amount or the sum of money paid to the employees.

Additionally, the term can be used to describe or refer to the following as well:

• The record maintained by the company of the salaries, ways and withheld taxes of its employees.
• The department of the company that calculates these taxes.

Why is “Expat Payroll” important?

Expat payroll is an important part of any company, big or small. The reason behind this is that there are many factors that are different for an expat employee, and the expat employee may even require a larger salary to compensate for various things and costs arising in the host country. If the department managing the payments or the payroll does not know that an employee is working as an expat employee, the salary so processed may be according to the terms of a domestic employee, and such salary may not cut it for an expat employee.

An expat employee’s salaries, wages, bonuses, taxes and social security may be calculated differently, depending on the place of residence of such employee.

How long does it take to become an Expat?

Usually, employees who go out for conferences or short trips or for one particular job to represent their company in some other country are not considered as expats. For an employee to be considered as an expat is one condition. The employee must work in another country, which is not the employee’s home country and work for at least for more than six months, as per the general notion. However, the time limit for being considered as an expat employee may vary from place to place.

What if the expat employee comes home for a visit?

A brief trip back home usually does not have an effect on the expat’s employment status or the salary benefits enjoyed by the employee. Furthermore, if an employee travels overseas most of the time, and most of the employee’s work is done overseas, the places visited by such an employee should be monitored carefully, as such an employee may also be considered as an expat employee. Other than this, the employees who travel for their work on a regular basis may also be classified as “short-term business visitors.”

Where is an expat’s salary paid?

The question of payment of the expat employment is not a thing to worry about. In most cases, the payment terms allow the expat to be paid wherever the employee wishes to be paid. If the expat wants to be paid in their home country, the payment can be made as per the employee’s wishes. However, it must be noted that no matter where the payment of the expat is made, the company’s payroll department will still have to pay taxes and social security in the country the employee works in.

In what currency are expats paid in?

In order to answer this question, it must be remembered that the payment of the expat and the currency the expat employee is paid in will inevitably depend on the country the expat employee is paid in. If the expat is paid in their home country, then there will be no question of the currency they will be paid in. However, if the expat decides to be paid overseas, the currency of the country the expat works in and is paid in will be used.

What rules govern expats and their employment conditions?

There are three governing factors for expats, and they are:

• Host Country: The host country will decide and lay out the terms of payment of various things including the taxes to be paid, how the expats in their country will be paid and if there are any social security payments to be made. Other than this, if there are any filings to be done and taken care of, the host country will specify such things as well.
• Home Country: There are many complexities that come with being an expat employee. Even if an employee has worked for more than a year outside of their country, the employee may still need to file for tax in their home country. And the amount of complexities for expats who have worked for years away from their home country and have changed their nationalities increases for them considerably. However, the payroll of the company should pay attention to such details.
• Treaties between two countries: Countries may sign treaties and come to a mutual agreement. These treaties ease certain liabilities and make trade and taxes flexible. In the absence of treaties between two countries, the employee may be liable to double taxation, meaning the employee may be taxed in both countries.

How do work permits affect Expats?

Apart from a visa for the host country, the expat employee will also need a work permit. However, this rule does not apply if there is a treaty between the two countries. Furthermore, it must be remembered that getting a work permit for the host country is harder than getting a visa.

Since getting work permit is harder than getting a visa, an expat may apply for a combined visa and work permit.

How do visas affect Expats?

Every country has different rules for immigration. And expat employees in any country fall under the ambit of immigration rules. It may so happen that an employee may be exempt from such rules and may gain visa-free access to the country only if the host country and the home country have good relations. However, in case there are no treaties, the expat employee will have to gain a visa to get access to the country. Furthermore, the need for a work permit for the same employee will also arise.

What are the implications of visas and work permits on the employee?

Undoubtedly, the employee will need to get everything in order before the employee begins their work overseas. The responsibility of the employers is two-fold. Not only does the employee have to obtain the work permits for the employee/employees beforehand, but the employer will also need to see what kind of immigration rules applies to the expat employees.

Furthermore, the employee will need to duly file all the documents as required and is liable to make all the arrangements for the expats before their departure.

How do companies manage their expats?

As a general rule, the employer or the company will need to work out the following details before the employee is contracted to work as an expat in some other country:

• Immigration rules and regulations that may and will apply to the expat employee.
• The working conditions, the terms and conditions that may apply to the expat employee and their work abroad.
• The tax implications and other matters related to the payroll of the employee.

The company is required to work all of the above-mentioned points and any other matter or matters that concern the employment, taxability, working conditions or payments of the expats.

For any further enquiries, you can get in touch with International tax accountants for tax planning and advice at DNS Accountants.

About the author

Sumit Agarwal
Sumit Agarwal (ACMA ACA India), the Managing partner of dns accountants is a highly respected accountant with expertise in helping owner-managed businesses.