Recruitment and Appointment for International Assignment Opportunities Procedure
These guidelines are to be utilised for consideration of the potential taxation and immigration requirements and the relevant legislation in both the home and host locations to assess the potential impact of each staffing decision. A basic framework is provided to assist in determining the tax and immigration obligations for Monash as an employer in a foreign country.
Note: Areas making staffing decisions for international locations should seek advice from Human Resources Division and Corporate Finance Division at the planning stage.
Where an individual is earning income in two countries, often there needs to be a process to determine which country is their tax resident location, as different tax rates and rules will apply dependent upon this status. Often there may be opportunities to plan for an international assignee to be a tax resident in the most tax effective jurisdiction (e.g. by limiting the number of days spent in one country). To achieve this, the concept of tax residency must be considered at the assignment planning stage.
As an employer Monash needs to be aware of the tax residency returns in order to withhold where appropriate the correct amount of tax from salary.
The concept of tax residency essentially requires that an individual has a “home” for tax purposes. If that individual leaves their home/permanent place of residence (for example Australia) temporarily to live overseas, on temporary overseas work assignments or on overseas study leave, their temporary absence could impact on their tax residence status in their home and their host countries for income tax purposes during their overseas stay. This is dependent on a number of factors such as where the individual is earning their income, how long they are away for etc.
A person can be considered tax resident in more than one country at any one time. In some countries a double tax agreement exists between countries. This agreement reduces the likelihood of tax being liable in both countries.
Tax residency should be considered at the assignment planning stage in consultation with the Human Resources Division and tax consultants. An assessment checklist is provided below to assist with initial consideration of the complexity of the issues:
Where a staff member is on an international assignment it is possible they will be taxed on their employment income and any allowance and benefits they receive in connection with their assignment. Furthermore, this income may be taxable in the home location, host location or possibly, both, depending on their tax residency status.
In general terms, income (which includes all elements of the compensation package) derived as a result of employment that is subject to individual taxes is referred to as ‘employment income’.
Where a staff member is subject to individual tax, it is important to assess each component of the compensation package to determine:
These factors should be considered with regard to allowance and benefits such as employer provided accommodation, employer provided vehicles, a cost of living allowance, children’s education, medical insurance, relocation expenses, home leave costs, foreign earned income, tax reimbursements, foreign pension contributions etc.
In addition, it also needs to be considered whether there are any other types of employment-related payments likely to be paid during the assignment period (e.g. termination payments) and how would these be taxed. Wherever possible, a comprehensive assignment plan should be developed before the commencement of an assignment to maximise tax planning opportunity and minimise potentially avoidable tax liability for the individual and Monash.
In certain circumstances a payment to a staff member may have an impact on the tax status of the specific payment and inadvertently create corporate tax liabilities for the organisation ie. Monash as the payment to the staff member could create a ‘permanent establishment’ in the foreign country. Presence of the staff member in a particular jurisdiction for a particular period of time and purpose may give rise to a Permanent Establishment for Monash in that location.
“Permanent Establishment” – is a complex concept both in international and domestic tax law which states that a taxable corporate entity may be created in a host location where an employee is operating, under certain circumstances.
The circumstances will vary upon a number of factors including but not limited to the countries, the duties of the person, the length of time and current and future intentions.
When considering employing or assigning an individual in a location where Monash does not currently have a presence, corporate tax advice should be obtained to determine whether this presence will risk the creation of various current and future corporate tax and other obligations in the new location.
It needs to be determined at the outset whether:
International staffing also has a range of other complex set of immigration and taxation implications.
Advice from Human Resources Division and Corporate Finance Division is crucial to ensure these staffing arrangements are established in the most appropriate manner.
It is vital that the staff member has the correct visa to enter and/or work in the particular locations. Failing to comply with the host country’s legislative requirements has serious implications for the staff member and the organisation.
The following should be considered with regard for the expected duration of the assignment period (i.e. business trip, short-stay, long-term etc)