Expanding into new markets continues to be an ambition for many organisations. Global expansion offers organisations the opportunity to diversify their operations, reach new customers, and tap into new sources of talent (1) and other resources. But how can organisations do this in a sustainable, scalable, and compliant way? We’ll focus on this question from a talent and mobility compliance perspective, outlining practical considerations for employers undergoing international expansion.
The Challenge Of Global Expansion
Traditionally, there have been three main pathways to support global expansion:
1. Acquisition or merger with pre-existing businesses in a target location
2. Setting up a new branch and/or corporate entity in a target location
3. ‘Testing the water’ of a target location, potentially supported through the use of non-traditional/alternative engagement models (e.g., Employer of Record).
Amongst the myriad strategic and corporate challenges that need to be addressed, the need to successfully enable and manage talent can sometimes be lost. However, this is arguably one of the most important issues to address. Without people to deliver your business, it is impossible to achieve business objectives. Additionally, without adequately addressing the personal, logistical, and regulatory requirements associated with the movement of talent, the risk of failure can be high.
In a worst-case scenario, there may be wide-reaching implications for the organisation: reputational damage, financial charges by host country authorities, talent attrition, potentially even legal sanctions in some extreme cases. Organisations looking to expand internationally need to typically address three key areas from a talent perspective:
• Business need and corporate objectives
• Compliance requirements; and
• Logistics, rewards and incentives, and employee wellbeing.
Business Need And Corporate Objectives
In essence, this can be summarised as the challenge associated with clearly defining the business case for talent in the new location, understanding exactly what is needed from a talent perspective and evaluating the potential benefit this talent will deliver.
What is the business need and what roles/ skills are required to meet the need and deliver on objectives?
Questions you should consider include:
• What is the business need and what roles/ skills are required to meet the need and deliver on objectives?
A seemingly simple question but often overlooked. Without a clear purpose and understanding of the business requirements, often individuals with inappropriate skill sets can be selected thus failing to deliver desired objectives and leading to discontented and dissatisfied employees.
• What are the timescales involved? How soon are the roles and/or skills required?
Setting up entities, obtaining work authorisation, arranging logistics etc., can take some considerable time. A clear understanding of how soon the business is aiming to begin operations in the new location is required to determine the appropriate approach. Realistic timeframes are also needed to help manage employee
and business expectations, particularly in complex receiving jurisdictions.
• For what duration are the roles/skills required?
What work is required, when? Differing roles will be needed in the respective maturity phases of an overseas expansion. For example, sales staff and strategic leadership will likely be needed in the earlier phases, before back-end functions such as Finance and HR are built to deliver steady state or BAU.
• How can roles and/or skills be delivered? Can it be virtual or onsite?
In the post-pandemic era, there is increased potential to deliver key tasks and roles via remote means. For example, does project management need to be delivered in person? Due consideration should be given to whether talent needs to be physically present in the host location.
• Have environmental, social, and governance (ESG) considerations been contemplated?
As well as the environmental impact associated with global expansion, organisations need to consider their social and governance objectives and how they could be impacted/enhanced through entry into new markets (e.g. the need to hire locally, transition of skills, tax policy, etc.).
Compliance Requirements
Expanding into a new location also brings an array of compliance requirements which will differ depending on where and how talent is deployed. Determining and understanding the route by which an organisation plans to expand into a new location (e.g., via new entity set-up, etc.,) will help to plan effectively and minimise workforce-related compliance risks. Some key questions for organisations include:
• What entity, if any, will employ the individual in the new location?
Many organisations consider setting up or acquiring an entity in the new location, particularly when the activities carried out by the employee cannot be deemed to be preparatory or auxiliary to the work of the company (impacting the corporate tax position). However, the rise of Employers of Record and similar arrangements provide a new potential pathway for employers to explore. Organisations should carefully consider the structure/approach they propose
to use for employment and have a clear answer to the question of what entity, if any, will employ the individual in the new location. As well as helping to address the corporate tax and permanent establishment challenges, it will also support set up and ongoing compliance with local employment law regulations, corporate immigration, and individual taxation regimes in the new location.
• Who is responsible for bearing the costs of the employee whilst they are in the new location?
Who bears responsibility for the cost of the employee can be an indication of which entity is benefiting from the activities conducted by the employee. When this happens across international borders, it brings Transfer Pricing considerations into play, requiring employers to evaluate which entity is benefiting from the activity of the employee, and if and where deductions can be made for tax purposes against profits. These issues can be compounded when considering the value that a senior leader may provide if seconded into a new location versus a regular employee. The answer to this question may also have an impact on whether any exemptions can be applied under any potential tax treaties or whether withholding taxes need to be applied.
• What immigration requirements might there be? Are there resident labour market tests that need to be completed or minimum language levels? What compensation de minimis needs to be met?
Corporate immigration is one of the biggest potential risks to any organisation, with legal penalties, criminal charges, and reputational damage all at stake if mismanaged. In extreme circumstances, it can also lead to the curtailment of business activities in a target market. Organisations need to make sure they are fully aware of any immigration requirements in their target location and, if utilising alternative engagement models,
understand how these may support immigration compliance.
• How will the individual be paid and in which location? Where and what taxes might be due? Are social security payments required and, if so, where?
These questions are often connected, not just because of understanding any payrolling requirements but also to clearly set and manage an employee’s expectations. Even with these questions in mind, it can be hard to navigate the maze of compliance requirements and areas of potential risk. The diagram above highlights just some of the distinct areas an organisation may wish to consider as they review these questions.
Logistics, Reward And Incentives, And Employee Wellbeing Challenges
The act of moving an employee to a new location has never been as simple as putting them on a plane. To move a person’s life is logistically complicated and can have a profound and longstanding effect on them. As the business agenda rightly shifts to consideration of employee needs holistically, employees moving into new markets should not feel left behind. Plans should be put in place to support them prior to a move, whilst they are in the new location, as well as afterwards (repatriation, localisation, or other).
To get started with this planning, organisations looking to expand into new markets may wish to consider:
• How will the employee travel to the new location?
• Is support with housing required? What should happen in case of a medical emergency?
• Does the employee have a spouse/spousal equivalent and/or dependants that need to be considered?
• Do any personal items need to be shipped to the new location?
• Are any arrangements required due to diverse needs?
• Have clear goals been set and is line management in place?
• How will the employee be incentivised? Will they share in the success of the new venture and, if so, how?
• How will employees adapt to local cultures, traditions, and ways of working? Will they be required to learn a language?
A Potential FrameworkThe Building Blocks Of New Country Entry
Given the areas we have explored, it can feel like a never-ending list of challenges that need resolution. These challenges can often be exacerbated by tight timelines involved in expansion into new markets. When supporting organisations, we typically propose a phased methodology (shown on the next page). The intent is to clearly define the requirements from a talent perspective, explore the options available, and build a robust approach that delivers on organisational objectives.
Next Steps
Expansion into new markets will always be a high priority for ambitious organisations, looking for global growth.
The upsides can be huge for both the business and for the individuals involved but given the corporate and logistical complexities, there will always be a risk that talent considerations may fall down the list of priorities. We hope this article has helped address some of the key questions associated with the initial wave of expansion, but any action should be balanced by a longer-term view and a detailed plan for the location.
Organisations in this situation should therefore always ask themselves:
• What do I expect of talent in the new location?
• What are my compliance responsibilities?
• How do I effectively support my talent?
• What is the long-term plan for talent in the new location and how should it be managed?
Answering these four questions alone will help organisations to positively plan for success and help ensure that any expansion is sustainable, scalable, and compliant.
Reference:
1) International expansion: A passport to growth?, Deloitte. https://www2.deloitte. com/content/dam/Deloitte/us/Documents/ deloitte-private/us-dges-internationalexpansion-passport-growth.pdf
JAMES HOBLEY
Associate Director, Deloitte LLP
+44 118 322 2509
jhobley@deloitte.co.uk
Deloitte Global Talent & Mobility
How can Deloitte help?
As part of Deloitte’s Global Talent & Mobility practice, our dedicated New Country Entry team supports organisations right from the very outset of global expansion planning through to the management and delivery of everyday compliance and operations. It brings together experts from across the entire spectrum of people strategy and compliance and our services can include location research, move strategy, process design, risk and compliance management, covering the breadth and depth of people-related matters. With our support across payroll, immigration, tax, employment law and regulatory, clients can streamline their approach and achieve their business objectives when entering new geographies. Example areas of support include: Planning
• Business requirements and talent strategy to support new location
• Talent acquisition opportunities in local markets
• Tax, legal, immigration and compliance implications Design
• Building policies and processes enabling moves/acquisition and ensuring global compliance
• Selecting and engaging vendors required to support new location
• Developing relocation packages for key talent
• Data security advisory Deliver
• Practicalities associated with relocation and employee wellbeing
• Project management
• Change management to operationalise and manage downstream requirements
• Tracking regulatory changes which can create new risk
In order to support the most challenging business demands, organisations need to define their global workforce footprint and enable global talent deployment efficiently and compliantly. Deloitte’s dedicated Global Talent & Mobility practice is a multi-disciplinary consulting group of tax, immigration, talent, HR, and technology experts supporting our clients to navigate their most complex global workforce challenges, developing focused strategies and delivering operations. Find out more here www.deloitte.co.uk/globalworkforce
International Hybrid WorkingMaking The New Reality Efficient And Forward Looking
Before the pandemic, international hybrid working was rare – largely confined to executives and directors with international responsibilities and a few digital technology nomads. Post-Covid, advances in technology and familiarity with remote working has led to a surge in demand for, and capability to, work from anywhere in the world.
After the initial concerns and struggles in grappling with the tax and employment law concerns such working patterns can raise, international employers are now realising that there are opportunities as well as threats and administrative burdens to international hybrid working (IHW).
While the original pool of internationally mobile workers has remained, employers are now also likely to have workers based in several different jurisdictions that form key teams within an international group. For example, while a group may have a marketing team in each country in which it operates, it is likely that workers from these teams frequently come together as one international team to collaborate on global product launches and other campaigns. Equally, digital marketing personnel can be based anywhere in the world but still work effectively with the international or local teams and may have reporting lines in several jurisdictions.
Of course, it is not just marketing teams where this approach is emerging, technology, research and engineering firms are all adopting this approach as it often proves to be an attractive option for potential new hires. Indeed, in sectors such as IT, it may one day become a standard part of the employment package. But this is not just a trend created by worker demand, there are benefits to the employer as well.
Let’s consider a business operating in EMEA. The ability to recruit for a role across multiple countries to fill a team vacancy vastly increases the size of the labour pool meaning that it is easier to find specialists in niche areas at the right level and, crucially, the right cost.
Using global mobility as a tool to attract and retain talent brings many positives for multi-national businesses, yet it is important to remember that managing effective compliance, from tax and social security to immigration and employment law obligations, is essential to realise a net benefit. These are themes we will return to in future articles, but this article will focus on how to make IHW an effective model for your business.
Redesigning BAU For International Hybrid Working
The rapidity with which IHW developed during and after Covid means that in many international businesses it has been managed in an ad hoc way to date. Yet, as with all HR tasks, a carefully thought through and structured approach will enable businesses to get the most benefit from IHW and reduce the risks of tax/employment law compliance failures and uncontrolled costs.
A key element of any structured approach to IHW is identify, acknowledge and assess the cultural, logistical and compliance issues involved where IHW teams are built. This can include considering everything from
travel requirements, language, time zones and the local business footprint to tax and social security, immigration, employment law and regulatory requirements – quite a list! Alongside, or perhaps above, all these, building an IHW team that functions efficiently means getting strong and effective engagement from all team members. So, let’s consider how to get on the front foot and design IHW patterns that fit your organisation rather than simply coping with what has evolved.
4 Key Elements Of Success
We suggest the starting assumption is that teams work remotely, and the best way to bring them together in office locations when needed is to make them see the added value. Based on our experience, there are four work scenarios that provide a convincing case for bringing fellow-workers together in person - Inspiration, Socialisation, Collaboration and Education, please read the explanations below. Of course, these activities could and should be pursued online as well, but these four scenarios are essential components of any successful hybrid work scheme to add value:
• Inspiration: Leaders need to help teams and individuals to redefine and personalise impact in their jobs, finding and sharing the meaning that motivates them
• Socialisation: We tend to look at modern organisations more and more as networks rather than hierarchies. Understanding and navigating these networks is an emerging management discipline
• Collaboration: Among diverse individuals and teams from different domains, collaboration is essential to achieving agility and innovation. Finding a good balance between online and in-person collaborative patterns and tools is an evergreen topic (see below)
• Education: It also has been a long-time predictor of business success. Still, today we hear about reskilling, upskilling as a natural requirement for professionals and businesses to keep redefining themselves cyclically. Do we do it proactively or move only when missing skills hurt?
Putting any of the above concepts into action is a good idea, but we would argue that the real hotspots for office-based job content emerge where the four above components overlap. These are the points where bringing an IHW team together, despite the cost and disruption of the international travel involved, will truly pay dividends.
When Inspiration and Socialisation overlap, we can call it a Belonging experience. You get inspiration from socialising with people in person. Even though firms like our own experimented with “online happy hour” and similar activities, the feeling of belonging is still an in-person experience. People are more willing to spend time together if this sense of belonging is part of the value proposition.
When Socialisation overlaps with Collaboration, we can call it Trust-building. There is an emerging consensus that trust can come from two directions: I trust you because I think you are capable, or I trust you because I believe you care. But the sweet spot is when you have both. Professional trust comes from working together, personal trust from socialising – so creating space and time for such bonding to happen while in the office together is vital.
When Collaboration meets Education peer feedback should happen, either in informal ways or as Peer Coaching. Advanced firms build feedback functions in their mail platforms, not just allowing but encouraging spontaneous and prompt feedback. Whereas capturing impressions and data points is excellent, a context-rich, meaningful peer discussion happens more likely in person. While teams are together in one location (or even during virtual meetings), we would advise carving out time for individual peer feedback and team-based collaboration reviews not as an ad-hoc activity but as a core office-time duty.
When Education overlaps with Inspiration, let’s call it Reskilling. Learning a new skill is mostly perfectly feasible at home, online. But developing a desire to do so, getting the courage to step out of your comfort zone is a team sport. Job rotations, watching others perform tasks or exercising a profession different from your routine are good examples.
Practical Issues
Incorporating this approach into your IHW teams’ standard operating procedures will naturally raise practical and compliance issues from the logistical arrangements of getting teams together on a regular basis –for example, will visas be required, can they be dealt with as short-term business visitors in the UK or other jurisdictions? There are also questions around the frequency and duration of in-office periods to ensure that the desired benefits are achieved: is a few days a month or quarter enough time? Then how should the IHW operate for the rest of their time, are they allowed/encouraged to work in a local office and, if so, how do they interact with the local team?
But, perhaps more important, are the reward and contract arrangements – ranging from which company the worker is engaged by to comparative pay levels, pension and other benefits and incentive schemes. The main elements of the remuneration package are unlikely to be common across jurisdictions so you may be faced with the choice of harmonising packages for IHW team members and offering globally aligned packages, or adopting the package in use in each team member’s home location - with the risk that this creates perceived inequality within the team.
Fortunately, when it comes to incentives, it is possible for international groups to create global share or incentive schemes that can be offered to all IHWs within a team, but there will probably still be local differences in tax treatment of these schemes to take into account.
Promoting Collaboration In Hybrid Work
In the pre-COVID era, seamless collaboration across functions wasn't a universal success story – when reviewing organisational cultures, collaboration is consistently one of the lowest scoring elements. When we ask why, hybrid or flexible working is often blamed, especially where cross-functional collaboration is concerned. But is this truly a new hurdle introduced by hybrid working? Even back in 2019, a prominent Human Capital trends report revealed that few organisations considered themselves very effective at managing cross-functional teams. Clearly, the struggle with cross-functional collaboration predates our current work models.
Internation hybrid working has introduced a new dynamic, where a focus on collaboration will be essential to success of an IHW team. To truly enhance collaboration, we must recognise that it rests on some key pillars and that actively building these into the IHW team and business culture is essential.
Unifying Culture And Values
Is collaboration a clear part of your corporate ethos? Are collaborative efforts recognised and rewarded within performance and talent management processes? Without articulation as a core value, demonstrated by leadership, and reinforced through recognition, the environment for collaboration will struggle to flourish. According to Gartner's 'Top 5 Priorities for HR Leaders in 2024,' a culture of connectedness can increase by up to 43% when it is actively diffused through work.
Developing Collaborative Skills
Collaboration is a manageable skill, not just an innate ability for many. Investing in the best development approach of these skills and harnessing the natural collaborative talents within your organisation can significantly enhance connection and cooperation. Collaboration skills go well beyond communication, it also requires employees to be empathetic, capable of conflict management, be highly adaptable and strong problem solvers. As explored in the Harvard Business Review's 'Performance Management Shouldn’t Kill Collaboration,' companies that invest in collaborative skills see a 17% improvement in financial results and a 34% increase in annual revenue.
Cross-Functional Teams And Communities
Establishing firm-wide groups and communities of practice can significantly improve collective learning, knowledge sharing, and collaboration. Cross-functional project teams can expand networks, build trust, and expose employees to new ideas and perspectives. The HRB article 'Performance Management Shouldn’t Kill Collaboration' notes that new hires who engage in crossfunctional projects are at least 65% more likely to stay and become productive.
Leadership To Get You There
In most organisations, implementing a culture to support IHW will mean change at many levels of the business, so leadership vision, sponsorship and engagement is pivotal. Asking a senior leader if they will support the programme usually results in an instant “yes”, but rarely much more.
A genuine and effective sponsor is accountable for:
• Defining and communicating the business case for change
• The allocation of resources
• Ensuring that sponsorship and ownership for the change is cascaded through the organisation
• Being authentic and prepared to own setbacks as well as successes.
The key lesson is never to assume that individuals who are in leadership positions are automatically signed up as effective sponsors or credible practitioners – so focusing on winning the buy-in and active involvement of the right leaders in the organisation is time well spent. Leaders must embody the values they wish to see, setting the standard for the rest of the organisation to follow – this is even more important with IHW teams where distance, language and cultural differences can be barriers to high engagement. Accepting the fact that breaking new ground can be risky, is part of the success. Learning from creative mistakes, rather than avoiding unchartered waters is a differentiator. Leaders should actively engage with different business units, celebrate collaborative successes, and foster a trusting environment.
Conclusion And Call For Action
IHW is here to stay and evolving, and we expect its adoption to expand in most international businesses in the coming years. As with all HR issues, businesses that have well defined polices and culture that supports IHW and builds high levels of engagement
KAREN MCGRORY
Karen McGrory is head of expatriate Tax Services at BDO LLP, bringing over 30 years of expertise in expatriate taxation. BDO is able to provide global assistance for all tax issues arising from an internationally mobile workforce. Karen extends her gratitude to Zsolt Szelecki, Head of People Advisory Services at BDO, for his valuable contribution to this article.
If you would like to discuss any of the issues raised, please contact Karen McGrory on +44 (0)20 7893 2460 or email karen.mcgrory@bdo.co.uk.
of these employees will realise its benefits and manage the tax and compliance risks it brings. But following is not the best approach - those who shape the future with active experimentation, testing new methods and learning from implementation experience will benefit more.
ZSOLT SZELECKI
Zsolt is the BDO UK national lead for People Advisory Services. He is an experienced people leader and senior organisational consultant helping organisations design, implement and adapt innovative people practices. Passionate and globally recognised for building agile structures, collaborative communities and open networks that enhance speed and innovation. If you would like to discuss any of the issues raised, please contact Zsolt Szelecki on +44 (0) 7764958050 or email zsolt.szelecki@bdo.co.uk.
Global Tax Update
Increased compliance obligations, retirement planning and potential tax refunds
With enhanced reporting requirements and changes to current rules across the globe, make sure that you are up to date with what’s new. Singapore has made changes to rules impacting retirement planning. In the UK, rumours are rife that there may be a reduction to some of the favourable tax treatments that pensions benefit from in the Autumn Budget on 30 October.
It’s not all bad news, Belgium residents who received French-source dividends may be able to file a refund claim for overpaid Belgian income taxes.
SINGAPORE, UK
Changes to rules impacting your retirement plans
In Singapore, employers' mandatory contributions to overseas pension and provident funds made on or after 1 January, 2024, are fully taxable on the employee. Meanwhile, in the UK, the Autumn Budget on 30 October may bring in significant changes to pension tax relief.
What Changes Have Been Made?
The Inland Revenue Authority of Singapore (IRAS) has announced the withdrawal of the concessionary tax treatment that exempts employers’ mandatory contributions to overseas pension and provident funds. Under the prior rules, employers’ contributions made on or before 31 December, 2023, were not taxable to the employee if:
• The contributions were mandatory under social security schemes operated by the
employee’s home country government even though the employee was working overseas
• No corporate tax deductions were claimed by any permanent establishment or company in Singapore.
Under the new rules, the concessionary treatment will cease to apply meaning employers' contributions made on or after 1 January, 2024, are fully taxable to the employee.
BDO Comment
The imposition of tax on employers’ mandatory pension contributions in Singapore will result in higher tax costs for employers who pay the taxes for employees, or smaller take-home pay if the employee pays their own taxes. Employers will be able to claim tax deductions on all pension or provident fund contributions going forward in Singapore provided the contributions are borne by the Singapore employer. Where the costs are borne by an overseas entity with no recharge to the Singapore entity, no tax deductions will be available in Singapore.
Possible UK Changes
The Autumn Budget 2024 (the first from the new Labour government), will take place on Wednesday, 30 October. Chancellor Rachel Reeves is expected to deliver a Budget with measures to raise revenues for the Government. Currently, individuals can pass on their residual pension funds free of IHT on death. It has been rumoured that this IHT relief is being considered as part of a wider review of capital taxes.
In addition, previously Rachel Reeves has campaigned to reduce tax relief for pension contributions for high earners, saying that
introducing a flat rate of relief at 33% would “be a welcome boost for basic-rate taxpayers and a cut in the savings subsidy for higher earners”. Under the current rules, individuals receive tax relief up to 45% on contributions up to £60,000 a year to their pension and can also use up any unused element of this annual allowance for the prior three tax years. For higher earners, it may be worth considering topping up pension contributions ahead of any possible changes.
INTERNATIONAL, SOUTH AFRICA
International business traveller risk
Employees who travel to a different country for business on behalf of their employer typically rely - whether they realise it or not - on the protection offered by double taxation agreements (DTAs) that their country of residence may have entered into with the jurisdiction(s) they are visiting.
If there is no DTA in place, there may be no protection or exemption from taxes in the host country. Even if there is a DTA, the specific terms of each agreement must be considered to determine if it offers exemption from income tax in the host country.
For example, effective 22 December, 2023, new South African tax legislation requires non-resident employers with a permanent establishment (PE) in the country to withhold PAYE from remuneration paid to their employees. This change could have a significant impact on employers with employees that opt to work in South Africa remotely, a situation that has become more common recently. This new legislation means that foreign employers need to take greater care to ensure compliance with regard to their remote working population.
BDO Comment
For executive employees, it is crucial sufficient detail is understood regarding the nature of their role, activities, and interactions with the team in the host jurisdiction. There is a significantly higher likelihood of failing the DTA condition relating to which entity they are paid ‘on behalf of’ and triggering a host country tax liability, compared to a less senior employee.
Considering the position in South Africasome foreign employers may not realise that their business activities have established a PE in South Africa. The definition of a PE in South Africa extends beyond the traditional scope and can give rise to a PE in various situations including where a senior employee has a home office in South Africa and has the
authority to sign contracts on behalf of the foreign company. However, foreign employers should avoid rushing to register for PAYE in South Africa unless they are certain they have a PE, such as a fully operational branch. Instead, they should first obtain a tax opinion to confirm their status and then proceed with PAYE registration if necessary.
A word of caution, non-compliance can result in significant penalties so understanding the circumstances which would create a PE in South Africa is advisable.
IRELAND, USA
Compliance changes and additional reporting
From 1 January, 2024, enhanced reporting requirements were introduced in Ireland whereby employers are obliged to report details of certain non-taxable expenses and benefits provided to employees and directors on or before the payment date to the employee. The non-taxable expenses and benefits that now need to be reported are:
• Payments related to the Remote Working Daily Allowance
• Items that meet the small benefit exemption, and
• Expenses incurred for travel and subsistence.
In the USA, the rules have been amended to shorten the securities transaction settlement cycle for most broker-dealer security transactions. The change accelerates the date on which the participants in equity compensation plans utilising a same-day sale arrangement becomes the shareholder of record entitled to appreciation, dividends, etc. Plans such as stock-settled restricted stock units (RSUs), stock options, stock appreciation rights (SARS) and Employee Stock Purchase Plans (ESPPs) will all be impacted.
BDO Comment
The Irish Revenue announced in early 2024 that while employers must comply with the enhanced reporting requirements from 1 January, 2024, they would not impose penalties for non-compliance until 30 June, 2024. It has since been confirmed this grace period will not be extended. As a result, employers need to ensure that they have the relevant processes and procedures in place to report these benefits in a timely manner from 1 July, 2024.
In the USA, co-ordination between broker, payroll department, tax department and transfer agent will be important to ensure that the employer makes timely payroll tax deposits under the accelerated timeline. As well as reviewing the processes for opportunities for automation and to ensure tax compliance, employers may also consider reviewing their plans for employee satisfaction and tax efficiency.
BELGIUM, FRANCE
Potential tax refund claim
Recent Belgium court decisions on the taxation of French-source dividends paid to Belgium residents have raised the possibility that taxpayers may be able to file a refund claim for overpaid Belgian income taxes on French dividends.
BDO Comment
Belgium taxpayers may want to include their French dividends and claim the tax credit in their annual income tax return. This approach provides the most certainty, given that it is unclear how the Belgian tax authorities will react to the new court rulings. In addition, a few cases are still pending in court, and different courts may rule differently. However, filing a claim based on these new court rulings may be worth it for prior years if the claim is not precluded by the three-year statute of limitations.
Under the new treaty, likely to enter force on 1 January, 2025, French dividends received
Under the new treaty, likely to enter force on 1 January 2025, French dividends received by Belgian residents will be treated the same way as dividends from other countries, i.e. a 30% tax will apply on the dividend amount net of foreign taxes
by Belgian residents will be treated the same way as dividends from other countries, i.e. a 30% tax will apply on the dividend amount net of foreign taxes.
BELGIUM
Increased transparency
Belgium introduced a reporting obligation for legal arrangements (such as trusts, foundations, partnerships, and certain low-taxed entities) set up by private persons effective for tax year 2014 (income year 2013). The existence of these legal arrangements must be declared in the annual personal income tax return by the founders of the arrangements, as well as by anyone who receives dividends or other benefits from the arrangement.
Until tax year 2023, only basic information regarding the founder or the beneficiaries of the legal arrangement had to be included in the income tax return. However, effective for tax year 2024 and going forward, more detailed information regarding the arrangement’s assets and income must be disclosed. A detailed overview of all income received by the legal arrangement must be provided. In this respect, a distinction must be made depending on how that income will be taxed in the hands of the ultimate beneficiary. This is a very complex exercise that will most likely require the assistance of a financial or tax expert.
BDO Comment
Complex tax returns filed electronically have an extended deadline until 16 October, 2024. Individuals reporting the existence of a legal arrangement and/or the benefits thereof for the first time must apply for the extension by ticking the appropriate box in their online income tax return. Taxpayers who receive a proposal for a “simplified” tax return can contact their local tax office to obtain the extended deadline before that date.
CANADA
Capital gains changes
As advised in our Summer 2024 article, Canada announced significant changes to the capital gains inclusion rates in their 2024 Federal budget. This included a reduction in the employee stock option deduction to 1/3 from 1/2 as well as the adoption of various transitional rules for tax years that straddle June 2024, where two different inclusion rates would apply.
In the Budget, the government introduced a new Canadian Entrepreneurs’ Incentive to provide some relief from the increase in the capital gains inclusion rate. Draft legislation has recently been released, including some changes to the eligibility requirements announced in the 2024 Federal Budget with the intention of expanding access to the incentive.
The Canadian Entrepreneurs’ Incentive allows individuals to apply a reduced 1/3 inclusion rate on the disposition of qualifying shares, subject to
a lifetime limit of CAD 2million of capital gains. The conditions to qualify for the incentive, have been expanded to:
• Include business owners other than founders
• Reduce the minimum ownership requirement for taxpayers from 10% to 5%
• Reduce the minimum ownership period to any continuous 24-month period prior to the sale of the business
• Reduce the minimum period required for active engagement by the taxpayer on a regular, continuous and substantial basis in the business from five-years to any combined three-year period since the founding of the business
• Expand the incentive to include qualifying farming and fishing property.
The draft legislation includes an acceleration of the annual phase-in of the CAD 2million lifetime incentive to CAD 400,000 per year starting from 2025, meaning the maximum limit will now be reached by 2029 rather than 2034. Also included in the draft legislation are further details on the businesses to be excluded from this incentive. These include, amongst others, professional practices, certain businesses operating in the financial, insurance, real estate, food and accommodation, arts, recreation and entertainment sector and businesses providing consulting services.
BDO Comment
Consultation responses are being accepted on the draft legislation for capital gains until 3 September, 2024 and on the Canadian Entrepreneurs’ Incentives until 11 September, 2024. These changes may also result in increased scrutiny of capital transactions reported on personal tax returns in Canada.
KAREN MCGRORY
Karen McGrory is head of Expatriate Tax Services at BDO LLP. She has over 30 years’ experience in the field of expatriate taxation. BDO is able to provide global assistance for all tax issues arising from an internationally mobile workforce.
If you would like to discuss any of the issues raised in this article, please do not hesitate to contact Karen McGrory on +44 (0)20 7893 2460, Email: karen.mcgrory@bdo.co.uk.
Integrated Support Systems For Expatriates: A New Paradigm In International Assignments
In the dynamic world of global business, international assignees play a pivotal role. Companies send their top talent abroad to lead projects, manage branches, and foster partnerships, but this comes at a high cost. Deploying an employee with a three-member family on a three-year assignment can exceed USD 1 million, and four in ten assignments are unsuccessful.(1,2,3) The success of these assignments depends not only on professional capabilities but also on the quality and continuity of medical care received. Poor healthcare can lead to untreated illnesses, stress, and increased organisational costs due in part to medical evacuations.
To mitigate these risks, companies must work with insurance carriers to prepare, support, and manage the medical needs of their assignees. Proactive outreach and ongoing support from clinical teams can help employees navigate healthcare challenges, access quality health care locally and ease uncertainty. In critical health situations though, outsourced air ambulance services ensure objective decisions based on patient needs. A holistic, clinically led provider credentialling programme ensures qualified medical evacuation partners are available when needed.
Connected Care: Expertise Along The Care Continuum
The transition to a new country can be daunting for international assignees and their families. Beyond the obvious challenges such as cultural adjustments and language barriers, there can be significant concerns about healthcare and safety. Where do I go for medical care? How do I pay for services? Is the provider and the facility properly equipped to handle my procedure? These concerns are real which is why proactive outreach and ongoing support from
insurance carrier’s clinical teams – from inquiry to discharge - can significantly help employees mitigate these challenges and easy uncertainty.
Beyond the obvious challenges such as cultural adjustments and language barriers, there can be significant concerns about healthcare and safety
Let’s look at a real-life example: A 14-yearold in Nicaragua had attempted suicide and was admitted to a local hospital. The parents contacted UnitedHealthcare Global, which facilitated a Guarantee of Payment (GOP). Intelligence experts determined that the local facility lacked adequate psychological care, and no nearby facility could provide the necessary treatment. Given the complex political situation in Nicaragua, an evacuation to the home country was essential. We sent a nurse to accompany the child, ensuring they were never alone. Assistance teams coordinated an air ambulance to the US, where the child received successful inpatient treatment. The medical director collaborated with local providers to ensure the treatment plan was appropriate. A dedicated nurse managed and monitored
the case, keeping employers and family informed and assisting with outpatient care. Post-treatment, we handled repatriation and navigated re-entry challenges. The same nurse continued to provide medication management, education, and resources to the family.
This model exemplifies the comprehensive value of providing continuous care and support throughout the entire process. By facilitating immediate medical attention, managing complex international medical evacuations, and ensuring ongoing care postrepatriation, this approach allows carriers to more effectively protect the health and wellbeing of individuals globally.
Transforming Treatment: Embracing Shared Responsibility In Medicine
The concept of transforming treatment by embracing shared responsibility in medicine involves recognising that the provider/patient relationship is not just one-to-one. Multiple administrative functions in care settings and emergency services contribute to ensuring the quality and safety of care delivered. Three key features that make emergent and urgent scenarios, like the prior example, successful for UnitedHealthcare Global are: the intimacy of handovers between teams, healthcare intelligence, and clinical expertise.
• Cross-functional teams interact daily, sharing insights and updates about patients' conditions, which eliminates information gaps
• Healthcare intelligence involves the strategic gathering and analysis of data to make informed decisions that improve patient outcomes and service efficiency. If a facility or the physician is not qualified to perform the procedure and an evacuation is deemed appropriate, clinical teams leverage credentialing intelligence to select suitable air ambulances, streamline admissions, transfer records, and manage payments, ensuring assignees focus on their jobs, confident in their family's care
• Clinical expertise, combined with healthcare intelligence and mapping technology, helps guide individuals to the right care.
This integrated approach ensures that patients receive appropriate and safe care, enhancing the overall quality of healthcare services.
Medical Evacuations: Ensuring Objectivity And Patient Safety
A medical evacuation, in any instance, adds a layer of risk to the patient. We only pursue an evacuation when the local healthcare is deemed inappropriate or incapable of properly treating a patient’s condition. We do not recommend moving a patient who does not need be moved if the local healthcare is appropriate.
In critical health situations where patients need to be transported back home or to a better-equipped facility, carriers can use outsourced air ambulance services. Outsourcing these services allows carriers to remain objective, making decisions based solely on the patient's needs rather than any affiliations with service providers, and significantly reduces potential risks associated with transportation during medical emergencies.
This is where the value of having a holistic, clinically led provider credentialing programmeme for medical evacuation providers shines through. It ensures that when local healthcare fails, the most qualified medical evacuation transport partner, with the right medical services on-board, can be called in to assist.
In Conclusion
The role of proactive support in the success of international assignments cannot be overstated. As demonstrated by our model, when clinical services, healthcare intelligence, and assistance teams work in concert, the quality of decision-making improves dramatically, directly enhancing the expatriate's quality of life. For international HR and benefits managers, adopting such an integrated approach can be a game-changer, ensuring that their employees can perform to their best potential while feeling secure and valued. This not only boosts the success rates of international assignments but also positions the company as a preferred employer globally. In the evolving landscape of global business, such proactive and comprehensive expatriate support has the potential to define the leaders in international human resource management.
2) 5 Tips for Managing Successful Overseas Assignments (hbr.org)
3) (15) Boosting Expat Success Rates: The Impact of Pre-Assignment Preparation | LinkedIn
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Pascaline Wolfermann is the Director of Healthcare Intelligence for UnitedHealthcare Global. With a background in international relations and languages, she began her career by managing healthcare logistics during a cholera outbreak in Iquitos, Peru, and later worked extensively across Latin America. Today, Pascaline leads the healthcare intelligence team dedicated to enhancing global healthcare access and quality, focusing on the critical role of resources and infrastructure in healthcare delivery.
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Supporting Global Workforce Well-being
Approaching the end of 2024, business leaders and employees are still dealing with global conflicts, economic uncertainty, and the dynamics of remote and hybrid work. These challenges, along with the stress and risk of burnout that can go along with them, have made it more important than ever to focus on building physically and mentally healthy teams. When all the individual members of a larger group are thriving, there’s a greater sense of personal connection, purpose, and belonging, contributing to many business benefits. However, achieving team-wide well-being can be tough, especially when employees are on assignments all around the world. Expatriates could arguably be at even greater risk of suffering from feelings of isolation, stress, and burnout as they adapt to their new cultures and roles.
To explore how companies can best support expatriate well-being, Sterling Lexicon and Positive Expatriation teamed up to bring together together the expertise and perspectives of several industry professionals, including Dr. Judith Eidems, Co-founder of Positive Expatriation, author, university lecturer and expat; John Kerr, Head of Global Mobility for Pinsent Masons; and Dr. Sabine Wendenburg, a Stress and Burnout Coach and expat. Here we share some highlights from two virtual sessions moderated by Sterling Lexicon’s Chief Commercial Officer, Daniel Halfpap.
Key Takeaways
• Supporting employee well-being isn’t just a nice-to-have; it’s essential for business success
• Employees and family members on global assignments need unique levels of support to thrive
• An understanding of positive psychology can help expatriates achieve well-being and success
• Investing in the overall health of expatriates benefits both the employee’s career and the company’s performance.
Why Well-Being Matters
Savvy business leaders understand that helping employees achieve optimal mental and physical wellness isn’t just beneficial for their workforce but can improve business outcomes too. Healthy, happy employees work more effectively, energetically, and creatively. Multiple studies have connected high levels of well-being with improved employee engagement and retention, better stock market or valuation performance, and increased profitability.
Positive psychology is the scientific study of what makes life fulfilling by concentrating on what’s right and good, vs. fixing something that is wrong
The Role Of Positive Psychology
Dr. Eidems introduced Positive Psychology, which is the scientific study of what makes life fulfilling by concentrating on what’s right and good, vs. fixing something that is wrong. It focuses on building on our strengths, cultivating meaningful, rewarding life experiences, and fostering traits like gratitude, resilience, and compassion for self and others.
Dr. Eidems also offered the use of the acronym PERMA as a quick, easy way to help remember the key elements of positive
psychology in the context of global assignee experiences:
• Positive Emotions: An open mindset leads to better experiences for expatriates and their families
• Engagement: Focusing on strengths makes employees feel more engaged in their assignments
• Relationships: Trusted and supportive networks help combat loneliness and foster connection
• Meaning: Expatriates and family members need purpose as they re-invent themselves in a new culture
• Accomplishments: Appreciating milestones and recognising progress is vital. By helping expatriates focus on these core building blocks, they will be better equipped to turn challenges into opportunities, translating directly into happier, more productive, and innovative employees who bring tremendous value to your business.
Practical Ways To Implement Well-Being Programmes
To put these theories into practice, consider these questions to ensure your organisation is building positive and rewarding expatriate experiences:
1. Are we focusing on emotional strengths and open mindsets for success, and not just the technical skills that are required?
2. Are we giving both introverted and extroverted employees the same opportunities and levels of support?
3. Are we preparing employees and families for potentially negative experiences and equipping them with resources to process their emotions, or are we perhaps “overselling” just the good aspects of the assignment?
4. Are we recognising that movement between similar cultures still requires adjustment time and support?
5. Are we setting realistic expectations around timelines, milestones, and outcomes?
6. Are we looking at employees’ needs holistically or only offering specific types of support?
Easy, Quick Wins
No matter where you are on your own organisational journey to building wellbeing programmes, there are several lowor no-cost initiatives you can implement right away:
• Personalise orientation visits and location guides to show you understand employees’ and family members’ unique needs and ensure all members truly understand the ‘why’ of the assignment and what it will mean to them
• Build connections before assignments begin by integrating employees into their new teams early
• Develop a mentor programme to connect new expatriates with those already in the location
• Leverage existing resources in your organisation that could help with expatriate preparation, such as leadership development tools that help raise awareness about biases and share ways to cultivate resilience and an open mindset
• Create a supportive culture where employees feel comfortable asking for help
• Support the entire family with resources to help them establish their new identities and social networks
• Recognise and build on key strengths to keep employees engaged and motivated. Remind them that assignments are great opportunities to foster new strengths, too
• Develop a clear plan for using newly gained skills to avoid the risk of losing talent at the conclusion of an assignment or shortly after a transfer.
Making The Business Case
We all know you can’t manage what you can’t measure, but understanding the influencers on well-being, like happiness,
purpose, job satisfaction and stress can be tricky to quantify. Fortunately, an initiative sponsored by global job platform Indeed provides a massive data set on workforce well-being, with results from over 20 million surveys. That data allowed them to develop a formula for calculating a work well-being score – an important part of the process for understanding where you are today, and how your efforts are contributing to things like talent attraction, development and retention. When you have data to support how investments in well-being tie into higher company valuations, better return on
JUDITH EIDEMS
PhD is a trainer, coach, consultant, author and experienced expatriate. She co-founded Positive Expatriation with Bernadette M ū ller, PhD in 2023 and can be reached at: je@positive-expatriation.com.
assets and greater profits – the case is far easier to make.
Conclusion
With the considerable investment in an employee's future career and the business itself that global assignments represent, ensuring employees and families feel valued and cared for can go a long way toward retaining that talent and the skills they have gained. As the industry dedicated to supporting a globally mobile workforce, we can continue to work together to ensure thriving, high-performing teams.
KRISTIN WHITE
Kristin White is director, thought leadership with Sterling Lexicon, with more than 30 years of experience in global workforce mobility, including several as an expatriate. She can be reached at kristin. white@sterlinglexicon.com.
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International Remote Work: Challenges And Considerations
International remote work arrangements are widely thought to have arisen in response to the Covid-19 global pandemic, where international remote working was an enforced reaction to support employees and maintain business continuity in exceptional circumstances. However, although the pandemic did lead to a significant increase in these arrangements, they are not new and have been considered as potential alternatives to physically relocating employees for as long as technology has been available to enable employees to, in theory, work from anywhere.
The difference we have seen in recent years has been a shift in employee expectations about what is possible or desired from a workplace flexibility perspective. Even when pandemic restrictions had lifted the employee mindset had changed and the traditional way of working in a fixed location was no longer considered to be the only option.
Employee Flexibility
The vast increase in the number of people working from home during the Covid-19 pandemic led to employees requesting to work from locations other than their current home country. While companies may not be willing to permit this arrangement on a long-term basis, flexibility in choice of work location has been used effectively as an employee benefit, especially within certain industry sectors, specific types of roles or among a younger demographic, where it is often most feasible. There is a danger that not offering this option can adversely impact an organisation’s talent attraction and retention strategy.
Challenges
We wanted to address some of the challenges associated with a rise in employee requests for work location flexibility and highlight ways in which international remote working can be managed to provide a benefit to employees and mitigate compliance risks to the business.
Compliance issues will remain the first hurdle to overcome in order for employers to be able to manage a successful international remote work arrangement; with the right to work in the chosen host country the first non-negotiable element. Employees should be encouraged to take ownership for their own immigration needs and a lack of options to legally work in the host country would mean a denial of the request for flexibility.
Assuming there is a legal right to work there are additional compliance and regulatory challenges that need to be addressed before the arrangement can be approved.
Many employers take the approach that any additional income tax liabilities as the result of an employee requested flexible work arrangement are their own responsibility
Impact To Employees
Ensuring tax compliance is relatively straightforward when managing a longterm assignment. However, in the case of international remote work, there are additional challenges associated with the fact that the employee’s source of income may be from services performed for a company in one location, while the employee is resident
in another. This may be complicated further by the question of where the company responsible for paying the employee is based. This will likely give rise to concerns that the employee’s income tax liability will increase significantly as a result of a flexible work arrangement.
Many employers take the approach that any additional income tax liabilities as the result of an employee requested flexible work arrangement are their own responsibility. However, in the interests of retaining key employees, there is an argument that companies should make employees aware of the potential tax implications of choosing to work elsewhere, allowing them to make an informed decision.
Compliance Risk For Employers
In addition to a potential increase in employee income tax companies need to be fully compliant and aware of increased corporate tax liabilities and risks associated with permanent establishment.
Countries classify the concept of a Permanent Establishment differently, but the general concept means if a company is based in Country A, but also has operations in Country B, it may be liable to pay taxes on income derived from Country A’s operations in Country B and/or vice versa owing to the company’s ownership structure. The risk in the context of international remote working is that some jurisdictions may treat an employee’s presence in their country as sufficient to create a Permanent Establishment which means that not only is the employee liable to pay taxes on their income in that location, but the company may also be liable to pay corporate taxes on the same income in that location, creating potentially an even greater cost to the company.
A way of mitigating this risk is to limit the amount of time that people can spend performing work internationally or impose a restriction on the types of duties performed. In countries where the company does not have an entity, the option of using an Employer of Record has emerged as a possible solution. However, there are also limitations with this arrangement. These include the need to limit the roles and tasks that the employee can perform (for example, the employee can’t generally act as a representative of their employer or sign agreements on behalf of their employing entity).
Data Security
An area often overlooked but of significant importance is data protection and security. An employee working remotely may be based in one country but accessing data such as employee records, confidential financial information or other sensitive information on a computer network or servers in another country. There may be legislation or contracts between companies and their clients which prevent this from happening. For example, common inclusions in commercial contracts are clauses prohibiting one party from transferring data in relation to their commercial relationship to its operations and employees based in other countries. Furthermore, legislation needs to be considered. For example, the European Union’s General Data Protection Regulation (GDPR) provides rules on personal information and what companies need to do to maintain information and access securely.
Many countries have legislation regarding the storage of personal data and will levy penalties in the event of a breach, with the EU’s presently the most severe. This means that companies will need to take measures to ensure that when their employees are accessing their networks from other countries, they are doing so securely.
Salary Considerations For Longer-Term Requests
For international remote working the situation can be fairly simple in cases where an employee requests to work remotely on a more permanent basis. Once the legal and contractual considerations have been taken into account, companies may be happy to take a hands-off approach and simply maintain the current salary, letting employees manage their own tax and cost consequences. However, if companies do want to take a more active approach they need to not only consider if they are prepared to meet any costs in addition to the current salary but also what is the fundamental amount they are prepared to pay for the role, and how that is determined.
For these more complex cases, companies may first want to make an assessment of the tax and social security situation and, as employees are unlikely to be able to make an accurate assessment themselves, provide the employee with some guidance. While some employees may be willing to take a reduction in net income in order to live overseas in a favoured location, the question of whether the company is willing to pay for any additional employer costs, such as payroll taxes or social security contributions, remains. Another consequence of employees choosing to work overseas is that their salary is likely to be paid in a different currency to their day-to-day living costs. In addition to the administrative issues
associated with this, companies need to decide if they will make any considerations for exchange rate fluctuations.
Ultimately, companies may be forced to consider how they determine the market rate salary for a role that can be done from anywhere. If employees are free to work from anywhere, and they can work from multiple countries, this becomes an almost impossible task to determine the market rate salary.
So, although international remote working is mostly driven by employee choice, and companies are unlikely to provide much assistance in the vast majority of cases, a fully hands-off approach might not be entirely possible. Some may at least consider it part of their duty of care, or part of internal approval processes, to provide an assessment of the impact to the employee so they are fully informed about their decision.
So, although international remote working is mostly driven by employee choice, and companies are unlikely to provide much assistance in the vast majority of cases, a fully hands-off approach might not be entirely possible
Employee Flexibility And Talent Retention
When considering international flexible working arrangements the benefits to the company are harder to quantify. Mainly
they function as an employee attraction and retention tool with many employees wanting flexibility in their physical work location. In an increasingly competitive global job market attracting and retaining the right talent is an increasingly difficult prospect, allowing more flexibility is one way to build employee satisfaction.
What Global Mobility Teams Can Do
The current challenge is for companies to formulate a flexible and reasonable approach and integrate this into their current suite of policies. Given the potential volume of requests for international flexible working which companies may have to deal with (the majority to be one or two weeks a year) we would also recommend a transparent decision-making process in which the majority of decisions can be made quickly and cost-effectively.
Helen Mildred is the Head of Consultancy at ECA International where she employs knowledge gained from more than 20 years in global mobility roles in the investment banking sector to advise our clients regarding policy design, implementation and programme management. Helen also has personal experience of global mobility through expat assignments in Bengaluru and New York.
After using home-based approaches (balance sheets) for international assignees for decades, multinationals are increasingly contemplating switching to a host-based approach for some of their international moves, including temporary ones. Budget restrictions and attempts to simplify assignee management are among the reasons why a growing number of companies are pondering whether to use alternative approaches.
The traditional problems associated with host-based approaches include: inequitable compensation levels make some locations far more attractive than others, benefits disruption, restricted access to certain local amenities for foreigners and repatriation. Attempts to fix the host-based approach with a local-plus or host-based-plus model, adding benefits to the host/local approach, are not always cost-effective.
Yet the local approaches deserve a closer look, either as a solution for specific moves or simply to benchmark and put other compensation approaches in perspective.
Approaches Definitions
Host-based / local approach
Local plus approach
Home-based approach
Hybrid approach
Best of home and host approaches
Net-to-net calculation
When Is The Host-Based Approach Best Used?
A host-based approach is about integrating the employee into the local market structure by paying local market rates. One-time relocation costs are covered by the company but ongoing allowances and premiums are not provided. This approach can cut expenses by reducing or eliminating unnecessary expatriate-related pay elements. The hostbased approach creates equity between local nationals and expatriates doing the same or similar jobs and simplifies administration.
It is a common approach for one-way transfers/permanent moves and locally hired foreigners. Companies also try to localise assignees who have been on international assignments for five years or more and transfer them to a local package.
According to Mercer’s 2023 Permanent Moves, One-way Transfers and InternationalHired Foreigners survey, six of ten companies use a pure local/host-based approach, relying on local market data for one-way transfers, while close to one-fifth perform a “net-to-net calculation” to ensure that employees maintain the same lifestyle as in their previous country of employment and/ or provide specific “expatriate” allowances and benefits.
A compensation approach intended to integrate the employees into the host-country structure by paying them according to the local market rate.
A local/host-country approach supplemented by selected expatriate benefits elements not typically provided to local nationals.
An approach whereby the employees’ assignment compensation and benefits are based on the home country or a reference country’s terms and conditions, and not on the terms and conditions of the country where they are assigned.
A compensation approach that combines home and local or international elements.
A comparison on case-by-case basis or by country of the home and host-based approaches.
A calculation aiming at identifying the equivalent of the home base salary in the host location, taking into consideration tax and social security deductions, cost-ofliving and housing costs differentials.
The use of a host-based approach is not limited to permanent moves, Mercer’s 2023 Worldwide International Assignments Policies and Practices Survey shows a growing interest in host-based or hybrid approaches for temporary assignments, with 18% of companies indicating they are using a host-based approach, a hybrid approach, or the best of the home and host approaches. However, local pay and benefits in the host location might not be competitive internationally, creating a significant barrier to mobility. Even if the salary structure in the host location is competitive, tampering with the base salary can also lead to more costs for mobile employees over the longterm. The salaries of mobile employees on host-based approaches tend to inflate over time, as they are not likely to accept pay cuts when moving. Working closely with talent management and understanding the longterm intentions is therefore important when using host-based approaches.
Setting A Host-Based Approach
In theory, the employee base salary should be fully aligned with salaries in the host country. Several factors have to be taken into account.
Understanding Market Segments
In some locations, the market is segmented and there are different pay structures for locals, local employees with international experience and foreigners hired locally. The specific skillsets and international experience of the returnees and locally hired foreigners sometimes means that they can expect a higher salary than locals without international experience. In some locations, such as the UAE, nationals may have a higher salary than foreigners and may also receive additional allowances.
Beyond The Low-Versus High-Paying Countries Debate
The concept of high- and low-paying countries would be valid if all countries had similar salary curves, for example, if they were highly egalitarian and their salary curves were like those of the Scandinavian countries, but we know that the reality is very different. The main characteristic of emerging countries is that their salary curves are usually very steep – in other words, lowlevel employees earn very little but top-level managers have very high salaries (sometimes
higher than in Europe or the US). This is the result of persistent social inequality and years of double-digit salary growth.
The evolution of the salary curves has multiple consequences for compensation management. Entry-level and mid-level positions are less compensated in highgrowth emerging markets compared to mature markets, but for top-management positions, salaries in emerging markets tend to exceed those in mature markets.
Such disparity can make moves to emerging markets not appealing enough for entry-level employees who would face an actual loss of income. On the other hand, such moves may be enticing for skilled experts but then create cost issues for employers. The global war for talent also means that low-cost mobile employees do not remain low-cost for long when their international experience increases and their expectations rise. It can also make repatriation quite difficult.
The complex compensation landscape makes it difficult to make assumptions about using a host compensation approach in each country. Such models will seldom be applicable for all job levels, all industries and all types of employees.
The Weight Of Salary History
Understanding what the target salary should be in the host location is important, but few employees accept a pay cut, and the starting point of the discussion will often be the current salary of the employee in the home country.
In these cases, the objective will be to determine the equivalent salary in the host location, considering purchasing power, tax and the local salary ranges. This will help assess whether there is a gap and will inform the decision about the need for additional compensation.
In many cases, the host market salary will not be aligned with the current salary of the assignee. If the salary gap is too significant (outside of the company’s salary band for a given job), it will need to be addressed.
Use Of Allowances To Bridge Salary Gaps
Allowances and benefits (such as housing allowances) can help bridge the gaps to some extent, especially when the host-based approach is used for an assignment of limited duration. In case of permanent relocation, the allowance could result in an undesirable ongoing cost if not phased-out. In certain countries, additional allowances and benefits cannot be included in the amount used to determine the minimum salary requirements for visa and employment law. Adding allowances to the host-based package effectively turns it into a type of local-plus package, shifting away from the strict hostbased logic.
Remuneration Perspective
Gross base pay plus employer costs
Gross base pay
Net base pay
Adjusted net
Relevance
Employer costs matter for the company but are not always visible to the assignees. They should be mentioned in package discussions as they affect the feasibility and overall cost of using a host approach in each country.
The gross base salary is not always fully relevant because it includes tax and social security amounts. It tells little about the actual purchasing power of the assignee. It is however often the first figure that assignees have in mind.
The net base salary gives an indication of the remaining amount after tax and social security deductions. However, it does not factor in costs in the host locations.
The adjusted net figures take into account the cost-ofliving differentials. The objective is not to pay a cost-ofliving and a housing allowance as in a home-based package. It is to understand whether a host local salary will result in a different purchasing power from the home location.
Ultimately, the host approach remains an important part of the mobility toolbox. The rise of the concept of pay equity might also renew discussions about host approaches
Assessing The Total Cost Of Using A Host-Based Approach
More and more often, compensation budget decisions need to rely on the “total” cost projection. HR teams need to understand and communicate to their business stakeholders not only the “host-based” compensation and benefits but also the incremental costs incurred by the fact that the job is being offered to a foreigner living abroad rather than a local employee and that they might have trailing social security liabilities in the “home” country.
When setting a host-based salary, assessing the target amount upon departure is not sufficient. How will the salary evolve over time? A cost projection may provide some visibility into the impact of salary and total cost progression.
The Short-Term And The Long-Term View
A host approach can be a way to achieve pay equity with local peers but sometimes short-term equity could lead to long-term distortions. If the employees on a host package remain mobile during their career, the fluctuations of their base pay (usually upwards) will threaten consistency and equity over the long-term. It can lead to a category of highly paid employees due to the accumulation of move-related pay increases. Ultimately, the host approach remains an important part of the mobility toolbox. The rise of the concept of pay equity might also renew discussions about host approaches. In any case, the debate about compensation approaches is far from over. The increasing complexity of the mobile landscape and the advent of distributed global workforces is more likely to emphasise the need to rely on different compensation strategies than take a single approach.
OLIVIER MEIER Mercer. Find out more: E: olivier.meier@mercer.com www.mobilityexchange.mercer.com
Whether you are creating your first international mobility programme for employees or addressing fundamental changes to an existing programme, our International Human Resources team can help. Deloitte provides consulting support that has an appreciation for each company’s size, background and unique cultural environment, aligning your international programme goals with corporate business strategies. Our consultants have developed deep expertise in many fields based on first hand experience with many of the world’s leading organisations: international assignment policy and process design, benchmarking, service delivery modelling, improving vendor management and helping our clients become more compliant and their administration more cost-effective.
RELOCATION ASSOCIATIONS
ASSOCIATION OF RELOCATION PROFESSIONALS (ARP)
9&10 Diss Business Centre, Dark Lane, Diss, Norfolk, IP21 4ND
Contact: Tad Zurlinden
Telephone: +44 (0)1379 651 671
Fax: +44 (0)1379 641 940
Email: enquiries@arp-relocation.com
Website: www.arp-relocation.com
The ARP is the professional association for the relocation industry in the UK. The ARP’s activities include seminars throughout the year, an annual conference, the publication of an annual Directory of Members and a website, which is updated regularly.
THE
EUROPEAN RELOCATION ASSOCIATION (EuRA)
9&10 Diss Business Centre, Dark Lane, Diss, Norfolk, IP21 4ND
Telephone +44 (0)1379 651 671
Fax: +44(0)1379 641 940
E-mail: enquiries@eura-relocation.com
Website: www.eura-relocation.com
EuRA is an industry body for Relocation Professionals in both Europe and Worldwide. EuRa have launched The EuRA Quality Seal, the world’s first accreditation programme for relocation providers. This pioneering initiative provides a straight forward, cost effective audit to reflect your company’s excellence in providing relocation services.
SCHOOLS
ACS INTERNATIONAL SCHOOLS
ACS International School Cobham Heywood, Portsmouth Road, Cobham, Surrey, KT11 1BL, England
ACS International School Egham London Road (A30) Egham, Surrey, TW20 0HS, England
ACS International School Hillingdon Hillingdon Court, 108 Vine Lane Hillingdon, Middlesex UB10 0BE, England
ACS International School Doha Al Oyoun Street, Al Gharrafa PO Box 200568, Doha, Qatar
Telephone: 01932 869 744
Email: cobhamadmissions@acs-schools.com
Website: www.acs-schools.com
Contact: Dean of Admissions
ACS International Schools were founded in 1967 to serve international and local communities. The schools are non-sectarian and co-educational (day and boarding), enrolling students aged 2 to 18 years. The UK based schools have over 30 years’ experience of teaching the International Baccalaureate, and ACS Doha offers an international and American curriculum.
TASIS THE AMERICAN SCHOOL IN ENGLAND
Coldharbour Lane, Thorpe, Surrey TW20 8TE
Contact: Sarah Travis
Telephone: 01932 582316
Email: ukadmissions@tasisengland.org
Website www.tasisengland.org
TASIS England's diverse student body includes over 50 nationalities and many in the school community have experienced the challenges of relocation. Along with well-established welcoming programs, families receive ongoing support as they cope with the practical and emotional aspects of their transition to life in the UK. Taught in small classes, students (ages 3–18) benefit from a balance of academics, arts, athletics, activities, and service leadership. Excellent exam results and oneto-one college counselling enable 97% of TASIS graduates to gain acceptance to their first- or second-choice university in the UK, the US, and worldwide.
SERVICED APARTMENTS
THE ASSOCIATION OF SERVICED APARTMENT PROVIDERS (ASAP)
Suite 3, The Business Centre, Innsworth Tech Park, Innsworth Lane, Gloucestershire GL3 1DL
Contact: ASAP Office
Telephone: +44 (0)1452 730452
Email: admin@theasap.org.uk
Website: www.theasap.org.uk
Twitter: @ASAPThe
LinkedIn: The Association of Serviced Apartment Providers
ASAP is in the industry association representing, promoting and improving the serviced apartment sector. Our 124 members including serviced apartment operators and agents represent in excess of 25,000 serviced apartments in the UK, Europe, USA and Canada. When booking your serviced apartment, look for our Quality Accreditation kitemark which confirms the operator is fully compliant with all the core legal, health and safety practices and means you can book with confidence.
TAXATION
BDO LLP
55 Baker Street, London, W1U 7EU
Contact: Karen McGrory Telephone: 020 7893 2460
Fax: 020 7893 2418
E-mail: karen.mcgrory@bdo.co.uk
Website: www.bdo.co.uk
BDO LLP is the award-winning, UK Member Firm of BDO International, the world’s fifth largest accountancy network with more than 1500 offices in 162 countries.
We have a partner-led approach, which delivers the highest quality of service by using short, functional chains of communication to aid decision-making. Clients benefit from our fresh thinking, constructive challenge and practical understanding of the issues they face. Developing strong, personal relationships with our clients is at the forefront of our service approach.
Tax advice is just one of our award-winning services and our expatriate team give practical and direct advice, delivering solutions which suit your needs.
GLOBAL TAX NETWORK LTD
1st Floor, Andrews House, College Road, Guildford, GU1 4QB
Contact: Richard Watts-Joyce CTA, ATT Telephone: +44(0) 207 100 2126
Global Tax Network Ltd is the UK member of Global Tax Network (GTN), an international affiliation of professional firms in over 100 countries specialising in global mobility tax consulting. We provide assistance to employers with the tax administration of international assignment programs and private client services to high net worth individuals, non-domiciles, professional sportspersons and entertainers. Our consultants include members of the Association of Taxation Technicians, Chartered Institute of Taxation, and US Enrolled Agents.
To advertise your services to our Global HR readers in this Directory please email helen@internationalhradviser.com for further information.
