TAXATION | International Remuneration

UK expatriates working abroad for a full financial year are not liable for UK tax unless their salary is paid in the UK as long as they do not fall foul of the 183-day rule. This rule, which means that UK taxation is incurred at least on some income, applies if an expatriate visits the UK for more than 183 days in any one tax year or for on average more than 90 days per year for the period of the whole assignment.

Local taxation rates in host countries, however, are enormously variable. True to the policy of 'keeping the expatriate whole' (ie ensuring that they are 'no worse off' in the host country), companies may elect to safeguard them from fiscal penalization by one of the following methods:

§  Tax protection. When an expatriate is paid a gross salary and working in a location where the tax rates are low, the employer need make no adjustment, but when the host country tax rates are higher than in the employee's home country, the difference is reimbursed, usually in the home country.

§  Tax equalization. The system of tax equalization is more equitable than that of tax protection and is therefore favoured by multinationals with large numbers of overseas employees. An expatriate who has benefited from a tax 'windfall' through the protection system, having, for instance, worked in a zero-tax country such as Saudi Arabia, may, justifiably, be reluctant to be transferred to a country with rates similar to the UK where 'windfalls' and reimbursements will be equally negligible. The tax equalization system offers a fairer global policy in that it reimburses tax excesses to those in high tax areas but makes a deduction from the total remuneration of those in low-or zero-rated countries. Thus, all staff are maintained on a tax standard that reflects that of the home country.

§  Net payments. The payment of a net salary not only ensures expatriates throughout the world of fiscal equity but removes the onus of tax administration from the employee in countries that have no equivalent of the PAYE system. However, as mentioned above, it is extremely expensive to operate a net payment system.