Expat Tax Equalisation: Yes, But Is It Fair?

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Expat Tax Equalisation: Yes, But Is It Fair?

In the other articles on expat tax equalisation we explored how it works and if you are paying too much. Now the question is, is it fair? This depends on whether you are seconded to a low tax or a high tax country.

By The Fry Group

In our experience, a country will operate a ‘global policy’ either to apply tax equalisation to every assignment (regardless of from where or to where the individual is assigned) or they will simply do nothing and leave responsibility for the payment of tax and filing of tax returns to the individual in their host country.

A company can, of course, operate whichever policy it wishes. In theory, it can also be selective about where it operates tax equalisation and where it does not.

If an individual is tax equalised we think it is also important not to forget the added benefit that the individual’s tax affairs would normally be dealt with by competent professionals both in the home and host country. The value of this should not be underestimated as issues of residence, global mobility and international remuneration packages are constantly changing.

Frankly, it would be almost impossible for an individual to be reasonably expected to manage their tax affairs in both jurisdictions to cover the correct taxation treatment of, for example, phantom stock options, long-term productivity bonuses, capital gains tax etc.

Can you imagine how difficult it would be to grapple with the international tax regime of, say, Japan, not to mention having to deal with the Japanese authorities personally – if it were not for the team of professionals the company employed to attend to this on your behalf?

So am we arguing for tax equalisation? No – not particularly. It is true that tax equalisation can confer some fairly significant benefits on an expatriate but, as we have seen, there can also be downsides.

It simply comes down to understanding the expatriation process relevant to your employer and the terms governing your assignment.

The million dollar question is whether an individual employer will allow individual assignees to opt out of tax equalisation if it is in their best interests to do so. That is a matter for negotiation personally with the employer. Good luck!

Source: The Fry Group, financial advisers to expatriates

See the related articles:

Moving Abroad Checklist

Initial Considerations

Will your partner be travelling with you?

If so, what will they be giving up in your present home and will they be able to continue with their career in your new home? You will need to check whether a separate visa is required for your partner to work or if your visa gives that right. If they are unable to work you will need to decide on the effect on your finances and what alternatives are available to give a fulfilling life (home business, training, voluntary work).

Are you taking family with you?

Moving with family raises many exciting opportunities, but also can create challenges. The HSBC Expat Explorer survey indicates that expat kids can take six months to settle in to their new country (see article). Getting young or even older children to prepare to move and leave their friends and family behind can be a challenge and should be thought through.

The options for education is another area that needs to be thought through.

Moving your child to a new country with a different education system can be a great opportunity to broaden their experience, but if they are close to key exams the timing can make this inadvisable. If you do take your family with you, it is important to decide between joining the local school system or choosing an international school.

Where will you be living?

Whether you will be living in a house or apartment, furnished or unfurnished, these decisions will affect what you need to take with you. The time you are planning to live overseas will also affect whether you should leave your property at home empty, rent it out or sell it. See the article Sell, Store or Ship.