International taxation for your cross-border employees

A globalized company has a stake in the movements of the global economy, and part of this is international assignments, remote workers, and permanent transfers. However, international tax compliance can present significant challenges for the employee and the company.

Tax returns, obligations, and withholding can become very complex in the home and host country. Failure to comply with these obligations could lead to severe consequences and risks for the company and the employee.

Cross-border employees and their obligations in the U.S.

Having cross-border employees can often generate additional tax obligations in the home country. The U.S. is one of the only countries in the world that subjects its citizens and resident aliens to worldwide tax filing, even if they do not work in the U.S. If an employee remains a tax resident, they automatically address double taxation, andit is a type of tax problem that would be avoided if U.S. employees take advantage of the exclusions and credits available on their tax returns.

In addition, if the U.S. has a social security agreement with the Host country, it may be possible to continue to pay social security in the U.S. and receive a full or partial exemption from social security in the destination location. These measures can result in significant tax savings for the company and the employee.

A U.S. taxpayer living abroad may have additional filing requirements; for example, the Foreign Account Tax Compliance Act (FATCA) requires disclosing foreign assets for U.S. taxpayers with foreign purchases above certain thresholds based on their marital status and location of residence.

The U.S. has income tax treaties with more than 60 countries that allow business travelers traveling between the U.S. and these countries to be exempt from host country income tax under certain conditions.

Depending on the location, project, and employee, the treaty exemption may vary, and companies should establish processes and set up planning to avoid risks as much as possible.

Tax compliance in the host country

Companies with personnel in different locations must be prepared to comply with local and national tax laws in the destination country. Failure to do so can result in serious financial repercussions.

Each country has different obligations, and it is the task of companies to study this before taking on a cross-border assignee.