Guidelines for Taxation and Immigration Considerations Related to Staffing for new International Locations

Supporting Procedure

Recruitment and Appointment for International Assignment Opportunities Procedure

Preamble

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 Expatriate and Senior Payroll Services, Monash HR and Corporate Finance Division at the planning stage.

1. Tax Residency

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.

Definition

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.

Consideration

Tax residency should be considered at the assignment planning stage in consultation with Expatriate and Senior Payroll Services, Monash HR and tax consultants. An assessment checklist is provided below to assist with initial consideration of the complexity of the issues:

How is tax residency determined in the home/host locations?
When is tax residency likely to commence – i.e. at the beginning of the assignment or after a period of stay? Will any adjustments be made retrospectively?
How are days in the country calculated – i.e. are part days or weekends considered? How are the days in country substantiated?
Are there any tax planning opportunities to ensure the assignee maintains non-resident status – particularly in assessing the part-years of arrival/departures?
Is any there any specific documentation required to prove residency in another location? How is this to be obtained?
Are there any concessions specifically available to academics (i.e. any provision in the double tax agreement between the home and host locations that specifically refer to visiting academics).

2. Taxation of Employment Income

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.

Definition

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’.

Consideration

Where a staff member is subject to individual tax, it is important to assess each component of the compensation package to determine:

Is it subject to tax and to whom (i.e. the entity or the individual)?
How is the taxable benefit calculated?
Are there any opportunities for tax planning (i.e. delivering a benefit on a reimbursement basis may be more tax effective than a cash allowance)?

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.

3. Corporate tax obligations arising from staffing practices

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.

Definition

“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.

Consideration

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:

The employee will be a tax resident or non-resident in the location they are paid
The entity paying the employee is a resident or non-resident of the location where the services are performed
Any internal chargebacks will be processed between the entities in the home and host locations

4. Other taxation issues indirectly connected with assignment of staff

International staffing also has a range of other complex set of immigration and taxation implications.

Consideration

Advice from Expatriate and Senior Payroll Services, Monash HR and Corporate Finance Division is crucial to ensure these staffing arrangements are established in the most appropriate manner.

Cross-charging – varying rules may apply to situations where the salary costs of an employee is paid in one location and reimbursed by the other location, or charged as ‘consultancy’ fees.
Visiting Academics – some countries have specific tax rules and exemptions that apply to education institutions, such as universities.
Tax Concessions – assessments should be made as to whether there are any tax planning opportunities for Monash and/or the employee and the specifics of how this needs to be structured to avoid creating unnecessary liabilities.

5. Immigration consideration

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.

Consideration

The following should be considered with regard for the expected duration of the assignment period (i.e. business trip, short-stay, long-term etc)

Does the visa confer work rights? Which type of visa will be most appropriate?
Is a separate residence permit required?
Are there any sponsorship requirements?
What is the maximum allowable length of stay?
Can the visa/work permit be extended or renewed?
Is it possible to transfer from a visitor visa to a work permit?
What is the definition of ‘spouse’ for immigration purposes?
Will the staff member be allowed to work in the host locations?
Can dependants be included in the primary visa applications?
What are the key eligibility criteria in obtaining the relevant visa?