Taxes, Payment Transfers Top of Mind For Expat Assignments

Paying expatriate employees requires knowing the basics of how employee movement affects tax liability, becoming familiar with treaties, and, above all, learning from mistakes, a payroll practitioner said May 16.

“Usually, foreign compliance is learned the hard way, and the problem with us in payroll, we’re often the Eeyore of the business” telling other parts of the company not to do something, said Tim Kelsey, FCIPP, AIPA, managing director of Kelsey’s Payroll Services Ltd.

Tax liability is based on residency, Kelsey said, and those deemed ordinarily resident in a country are generally subject to tax on their worldwide income. Nonresidents are still taxable on income they earn in a country, regardless of where it is paid, he said.

“The first thing you should do if you’re sending people off from a particular country to another country is to check whether there is a double taxation agreement” between the countries, Kelsey said. The treaties ensure that residents of one country working in the other country are taxed in their country of residence, subject to the treaty’s conditions.

Kelsey spoke at PayrollOrg’s 2025 Payroll Congress in Kissimmee, Florida.

When reading DTAs, Kelsey mentioned that the article on employment income is usually called “Employment Income,” or “Dependent Personal Services” in older treaties, and also recommended replacing the opaque terms of “contracting state” and “other contracting state” used in the treaties with the names of the signing countries.

Individuals who may have special treatment under DTAs include pensioners, teachers and researchers, performers and artists, company directors, and civil servants, Kelsey said. In particular, performers are often taxed in the country of performance, he said.

Employers may have to register with the tax agency in a country to benefit from treaty exemptions, Kelsey said, adding that not doing so may result in a tax liability for the traveling employee. He used as an example His Majesty’s Revenue and Customs’ Short Term Business Visitor Scheme in the UK, which allows employers of employees coming to the UK to work for up to 183 days in a 12-month period to forego withholding taxes from the employee in exchange for extra reporting of their location from both the employee and the employer. He also mentioned Japan’s Application Form for Income Tax Convention, which has to be filled out, stamped, and filed before an employee begins work in Japan.

Kelsey said there is no one way to monitor expat assignees’ locations and examples of doing so could range from manual tracking to using computer logon records or location-tracking apps. He said freedom of movement may give employers a “false sense of security” about tax liabilities, and just because taxes are being paid to the home country does not mean nothing is owed to the host country.

Some countries require tax clearance, meaning all obligations have been settled, before an employee leaves, Kelsey said. His examples included China, which can prevent an employee from leaving without tax clearance, and Hong Kong and Singapore, both of which prevent employers from paying wages owed to a departing employee within one month before departure until clearance is sought and granted.

Moving employees between jurisdictions is expensive, Kelsey said, and he encouraged businesses to make sure they are realistic about the costs of assignments. His rule of thumb was that assignments cost 1.5 to 2 times the employee’s salary for assignments of up to two years, or 2 to 3 times the salary for assignments of two to five years.

Kelsey recommended adopting a detailed global mobility policy to avoid situations where having no limits to what the company is willing to do for a relocating employee comes back to bite it, and also to distinguish between assignees and frequent business visitors. He cited an example where a company agreed to pay the costs of pet relocation for an employee and received a bill for shipping a horse from the UK to Canada.

Social Security Agreements

Kelsey divided cross-border social security coverage into three zones: multinational blocs, such as the European Economic Area, Caribbean Community, or Association of Southeast Asian Nations; other pairs of countries with a social security agreement; and everyone else.

In the EEA, an individual is generally only subject to contributions in the country where they work, unless they are on a temporary assignment or work in multiple countries regularly, in which case they are covered in and pay contributions to their home country, Kelsey said.

Social security agreements are similar in that assignees stay under their home country system, but do not contemplate multi-country workers, Kelsey said. Under the UK/USA agreement, for example, assignees can stay in their home country system for five years, but agreements vary, he said.

When there is not an SSA, contributions may be owed to both the home and host countries, which could increase the cost of an assignment, but there may be initial exemptions for new workers, Kelsey said. For example, workers coming to the UK not from the EEA or an SSA country are exempt from social taxes for their first year, he said. In another approach, Singapore’s system does not cover workers until they become permanent residents, he said.

“Don’t expect your tax advisers necessarily to be good at this stuff,” Kelsey said, advising attendees to seek out experts in social insurance systems at tax firms. “You need the specialists who know what they’re talking about in terms of social insurance.”

Paying Overseas

“Money going missing in transit is still a real issue,” Kelsey said of sending payments to employees overseas, especially as some countries require wages to be paid into a local bank account. Sudden bank closures and local labor laws can also hamper the ability to pay employees, he said.

Kelsey briefly spoke about tax equalization schemes, which try to ensure that employees “will generally be no better off and certainly no worse off” than if they worked in their home country, he said. An alternative is a tax protection or capping scheme, Kelsey said, which make the employee liable for taxes up to a predetermined maximum amount. Kelsey emphasized that any such schemes are company policies with no statutory basis.

Kelsey also recommended investing in cultural training for assignees, characterizing a training as increasing the chances of a successful assignment while costing less than a plane ticket to the assignment. He cited a statistic that 90% of failed assignments are caused by the failure of the assignee or family to settle properly in the new location.