Tax equalization for expats

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File Taxes From Your Home. Tax equalisation is presumably in place to encourage expatriates to work for their employers wherever they may be sent, sure in the knowledge that they are not disadvantaged tax-wise and their tax affairs are taken care of by the company’s appointed tax advisers. Tax equalization is the way of the future for enticing people into expat assignments around the world. It allows us to move the world over and not worry about the tax implications because we are secure in the knowledge that all is taken care of. The less economic stress an employee is under, the more they can focus on the personal and professional development that taking an international opportunity can present.

Tax Equalization and Hypothetical Tax Calculations for Expats. Under a tax equalization policy, the employee is assured that he or she will pay neither more nor less taxes on foreign assignment than what would have been paid had the employee remained in the US.

To achieve this, a firm calculates the total tax that the employee would pay in the U. Facing this complexity without assistance may cause your expatriate ’s head to spin. This is where tax equalization policy comes into play. The underlying theory of tax equalization is to ensure that the expatriate assignment is tax neutral to the expatriate employee. The expatriation tax provisions under Internal Revenue Code (IRC) sections 8and 877A apply to U. IRC 877(e)) who have ended their U. Different rules apply according to the date upon which you expatriated. The hypothetical tax will then be used by the company to contribute to the host country taxes and any residual U. By agreeing to enter into a tax equalisation scheme, expats effectively remove themselves from any entitlement to an actual tax refund i. By using tax equalization to the home country, the expat worker is assured of paying a tax rate as if they were still working at home, regardless of the tax rate in the host country.

Full tax equalization , including year-end reconciliation of hypothetical tax deductions. Deduction of hypothetical taxes without carrying out year-end reconciliation of hypothetical tax deductions. Tax protection, whereby the company reimburses expatriates for any taxes in excess of the normal home-country tax liability. This is then compared to the hypo tax deduction being held by the company.

At that point, the expatriate settles the actual difference with their employer.

Typically, the hypo tax is adjusted accordingly every year. Tax equalisation remains the most common approach to tax management, used by of companies according to our latest Expatriate Salary Management Survey. Global mobility will be easier if employment tax rates are the same in every country. The tax liability of an employee often changes during an international assignment.

If an expatriate is tax resident in a foreign country, such income will be taxable. Whether you are a Foreign National or U. The two options for such a tailored approach are called tax protection and tax equalization. Tax protection works as follows: The employer reimburses the expat for all taxes that are higher than a hypothetical burden called “stay-at-home taxation”. Therefore, no fiscal disadvantages will arise for the expat employee.

Under a tax equalization arrangement, an expat employee has their hypothetical tax burden withheld from their paycheck — that is, the taxes they would have paid had they stayed home. Meanwhile, their employer is on the hook for taxes the employee is liable for, both at home and in their host country. The expat worker is assured of paying a tax rate by using tax equalization to the home country, as if they were still working from their native lan regardless of the tax rate in the foreign country. The intent of tax equalization is to equalize the amount of tax paid so that the taxpayer who is living and working abroad pays what he or she would have paid in tax domestically. That is, the goal of tax equalization is to level out the level of taxation so that it is similar to what the taxpayer would have been assessed should he or she stayed within the United States.

Rob is fully integrated into the French office and reports to a manager in France. He follows the French holiday schedule but continues to receive expat perks (e.g., housing allowance, school allowance for children, home visits and tax equalization ). Rob requests and is given an extension for another two years. Read about our partnership with American Chamber of Commerce in Shanghai to provide quality expat tax filing services to AmCham members. If you are looking for U. Prior to having them prepare my taxes, I did research and read many great reviews regarding this company.

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