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Four Considerations for Expatriate Assignments

Moving people around the world is a necessary part of doing business in a global economy. Many large companies have been doing this for a very long time. Newer companies entering the global marketplace may find it necessary to have an employee on-site, to look after their interests in another country. If your company is considering setting up expatriate assignments, here are four considerations to keep in mind.

It’s Complicated

The world of global compensation, and dealing with the details of payrolls, taxes, retirement, and deferred compensation is highly complex, and can’t be covered in any detail in this blog post. Before heading very far down this road, you’ll need to work with legal and tax specialists to make sure that you are meeting the requirements of all national and international laws that apply. However, we can cover the major considerations for handling an expatriate assignment, which are:

• Selecting the correct employee;
• Understanding the international assignment;
• Deciding which compensation approach to use; and
• Understanding the different tax laws that apply.

Selecting the Correct Employee

According to Brian Friedman, the founder of The Forum for Expatriate Management, in the past, the employees selected for expatriate assignments were typically those who were failing in the home office. It was thought they might have a better chance of success overseas, or maybe it was a case of getting a little distance from the problem. Today, however, that is no longer true. Due to the expense and impact potential of overseas assignments, the “best and the brightest” are being selected.

According to the Society for Human Resource Management (SHRM), employees should be selected according to the goal of the assignment (i.e., if the job is technical in nature, an engineer is needed). However, the job skill set is not the only issue that needs to be considered. As SHRM states, “ Achieving the company’s goals in the host country hinges on that person’s ability to influence individuals, groups and organizations that have a different cultural perspective. ” Thus, selecting for these abilities is as important as any specific technical skill. And while you may think only younger workers are interested in traveling, it’s important to note that there is an increasing number of baby boomers willing to take overseas assignments.

Understanding the Assignment

Friedman et al. and SHRM both emphasize the importance of understanding the assignment. What exactly is the company trying to accomplish? Is this a short-term assignment or a multi-year assignment? Does it make sense to have multiple positions overseas, or would a “global nomad,” someone who is willing to move from country to country, suffice?  Or, can locally-hired individuals do the trick?

Having a goal for the return on investment (ROI) is also important. What are the financial goals? Can the person accomplish an adequate return, given the cost of an assignment, which, depending on the location, can easily top $1 million?

Deciding Which Compensation Approach to Use

There are five approaches to use when compensating expatriate employees, as listed below.

• The Balance Sheet: This approach is used in almost 75% of expatriate employee cases worldwide. The main emphasis of the balance sheet is to pay an overseas employee comparably to incumbent employees in the same or similar positions in the home country. The expatriate should neither gain nor lose, from a monetary perspective. This can be determined for both home-based and office-based scenarios.
• Negotiation: This is the most straightforward approach. The two parties simply find a mutually-agreeable package. However, negotiating every position can become time-consuming and expensive, and may lead to problems of comparability if you have multiple expatriates involved. Negotiation is most often used for special situations, or in organizations with only a few expatriates.
• Localization: Localization involves basing the expatriate’s salary on the host country’s pay scales. This approach provides for cost-of-living allowances, which can be applied to taxes, housing, and dependents. Advantages of localization include ease of administration and providing equal footing with local nationals. Disadvantages include the need for negotiated supplements, and paying on the basis of local economics rather than on the basis of the assignee’s performance and job responsibilities.
• Lump sums: In this method, the expatriate is offered a sum of money, based on the home country’s system for determining a base salary. The employee can then determine how much he or she wants to spend on travel, moving, housing, etc., rather than having the company provide these things. A disadvantage to the lump sum approach is having to calculate the amount, which usually involves a complex and time-consuming analysis. This approach is usually used for one- to three-year assignments.
• Cafeteria: Used for senior-level expatriates, the cafeteria method offers the expatriate a selection of options to choose from. These might include the use of a company car or company-paid tuition for the expatriate’s children. There is, however, a limit to the number of options and amounts to be offered. This approach is similar to the lump sum method.

Understanding Different Tax Laws

It would be nice if the entire world operated under the same tax law, but it does not. Understanding tax laws in the country your employee will be working in is critical. Questions to ask include the following:

• Are there limits on the amount of time the expat can be in the country before local tax laws apply?
• Is the tax rate based on the individual’s country of citizenship or his or her country of residency, or both?
• Are there tax equalization agreements between the two countries?
• What are the standards, if any, for dealing with deferred compensation?
• Do the laws allow for a “tax gross up”?

These are just some of the many considerations you should keep in mind when entering the world of expatriate employment. Take the time to study the complexities of your specific situation, and be sure to seek the help of legal and tax professionals, to ensure the success of your expatriate assignments.

I think every company before planning to relocate their employees overseas must have a ready expatriate policy at hand. This policy should include not only the monetary basics mentioned in the article, but also such thing as medical insurance (the necessity for immunization should be discussed with the employee), also the holidays should be discussed – whether an employee should observe host or native country holiday schedule – there are too many things to be included in the policy and I won’t be able to mention all of them here.

Every company wants their expatriate to improve the state of things and drive their business to success. However, too often, the selection criteria for those who are sent abroad is simply whoever has the necessary business skills or is available or willing to go. These factors are important, but a person’s ability to build relationships across cultures should not be overlooked, because even if the business requirements are a good match for a given candidate it does not mean that this candidate will succeed in a different country.

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Who is an Expatriate Employee?

Who are expatriate employees and are you considered one.

We’ve all been hearing this term expat employee or expatriate worker. Living abroad and working on expat assignments are part of being an expatriate employee. Sometimes, the assignments are short, and sometimes it takes more than a year. Other times, expat employees travel from one country to another to complete their job tasks. So what exactly does it mean? In this article, we will explore the definition and what exactly it is to be an expatriate employee .

Definition of Expatriate Employees

A person living/working in a country other than his or her country of citizenship is considered an expat. Expatriate employees are often working in another country temporarily. Expatriated employees are usually sent abroad by a multinational employer (profit or non-profit) on a long-term job assignment over a year. Often, the organization has to send a senior manager to oversee the operation abroad or set up a new branch office. Often, there will be local nationals in the office – which would be the employees who are citizens of the country or have been domiciled there for a long period of time.

Woman on beach resting in hammock and working on laptop

Understanding Expat Employees

When it comes to expat workers, they earn more than they would at home and more than local employees. Furthermore, if you’ve chosen to become an expat employee, your company will also give your expat employee benefits such as relocation assistance and housing allowance. Becoming an expatriate has a lot of benefits, from getting opportunities for career advancement and global business exposure to living abroad and exploring exotic cities and cultures.

On the other hand, it can also be a difficult transition emotionally for some expats as they will have to leave their friends and family back home and adjust to a new culture and work environment. It is also one of the main reasons companies offer higher compensation and benefits to expat workers.

Expat Employees are “Special”

Generally, expatriate employees expect and deserve higher levels of pay, international health insurance , benefits and more from global employers for a variety of reasons:

• Expats are often in high demand, and their positions are more often than not senior management level
• They fulfil essential positions abroad that are critical for your organization’s financial success
• International experience is considered to require additional income
• Expats are moving abroad by themselves, especially with their families making a big financial and emotional commitment. Picking up stakes and moving your life abroad to a new country is also a big deal.
• Expat assignments are expensive. Not only do they often get paid more, but you have to factor in costs such as housing , schools, insurance, travel and much more. A failed expat assignment can cost hundreds of thousands.
• Finding the right expat employee can be very expensive, especially if a “head hunter” is used as their fees often range between ten and twenty percent of the annual wage.

Who are Expatriate Employees?

Expat employees are professional or skilled workers in his or her profession. The employer can become an expat employee by taking job opportunities outside of their home country , either independently or through his or her employer. The employer can be a company, university, government, or even non-governmental organization. A simple example is if you are working in the Silicon Valley office, and your employer sends you to work for a year in its Hong Kong office. In the Hong Kong office, you’re an expatriate employee.

Who is NOT considered as Expatriate Employee?

Business traveller.

Business travellers are those who are still employed and have a payroll with their employers in the home country. They can be sent on short-term global mobility assignments, and their place of employment is still in their home country. For example, someone can go overseas on a business trip for a few days or longer, yet it’ll still be a short-term assignment. Most business traveling employees are going on trips in under six months. Companies should make sure they secure a robust business travel plan for their entire company if sending employees abroad for short-term trips.

Accidental expat

An accidental expat is when a business traveler stays overseas for too long, and sometimes with the host country’s law, the place of employment may shift to the host country. They may work for a year, coming home only on the weekends. In such a scenario, business travel risks becoming an accidental expatriate. In other cases, even global nomads who move from one country to another without returning home become accidental expat. The COVID-19 pandemic has certainly added a lot of accidental expats as employees traveling are now stranded in overseas locations.

Foreign hires

Other than business travelers, another type of false expatriate employee is foreign hire. Multinational companies occasionally recruit candidates from one country to work in another country. For example, contractors in the Middle East recruit laborers from Indonesia, Phillippines, and other developing Asian countries.

Another example is giant tech companies in the USA recruiting graduates from top universities in India for jobs in California. Foreign hires also include US multinational companies hiring American security guards to work in the Middle East . All these employees are considered foreign hires and not expatriate employees because their employer is in just one country. However, one may certainly disagree with this description – you might just call these valued hires ex-pats.

Expat Contractors

Some global mobility managers will not consider contractor employees if the person is sent or hired abroad for a short or long-term assignment. They are not on the company payroll and are often considered contractors or consulting employees. However, if that “contractor” is only working for your company and indeed if the contract is extended beyond a year, is he or she really a contractor? If something goes wrong or if there is a sickness or injury, that expat contractor might be seen as an employee by the courts – local or back in the home country.

Duty of Care for Expatriate Employees

We have written some articles on the global mobility manager’s duty of care. It is a hot topic in global mobility circles these days. Suffice it to say it is critical for managers to ensure that expat employees, local nationals, contractors, and business travelers are protected and well-insured. All too often, we see people sent abroad for short and long-term assignments with inadequate global healthcare coverage, disability, evacuation, and life insurance coverage on a group or individual basis.

Many expat employers do not place adequate kidnap and ransom coverage for employees in high-risk locations. This puts employees and employers at risk – either because global mobility managers are not being well-advised or the employer wants to save money. Many countries, including the USA and Canada , have issued guidelines for meeting the duty of care for overseas employees. This can extend to adequate insurance but also health and safety as well. International employers need to take a proactive stance to insure, prepare, and protect their employees everywhere.

As part of TFG Global Insurance Solutions Ltd, we can discuss your organization’s duty of care from an expat insurance specialist perspective. If your organization would like to have us examine your global benefits plan , please feel free to reach out to us today. If possible, you can send us the details on your global health insurance plans, expat census, and contracts. We have often been able to find holes in current insurance coverage that were putting employees and the company at risk.

Our firm hase been able to secure thousands in savings for clients when our firm has been appointed as broker of record for their existing insurance policy, often keeping them with the existing insurer after conducting an expat benefit plan RFP. It really makes sense to work with an expat insurance specialist firm .

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International Citizens Group

Resources for International Citizens and Expatriates

• Expatriate Selection: Lessons From the U.S. Peace Corps

“Ask not what your country can do for you, ask what you can do for your country.” – President John F. Kennedy, 1961 Inaugural Address

On March 1, 1961, John F. Kennedy created the US Peace Corps. In August of that year, the first 52 Peace Corps volunteers arrived on the shores of Ghana. Today’s 4,000 or so annual volunteers are a devoted and skilled bunch of mostly early career professionals. Yet those first volunteers were among the nation’s best and brightest, all graduates of Harvard, Yale, or Princeton at the behest of Ghanian President Kwame Nkrumah.

Despite their credentials and commitment, it wasn’t long before issues arose. Perhaps most infamously, an early volunteer to Nigeria wrote a letter home describing the state of living conditions as squalid, horrifying and primitive. Intercepted by the local postal service, it was soon on the front page of major Nigerian newspapers, sparking outrage among the populace.

In my Peace Corps assignment to Central Asia’s Kyrgyz Republic, roughly one-third of the assignees departed prior to the end of their 27-month assignments (including yours truly, who resigned early in favor of a local faculty position in order to research governmental corruption without tainting US-Kyrgyz relations). To help improve the fit between volunteers and host countries, the Peace Corps is among the earliest known organizations to perform psychological assessments on applicants interested in volunteering abroad. The results of this early experiment were reportedly mixed. However, psychological assessments have improved with time and are now a recognized best practice to use in expatriate selection for organizations staffing international offices.

The expatriate selection process can be complicated. At its best, it involves many stakeholders, including managers, HR staff, and host country professionals, each of whom has input on what is relevant to the determination. What are the key questions they should ask, and what steps can organizations take to prepare the employees they choose for international assignments?

Expatriate Selection: Who Chooses?

At its best, expatriate selection is a collaborative effort. Participants include management, HR professionals, and host-country recipients, each of whom has a particular (if at times overlapping) role to play. Host country staff are primarily responsible for assessing technical skills. They answer the question: can this candidate complete the required tasks?

While this is a crucial question, it is not the only question. Unfortunately, scholars have for decades documented that technical competence regularly overshadows other issues of concern. What other factors should companies consider in selecting expatriates?

Other key elements include whether the expat candidate has the cultural and social skills to succeed in the new assignment. Family questions may also be relevant. HR and host country managers should have an expansive role to better assess these variables.

A significant barrier to expatriate success is cultural distance. This measures how different the host country’s culture is from the home country. A forthcoming article will discuss this in more detail, but for now, know that cultural differences may present themselves in many ways. And for the home country staff, these differences may not be obvious.

Host country staff, however, may shed light on which cultural practices most challenge foreign national workers. These may be language or communication differences, social norms, or business practices. The deeper the differences, the more important it is that the chosen expatriate brings prior international experience to the job. In addition, host country staff may coordinate with HR and home country staff to assist in the expatriate selection and identify which foreign nationals most flourish amidst these cultural differences.

Furthermore, HR staff may spearhead those pre-departure psychological assessments that the US Peace Corps popularized so many years ago. These practices are among the most important – but least understood – of all selection practices.

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Also Read: Resources & Articles for Expats

“Grit: The Power of Passion and Perseverance”

Grit. It’s a topic popularized by Wharton Professor Angela Duckworth in her book Grit: The Power of Passion and Perseverance . Grit is the ability to remain committed to long-term goals despite challenges, sometimes for years at a time. As Duckworth revealed in a series of groundbreaking studies, grit may be the single most important variable for employee success. More so than skills. More so than intelligence.

And for the expat, grit may be even more important than among domestic employees. An individual accepting an international assignment is taking a leap of faith. No matter how much support is received – and later articles review exactly what kind of support expatriates tend to need and want – the expatriate will inevitably face challenges.

These challenges may be from work styles or relationships with co-workers or supervisors, challenges for the family in adjusting, or social setbacks. Consider the ongoing Covid pandemic and the upheaval this caused for expatriates. New concerns sprouted about healthcare, travel restrictions and closing borders, and social isolation in countries where restaurants and other public venues closed en masse .

Selecting for grit – and yes, there are surveys that do just this – is, therefore, one of the key psychological variables that organizations should look at when assessing expatriate candidates. What else?

What Factors Should Companies Consider for Expatriate Selection?

The so-called Big Five Personality traits are openness to experience, conscientiousness, extraversion/introversion, agreeableness, and neuroticism. They are among the most important and best understood of the many personality traits which make up an individual’s character. (An easy trick to remember the Big Five? Take the first letter of each trait. It spells “OCEAN”). Put simply, if you understand where someone falls on each of these traits, you can predict a lot about their attitudes and behaviors in life and work.

Extraversion

Extraversion measures sociability and leads to expat success. Studies show that extroverts are less likely to quit their jobs, while supervisors rate them higher in performance. Extraversion also correlates with ambition, which also leads to higher job performance.

However, don’t take these studies to mean that organizations should exclude introverts from international assignments. After all, they represent around 50% of the population. And as Susan Cain documents in her well-researched book, Quiet , introverts also offer employers valuable skills.

Consequently, this is more about understanding in which positions each can flourish. For instance, extroverts are well-positioned to handle international assignments that require regular contact with the local population. By contrast, introverts do well when given space for their creative and thoughtful juices to flow and when they have quiet workspaces far away from daily chaos. In addition, introverts may require more organizational support in terms of socialization and integration with host country nationals.

Openness to Experience

Another trait predicting expatriate success is openness to experience. These individuals seek out novelty and adventure. They’re more likely to try different foods, listen to new music, and support cultural activities. They are, in turn, primed for positive attitudes when it comes to embracing the changes and opportunities of a new national culture.

Indeed, studies show that expatriates high in openness to experience tend to perform at higher levels. In one study, higher-performing expatriates were more likely to report that they took the international position for the love of travel and the opportunity for new experiences. Furthermore, these individuals tend to gain more value from their interactions with host country nationals – enthusiastically soaking up information and using it to improve their day-to-day performance. Finally, spouses high in openness to experience adjust better, as well.

Neuroticism and Conscientiousness

Organizations may also seek expatriates that are low in neuroticism and high in conscientiousness. Neurotic types tend to struggle with ambiguous and stressful environments, with which, as we know, foreign assignments are rife. Finally, conscientiousness measures dependability and diligence and is related to grit. It predicts higher job performance for both domestic and international workers.

Click here for a survey that measures each of these so-called “Big Five” personality traits. In addition, companies can customize open-ended interview-style questions to assess where expat candidates fall on each of these traits.

Expatriate Preparation: How To Prepare Employees for International Assignment

Your expatriate selection process is complete, now what?

Expatriate research reports that the most important pre-departure expatriate preparation involves a series of in-depth training sessions. There are many types of training for expatriates. The primary categories are area studies, cultural practices, language training, sensitivity training, and field experience.

At the most basic level, expats must understand practical living conditions. Can they drink the water? Where do they go for medical treatment or for groceries? And what are the best neighborhoods to live in?

Expatriate Training

In addition, training for accompanying family members is key. This means including spouses and even children in some training sessions and providing families with information about schooling for children and spousal employment.

Finally, expatriate training should include business-relevant matters, such as local business laws and relationships with local partners. Expatriates should, furthermore, be clear about their job expectations, their performance management systems, and their compensation policies.

In addition to training, the company often undertakes other concrete activities on behalf of the international assignee. This includes visas and other bureaucratic support, which can be a byzantine nightmare for the uninitiated employee.

Studies also show that expatriates are grateful for long lead times before departure. Rushed assignments such as those with two months’ notice or less prove troublesome in terms of selling a house, buying or renting a new one, changing schools, and organizing a move (and to another country, at that).

The US Peace Corps learned some lessons the hard way but responded by putting more effort into their selection policies. In so doing, they – and all organizations following suit – give those selected the best chance of succeeding in even the most challenging environments. When paired with pre-departure and training preparations, your expatriates will arrive in their host countries with every possible advantage.

Related Articles

• Culture Shock: What It Is and How HR Can Help
• Understanding and Preventing Expat Failure
• The 5 Best Countries to Work in for Expats

About the Author

Dr. Thomas J. Bussen, with a Doctorate of Business Administration, JD, and MBA, is an Assistant Teaching Professor at Miami University’s Farmer School of Business, and a former professor at the African Leadership University and the American University of Central Asia.  He is the author of several books, including  Shaping the Global Leader  and  Compliance Management: A How-to Guide . His latest book,  Enlightened Self-Interest: Individualism, Community and the Common Good , makes the case for a more inclusive and equitable professional mindset and is expected for release in 2023 with Georgetown University Press.

Sources and Further Reading

Anderson, B. A. (2001). Expatriate management: An Australian tri‐sector comparative study.  Thunderbird International Business Review ,  43 (1), 33-52.

Harris, H., & Brewster, C. (2002). An integrative framework for pre-departure preparation.  International Human Resource Management: A European Perspective ,  224 .

Hung-Wen, L. (2007). Factors that influence expatriate failure: An interview study.  International Journal of Management ,  24 (3), 403.

Lin, C. Y. Y., Lu, T. C., & Lin, H. W. (2012). A different perspective of expatriate management. Human Resource Management Review, 22(3), 189-207.

Mesmer-Magnus, J. R., & Viswesvaran, C. (2007). Expatriate management: A review and directions for research in expatriate selection, training, and repatriation.  Handbook of research in international human resource management , 197-220.

Our Most Famous and Infamous RPCV . Peace Corps Worldwide.

Suutari, V., & Brewster, C. (2001). Expatriate management practices and perceived relevance: Evidence from Finnish expatriates.  Personnel Review .

Wang, C. H., & Varma, A. (2019). Cultural distance and expatriate failure rates: the moderating role of expatriate management practices.  The International Journal of Human Resource Management ,  30 (15), 2211-2230. – see page 2213 for an overview of the selection process.

Zeitlin, Arnold (1986). First Group of Peace Corps Volunteers Marking 25th Anniversary. AP News.

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4 Expatriate Structures

This is the second of four in an article series entitled  How to Structure Global Mobility Assignments, Expatriate Postings and Cross-Border Secondments .  It was written by international employment attorney Donald Dowling with Littler Mendelson P.C.

Part I – Who Is and Is Not Expatriate

Once an employer understands which globally mobile employees are and are not actual business expatriates , the next task is to slot each actual expat into the most appropriate expat category. That is, select the most appropriate expat structure . Expatriate structures take different forms at different multinationals, but ultimately all business expats fit into or among four broad categories: foreign correspondent, secondee, temporary transferee/localized and co-/dual-/joint-employee .

Foreign correspondent. A “foreign correspondent” expatriate remains employed and payrolled by the home country employer entity while working abroad, rendering services from afar for the home country entity (not for some local host country affiliate or business partner). Foreign correspondent postings are easy to set up because nothing changes other than the place of employment (and other than that the expat might start receiving expat benefits). The challenge is that foreign correspondent postings risk violating host country immigration and payroll laws. A foreign correspondent may need a visa sponsored by some host country employer, and host country payroll laws may require the employer to make reportings, deductions, withholdings and contributions to host country tax and social security agencies that the home country employer entity is not set up to make without a host country taxpayer identification number (even an outsourced payroll provider needs its customer’s local taxpayer number).

• Shadow payroll . One tool here is “shadow payroll” (also called “ zero payroll ” and “ mirror payroll ”)—some cooperating host country entity reports the foreign correspondent expat’s income to local tax and social security authorities as if it were the payrolling employer, and then that entity and the employer do an inter-company reconciliation each payroll period, behind the scenes, perhaps with the employer paying for the shadow payroll service.

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Secondee.   “ Secondment ” means “employee loan.” A seconded expatriate remains an employee only of the home country employer entity but gets lent out to work for a host country entity, usually an affiliate or business partner of the employer. The secondee might get payrolled by either the home or host country employer (or both, via a “ split payroll ”). Usually the host country employer—which we might call the “beneficial employer”—reimburses wages and payroll costs to the home country “ nominal employer .” Some secondees stay on the home country payroll while the host country entity issues a shadow payroll to comply with local payroll laws. But a true secondee is not a co-/dual-/joint employee, because a true secondee never gets privity of employment contract with the host country employer.

Temporary transferee/localized. An expatriate transferee or “ localized” expat resigns from the home country employer, moves abroad and gets hired and payrolled by a new (host country) employer, often an affiliate or joint venture partner of the original employer but sometimes a host country services company like a local office of Globalization Partners, Adecco, Manpower or Kelly Services (or the expat might even become an independent contractor in the host country). The new host country employer usually extends retroactive service/seniority credit for past service with the home country employer and sometimes also pays some extra expat benefits—a so-called “local-plus” assignment.

While working in the new host country place of employment, a localized transferee expat renders services only for the new host country employer and does not retain privity of employment contract with the home country employer—other than perhaps an informal side letter or email outlining post-assignment repatriation expectations. The home country employer is not a co-/dual-/joint-employer because the expat formally resigned.

Of course, an expat transferee localization is only temporary. (A transferee who does not expect to repatriate is a “permanent transferee,” not a business expatriate. ) A localized expat (as opposed to a permanent transferee) expects someday to repatriate and re-localize back to the original home country location. A side-letter (or email) between the expat and the home country employer entity might memorialize this.

Co-/dual-/joint-employee. A co-/dual-/joint-employee expatriate is an expat simultaneously employed by two masters, the home and host country employer entities, essentially on a moonlighting basis. The employee works for two employers simultaneously, or else works a host country job actively while formally retaining status as “on leave” from the home country employer entity, with the home country employment arrangement suspended or “hibernating”—but not terminated. A co-/dual-/joint-employee expat may be payrolled by either the home or host country employer (or both, on a “split payroll”), or may be on a “shadow payroll” actually paid by the home country employer while the host country employer complies with its jurisdiction’s payroll laws.

• Intended co-/dual-/joint-employment . Ideally every co-/dual-/joint-employee expat arrangement gets structured overtly, with the expat either actively structured as an employee of both home and host country entities or else with the expat expressly on leave from the home country employer, leaving that employment relationship expressly “hibernating” but not severed. Sometimes the home and host country employers decide to use the co-/dual-/joint-employee structure to keep the expat enrolled in home country benefits programs or home country social security (say, under a social security totalization agreement certificate of coverage).
• Unintended co-/dual-/joint-employment . Too many co-/dual-/joint-employment expatriate arrangements get structured accidentally, either when an expat assignment is meant to be a secondment but the expat somehow enters an employment relationship with the host country employer, or else when an expat assignment is meant to be a temporary transfer (localization), but the parties fail to extinguish the home country employment relationship. A dismissed expat who ultimately wins the argument that he had served as an unintended co-/dual-/joint-employee could seek reinstatement or severance pay from the home or host country employer. These situations often get complex and expensive.

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This is just the second in a series of four articles explaining how to structure global mobility assignments, expatriate postings and cross-border secondments.  The next entry will deal specifically with what legal issues need to be considered when selecting the best expatriate structure based on .  Those include:

• Immigration
• Payroll laws
• Permanent establishment

This piece is largely based on an article originally published by Littler Mendelson, P.C., who holds the copyright.  It can be read  here .

Picture courtesy: Stock Photo Secrets

NEXT:  The Pros and Cons of Hiring Locals over Expats

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Before Taking an Expat Assignment, Make Sure Your Family Is on Board

Getting an expat assignment can be exciting, but it can also be hard on your family. Before accepting a temporary reassignment to another country, think it through with your partner or family. Be sure to frame the decision as a real choice — Should we go or stay? And consider the degree of change: If […]

Getting an expat assignment can be exciting, but it can also be hard on your family. Before accepting a temporary reassignment to another country, think it through with your partner or family. Be sure to frame the decision as a real choice — Should we go or stay? And consider the degree of change: If you live in Amsterdam, relocating to Brussels is very different from moving to Guangzhou, China. Then go through the pros and cons of each alternative, laying out the full implications for your children or extended family, your career — and your partner’s — and your support networks. Try to anticipate and discuss how the change would affect family dynamics — e.g., shifting from a dual-career marriage to one where a spouse stays at home, or replacing a grandmother babysitter with a professional nanny. These discussions will not only shape your decision about the assignment but also help set expectations and prevent resentment later on.

Source: Adapted from “Making Your Expat Assignment Easier on Your Family,” by Katia Vlachos

• JO JM Olejarz is an associate editor at Harvard Business Review.

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• FOREIGN INCOME & TAXPAYERS

Tax Planning Insights for Foreign Work Assignments

• International Tax
• Individual Income Taxation

In today's global economy, U.S. employers are sending workers abroad in increasing numbers. These workers commonly are referred to as expatriates or assignees. It is a trend that helps spread technical expertise throughout an organization, while simultaneously inspiring creativity and innovation. With proper planning, the transition abroad can be beneficial to both the employer and the assignee. Without proper planning, it can be a disaster. Though not a complete road map, the following is a basic overview of what one would want to know when advising clients prior to foreign work assignments.

An understanding of how expatriates, or expats, are taxed is necessary before one can properly plan for an assignment abroad. In short, U.S. citizens are taxed on their worldwide income by the United States, regardless of their residency or the income's source. This means that a U.S. employee's income could potentially be subject to double taxation, in both foreign and U.S. jurisdictions. It seems a bit unfair, right? Well, fortunately, the U.S. government is not completely heartless. Relief is available in many cases. For foreign earned income, an expat can claim either a Sec. 901 foreign tax credit, an itemized deduction for foreign taxes paid, or a Sec. 911 exclusion.

Foreign Earned Income Exclusion

A U.S. taxpayer may exclude up to $100,800 of foreign earned income in 2015 (adjusted for inflation annually) as well as a housing allowance if he or she maintains a tax home in a foreign country and qualifies via either (1) a bona fide residencetest or (2) a foreign physical presencetest (Secs. 911(a) and (b)(2)). 

• Bona fide residence test: A taxpayer who is a citizen of the United States satisfies this test if the taxpayer establishes to the IRS's satisfaction that he or she was a bona fide resident of a foreign country for an uninterrupted period that includes an entire tax year. Temporary visits to the United States or elsewhere for vacation or business do not necessarily prevent a taxpayer from establishing a bona fide foreign residence for a continuous period. The expat cannot qualify under this test if he or she submits a statement to the foreign country stating that he or she is not a resident of that country and is held by that country to not be subject to income tax in that country (Secs. 911(d)(5)(A) and (B)).
• Foreign physical presence test: A taxpayer that is a citizen or resident of the United States meets this test if he or she is present in one or more foreign countries (not the United States) during at least 330 "full" days in any given 12-month period (Sec. 911(d)(1)). These days need not be consecutive, which allows for potential partial exclusions when assignments begin in the middle of the calendar year. Also, notice that not all time needs to be spent in the country in which the taxpayer is claiming to have a tax home and not all time needs to be spent doing business. Personal and vacation time count. This test does not require that the taxpayer's income be subject to foreign income tax. Good records substantiating time spent outside the United States are a necessity, however.

If claiming the exclusion, the taxpayer will need to file Form 2555, Foreign Earned Income . U.S. citizens living abroad are allowed an automatic two-month extension until June 15 to file their individual tax returns. This extra time may be needed to properly substantiate certain claims for relief mentioned above. If needed, a U.S. citizen living abroad may apply for an additional extension.

Foreign Tax Credit

U.S. citizens are entitled to a foreign tax credit for income taxes paid or accrued to a foreign country. Though it sounds simple enough, this calculation can be complex in certain situations. Sec. 904 limits the credit by the amount of U.S. tax that is levied on the same amount of income. Sec. 901(j) can cause the credit to be denied entirely if the income earned is from a country whose government the United States (1) does not formally recognize; (2) has severed diplomatic relations with; (3) has not severed diplomatic relations with but with which it does not conduct relations; or (4) has designated as repeatedly supporting acts of international terrorism. Any excess foreign taxes not credited in the current year can be carried back one year and forward 10 years (or just forward 10, if elected) per Sec. 904(c).

Previously, if these tax credit amounts were unused, they could be converted into a deduction in the 10th year. The IRS recently changed its position regarding the 10th-year deduction, so CPAs can no longer rely on the safety net of converting a credit to a deduction in the final year (see Ward, "Foreign Tax Credit: When Is It Too Late to Change Your Mind?" 46 The Tax Adviser 662 (September 2015), where the author writes, "As evidenced by the recent reliance on this position in CCA 201330031 and CCA 201517005, it appears the IRS is holding firm in denying the 10-year period of limitation to taxpayers amending to change elections to claim credits for foreign taxes to elections to claim deductions."). Basically, if a taxpayer can reasonably predict that the expat will be in an excess credit position, the deduction might be the better way to go from the beginning. Foreign tax deductions can still be turned into foreign tax credits, but not the other way around.

It is also worth mentioning that U.S. individuals cannot claim a foreign tax credit for otherwise creditable foreign taxes attributable to income that they elect to exclude from gross income as foreign earned income (Sec. 911(d)(6)). In other words, a taxpayer can get either the exclusion or the credit, but not both. In practice, both are often calculated to see which provides the higher tax benefit for the particular situation.

It sounds simple enough, but it is hardly ever that simple.

A number of things might occur. One aspect that often is not considered is how the taxpayer's home state treats his or her assignment abroad. Practitioners should determine to what extent the relevant state law considers a taxpayer stationed abroad to still be a state resident and subject to state income tax. Most states do not follow federal law in terms of double-taxation relief, i.e., foreign tax credit or exclusion. The state might offer some sort of relief, however, but sometimes it is not much. For example, an Oregon resident is allowed to take a foreign tax deduction up to $3,000, but it phases out at higher income levels. On the other hand, Oregon nonresidents may exclude the foreign earned income.

Depending on the company policy (discussed later), sometimes the employer or the foreign company "gross-up" payments and pay the foreign tax on the expat's behalf. These gross-ups are income to the employee, which can increase the amount of taxes owed in the United States and the home state, making any withholding on the U.S. side insufficient, ultimately causing the employee to fork over some extra cash unexpectedly at the filing deadline. Remember that the entire tax liability is due at the original filing deadline for the return, April 15, not the extended date of June 15. In addition to taxes paid on the assignee's behalf, other items must be considered as well. Compensation packages for foreign assignments often have many additional allowances or income items.

The tax rate in the foreign country compared with the U.S. tax rate also makes a difference. For instance, a higher foreign tax rate means that it costs the employee more to work in the foreign jurisdiction, which is a benefit to the employer. Conversely, if the foreign tax rates are lower, the employee receives a benefit. Basically, the arrangement is not always considered fair.

Structure of the Foreign Assignment

Because of all the possibilities that can occur as a result of an expat's foreign assignment, it is imperative that planning occur well before the assignment begins. A few things should happen.

First, the employer should work with a service provider to develop an expatriate employee policy, often referred to as a global policy. This policy may touch on a variety of items, including, but not limited to, automobile policies, cultural orientation programs, pet policies, emergency and security planning, and, of course, the payment for and preparation of foreign, federal, and state taxes.

As mentioned previously, there is often a disparity between an assignee's U.S. tax liability and foreign tax liability. Employers can choose to handle this disparity in one of three ways:

1. Equalization,

2. Protection, or

3. Laissez-faire.

Equalization: If a company decides to enact an equalization policy, both the employer and the employee are no better or no worse for having participated in the overseas assignment. In other words, the policy is tax-neutral.

If a "hypothetical tax" exceeds the actual tax as filed on the assignee's U.S. tax returns, the assignee would owe the employer the difference. If the actual tax exceeds the hypothetical tax, the employer would reimburse the assignee for the difference.

The mechanics work as follows: After the tax return is filed, the hypothetical tax is figured considering only income and deduction items that the assignee would have incurred had he or she stayed in the United States. The hypothetical tax is then compared with the actual tax liability per the tax return plus any hypothetical withholding. Hypothetical withholding is withholding in addition to regular withholding that the employer holds on to so that in the event that the hypothetical liability exceeds the actual liability, the assignee does not have to settle the entire liability.

Some common questions should be kept in mind when reviewing an equalization policy. How are state taxes handled? If an assignee decides to sell his or her home as a result of the foreign assignment, is this factored in? Is all of the income equalized? Or is it just the employment income?

Protection: If a company enacts a tax-protection policy, the employer makes certain the employee bears no adverse effects from the foreign tax assignment.

When the hypothetical tax exceeds the actual tax, the employee retains the benefit and is not required to reimburse the employer the difference; when the actual tax exceeds the hypothetical tax, the employer will reimburse the assignee.

The actual calculation of tax under a tax-protection policy is a bit simpler in that there generally is no hypothetical withholding. All taxes are paid directly by the assignee. The employer will square up later.

Laissez - faire : This policy is just as it sounds—let the cards lie where they fall. A lot of smaller companies will typically go this route. Implementation of both equalization and protection policies can be time-consuming and expensive.

Structuring a Compensation Package

After the employer settles on a global policy, both the employer and the prospective assignee should sit down with the service provider to structure a compensation package that is both tax-efficient and fair. At this time, the employer and the service provider should explain to the assignee how he or she will be taxed and what to expect as far as services are concerned. These packages are generally much more complex than regular domestic compensation and usually cost employers two to three times more. They usually consist of a base salary and various other allowances, depending on the location of the foreign assignment.

The more common allowances are cost-of-living adjustments (COLAs), housing allowances, and moving allowances.

The COLA allows an expat to live off the same level of income that he or she would have had in the United States. The adjustment is calculated based on the employee's spendable income multiplied by a cost-of-living index. This income is taxable to the assignee.

Housing can be tricky. If the employee receives a cash allowance, it is generally taxable. Generally, the allowance is calculated by subtracting the amount of home country housing costs from the amount it would cost the expat in the foreign country. Sometimes expats are required to live on the employer's property as an unavoidable working condition. When this is the case, the housing is considered a tax-free fringe benefit.

Most of the time, employers will cover an assignee's moving expenses. This either comes in the form of an allowance or reimbursement upon submittal of expenses. This benefit is also taxable.

The benefits received vary by country. Special attention should be paid to the following countries: Iraq, Kuwait, Lebanon, Libya, Qatar, Saudi Arabia, Syria, United Arab Emirates, and the Republic of Yemen. These countries are specifically listed as boycott countries by Treasury under Sec. 999(a)(3). If an expat takes an assignment in one of these countries, he or she will have to file a Form 5713, International Boycott Report .

Lastly, although this topic probably deserves its own article, prior to the assignment, the company should make sure that it has a solid payroll strategy in place. For less-sophisticated organizations with limited personnel, hiring an outside payroll professional is recommended. Larger companies with a strong internal foreign tax department may be able to handle the payroll function internally. Consultation with a professional is needed in either case.

Planning for foreign work assignments can be time-consuming and requires expert knowledge, but it is necessary to ensure all the relevant tax issues are considered in advance. Only then can both the employer and the expat benefit fully from the experience.

Editor Notes

Michael Koppel is with Gray, Gray & Gray LLP in Canton, Mass.

Unless otherwise noted, contributors are members of or associated with CPAmerica International.

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• Foreign Assignments & US Expat Taxes

Foreign Assignments & US Expat Taxes

International employees are becoming much more common as businesses expand internationally; and it’s vital for US business owners to be familiar with the many US expat tax liabilities which may arise for both the employer and the employee. The cost of sending an employee abroad to complete an international assignment can add up quickly. With detailed plans and advice from a tax professional in place, however, some of the high costs of foreign assignments can be eliminated or greatly reduced.

The employer is not the only entity which needs to be well-versed on every aspect of US expat taxes; it should also educate its employees fully before asking them to accept a foreign assignment. Let’s examine the most important aspects of international operations in regard to US expat taxes. 

FEIE (Foreign Earned Income Exclusion)

The FEIE is an option available to your employees which would allow them to exclude a specific amount (up to $92,900 in 2011) of their earned income from their US expat tax liability. In order for this to take place the employer must assign the employee to an area which is classified as a “tax home” overseas for a time period of at least one year.

It’s important to remember, also, that just because an international employee qualifies for FEIE they are not automatically going to receive it; they need to file Form 2555 with their US expat taxes in order to receive exclusion. Aside from the need to be placed in a tax home, an employee on a foreign assignment must also meet at least one of the following conditions:

• Physical Presence  The employees international assignment must require their his/her presence in assigned country for a minimum of 330 days out of 365, which can be any time before the deadline filing date of US expat taxes.
• Bona Fide Residence  The employee’s foreign assignment is set to last for an indefinite period of time which exceeds one full year abroad.

Foreign Housing Exclusion and Deduction

A qualification for FEIE is a default qualification to claim deductions for foreign housing costs. If the employer is covering the cost of foreign housing for an employee or employees, this housing exclusion amount will be claimed on Form 2555. If the employee is responsible for his/her own housing out of regular payroll, he/she can deduct the amount from Form 1040. The deductible amount is different in each host country, and specific allowable deductions and amounts can be found on Form 2555 Instructions. Generally deductible items include: Furnishings, insurance on property, rent, repairs, residential parking fees, and utilities excluding phone.

There are cases in which a US employer will compensate an international employee for living expenses. In this situation these reimbursements are viewed as taxable income to the employee, but the amount can still be claimed as a deduction on the employee’s US expat taxes. If the reimbursement amount from the employer exceeds the allowable amount by the hosting country the employee’s expat tax liability will be increased. 

Foreign Tax Credit

Depending on the country hosting the international employee, there may be foreign taxes due in that country. In this situation a US taxpayer can use this amount to earn a foreign tax credit on US expat taxes, which will reduce their US expat tax liability by the dollar amount equal to that of their liability to the host country. An employee can only claim foreign tax credit if the income has not already been deducted by foreign housing exclusion or FEIE. 

Payroll Taxation

If the international employee does not qualify for FEIE the employer must withhold payroll taxes. If the employee does qualify for FEIE, an exemption request must be submitted on Form 673 to the employer. 

Benefits to Employee by Employer

Personal expense reimbursements to an international employee by a stateside employer will be viewed as taxable income by the IRS. Among these reimbursements are: 

• Moving expenses
• Continued education
• Spouse allowance
• Automobile reimbursements
• Family/Home medical leave

Business related expenses are a different story, however; any businesses expenses for which the employee is compensated will not affect taxable income. Even moving expenses are deductible if they meet the following qualifications: 

• The relocation must be relevant to the job – either starting a new job or performing the same job in a new location.
• The job’s new location must be more than 50 miles from the employee’s previous location.
• The employee must retain employment for a minimum of 39 weeks after moving.

The aforementioned qualifications are very specific and only include the actual cost of moving and/or storing household goods. Temporary living arrangements, meals, and travel seeking a new home are not included in deductible reimbursements and will be viewed as taxable income. Any non-reimbursable employer compensation amounts must be included on the employee’s W-2 to be reported on US expat taxes. 

Equalization Program

Many employers are attracted to the equalization program which would ensure foreign employees that their tax liability would not be any different than if they had continued working in the states. Through an equalization package expenses of both the employee and employer are minimized. The tax equalization program considers employee benefits such as cost of living, housing, travel, and school tuitions. It also takes into account the amount of foreign tax due and other taxable factors of the overseas assignment. Through the equalization package an employer agrees to reimburse its employee for excessive US expat tax liability. 

Final Notes

Every host country has unique tax laws and rates and is governed by a different treaty with the US. For example, some countries hosting US employees will result in hefty corporate tax liability. If you are a United States based company who is making use of international employees, you may want to seek advice from a well-informed tax professional that has experience dealing with the tax laws and regulations of each hosting country. 

There are numerous facets of working overseas as a United States citizen, and they all should be considered before an agreement is established between the stateside employer and the employee being considered for a foreign assignment. You may be wise to seek advice not only from a professional in the United States, but also from a tax professional from the country to which you intend to send employees.

8 Tips for Preparing Expatriates for Foreign Assignments

Preparing expatriates for foreign assignments is a crucial undertaking for either expansion processes or short-term business travel. The challenge here is to ensure that the employees chosen to go work abroad do so successfully. Much of that effort will be produced by them, but even more important is for the wider company to provide support.

When moving and managing assets - in this case, your talented employees - you want to make sure that all that time and effort isn’t for nothing. You want to make sure the move is compliant and that workflows shared by your team and the expatriate employee are streamlined. 

So what do you need to focus on? Here are eight tips for preparing expatriates for foreign assignments in a successful mobility project. 

• Pre-Move Training
• Sourcing Immigration Support
• Ensure Continued Communication
• Provide Support On The Ground
• Undertake Project Alignment Meetings
• Invest in Knowledge Management
• Provide Home and Host Sponsorship
• Take Into Account Domestic Duties

1. Pre-Move Training

Preparation for expatriation is of utmost importance. This training needs to be well-researched, taking into consideration the potential challenges that employees and mobility teams might face. For example, identify:

Your potential challenges : For example, a specific country could require a specific tax set up for expatriates or business travelers. You’ll have to research the requirements that apply to your expatriation.

Strategies that help you deal with these issues: Some global organizations work with Professional Employer Organizations (PEO) in order to maintain compliance and work in line with cultural requirements. This is one potential solution that you might find appealing.

Areas for cultural training : Cultural expectations can be radically different in one country compared to another - while this may seem like the last thing to focus on, it’s worth spending time looking into cultural differences, just so no accidental faux pas are made.

The overarching goals of the assignment : An expatriation depends on all stakeholders having visibility and an understanding of the reasons for it. 

Local language training : Even if the host country has a good rate of use for your language, it’s worth helping your employee get to grips with the basics.

2. Sourcing Immigration Support

Immigration and the requirements therein are obviously crucial. Border controls, regulatory environments and immigration law are therefore all things to contend with. Now, these can be daunting and confusing, but it’s imperative to fully prepare for them, as they’re some of the first barriers to overcoming when expatriating an employee for foreign assignments. 

You need to make sure that you’re expatriation is in line with national and international immigration policy for both your home and host country. Similarly, visas and short-term or permanent residency applications need to be sent off for. Without these, alongside a considered approach towards global immigration , your overseas assignment won’t be able to continue. 

3. Ensure Continued Communication

Without communication, there’s no expansion. Home and host teams need to be on top of carrying out frequent communications, so that data is acted upon and problems can be solved collaboratively.

Assignees need to be proactive in this and so too do home teams. Communication allows organizations to leverage what’s being learned and respond actively to specific events. On top of that, communication needs to be structured so the learnings and updates shared are easily tracked. Monthly meetings and weekly check-ins are good places to start. 

4. Provide Support On The Ground

Alongside frequent communication, on-ground support also needs to be offered. This is a job for HR teams, who can help expats and their families (if applicable) adapt to their new surroundings. This kind of support covers:

• Finding accommodation.
• Creating bank accounts and setting up payroll in line with host-country regulations ( This is another obligation that a PEO can support you with ).
• Providing health insurance.
• Enrolling children in school (if applicable).
• Preparing accurate taxation processes.

Taxation is one thing to be aware of, as getting the process wrong can result in legal ramifications. Again, this is something a PEO can help support , as they can act as local Employers of Record, managing and deducting taxation at source - making sure your expatriate assignment is compliant in terms of taxation. 

5. Undertake Project Alignment Meetings

Once the critical information regarding the expatriate employee’s assignment, residency, taxation and other requirements has been exchanged with the relevant stakeholders and/or authorities, it’s time for a project alignment meeting.

This meeting should be held between the employee, a host manager or host team and home team. In it, you should identify the potential causes of friction for the assignment and work to strategize mitigation techniques. Similarly, go over mutual expectations held by the home and host team so that visibility and transparency are also captured. 

Overall, you’ll want to firmly pin down issues that may affect:

• Data collection.
• Reporting strategies.

6. Invest in Knowledge Management

Any assignment knowledge generated needs to be properly disseminated to the relevant parties, quickly and efficiently. These lessons are not only worthwhile for future expatriates, but for the wider company itself and how it approaches global marketplaces. 

When we ensure that learning is absorbed and spread across the whole enterprise, we help to reduce mistakes and delays in the future.

7. Provide Home and Host Sponsorship

As we’ve briefly discussed, having home and host teams managing the expatriate are important, but let’s cover that more in-depth. 

Communication via email isn’t the best way to manage a remote employee. To make sure the expat doesn’t feel cut off from home office processes, create teams or ‘sponsors’ that oversee the experience and work of the employee. 

Whether they be points of contact or mentors, these individuals (or wider teams) help to anchor an expat employee to the work in the home country, keeping them updated on any new developments. Both sides help to co-manage and resolve problems when they arise.

Sponsor individuals within the home country are best suited if they too have had experiences with expatriation, because a lot of this management is about empathy - not just looking for hitting the next performance goal. Expatriation is a difficult process, especially if the host country is a radically different place.

8. Take Into Account Domestic Duties

Another tip for preparing expatriates for overseas assignments is to make sure their family is supported.

Some expatriate employees have children and spouses, which sometimes do make an overseas assignment a lot more complex. These difficulties are usually hard to spot, as many employees will be reluctant to share them with employees, due to the size of the project and the personal nature of these difficulties.

It can be the case that the people most likely to be able to help are the last to know, so this is another thing that good communication can help with. From the home country team’s point-of-view, they need to inquire regularly about how the domestic side of the project is going. 

It needs to be made clear that any issues in regards to this need to be made known, but also that no judgment will arise from those issues being aired. Expatriation is a tough process for a family and businesses need to be supportive. This kind of transparency will dramatically help the overseas assignment. 

To discover more about overseas assignments and expansion, we’ve created a fantastic foundational guide that will help you when strategizing your next moves, be they domestic or international. 

The Guide to Global Expansion

There’s a lot of different info out there on the web about taking your business abroad - or even just sending an employee overseas. To help cut through the noise, our detailed guide will help your business’ journey to expansion.

Inside, you’ll discover more on expansion methods, the crucial considerations and further information on PEO. Just click the link below to get your copy.

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The Best Types of Expatriate Assignments for Your Mobility Program

by WHR Global | Feb 20, 2018 | News

Finding the right person for an open position can be difficult, so when you find that perfect fit, you’ll do what it takes to get them to their new location, even if that new location is abroad. However, relocating someone internationally has never been an easy task. Even if you offer your employees a pay raise,  ship their household goods , or help them find the most amazing new home, expatriate assignments often go awry over time. The industry experts at WHR Global can help with your compan y’ s expatriate assig nment and implementing an expat program .

Housing, cultural adjustment, family adjustment, and a new work environment can all lead to poor productivity, especially if the assignment takes someone far away from their loved ones for an extended.

Many preparations and arrangements go into sending your workers abroad, which is why you must understand the advantages and disadvantages of the most common types of expatriate assignments: long-term, short-term, and typical business travel.

Some companies choose to use just one type of assignment or include multiple different options, depending on the employee and the position available. Either way, finding the best expat program for both your company and your employee will ensure both are successful long term.

What is a long-term expatriate assignment?

There is no single definition of what constitutes a long-term expatriate assignment because companies vary in how they define long-term versus short-term. Still, a long-term expatriate assignment  generally has a 12-month to 36-month duration. Some companies may define a long-term expatriate assignment as work that lasts a minimum of two years but not longer than five years. One of the most important things to note is that this type of assignment is not a permanent transfer; the employee intends to return to his or her home country after the long-term assignment is complete.

The benefits of expatriate work go both ways. You can dispatch your best talent to international partners and help them build and grow their international business; and your workers can expand their knowledge of different cultures and markets and enhance their careers with overseas experience.

The specifics of each long-term expat assignment vary greatly depending on industry and location. In the past, it was important to instill the culture of the parent company into the foreign entity and help drive revenue growth in the overseas location. Today this still exists, but the opposite is also true. Overseas workers are being deployed to the parent country or other countries to gain experience, transfer knowledge, and run specific project-based work. How companies handle expatriate assignments is changing as global travel is now just as common as traveling within your own country.  

Other benefits can include payment/payroll in their country of origin. This means no currency convers ions. Along with the payments, benefits such as a 401(k) can continue regular contributions and other incentive plans.

Companies know that  employee dissatisfaction  with long-term expatriate assignments is a problem. The most striking example of employee dissatisfaction is when workers move their entire family overseas. It’s common for many staff to encounter buyer’s remorse as stress and unfamiliarity with new surroundings begin to affect loved ones.

Costs are extremely high for expat assignments and many companies don’t properly vet the individual taking the assignment. They don’t test the person’s ability to thrive in a “foreign” location and adapt culturally. Additionally, many companies forego cultural and language training which is essential in providing a foundation for a successful transition. Simple things like how to conduct a business meeting or learning the norms for handing out a business card . Other pieces cou ld include finding what time is appropriate for arriving at meetings or knowing what to do if invited to dinner, etc. are just some of the numerous and subtle social and business norms that will ensure success.

  However, many companies choose not to or don’t know the importance of this investment.

Consequently, increases in employee dissatisfaction and high costs with long-term assignments ha ve led many companies to reevaluate their long-term policies. Implications such as paying taxes in a foreign country can come into play or implementing a tax equalization plan for long-term expat employees. There are countless compliance requirements as well, and without the assistance of a relocation company, it can be hard to navigate. Many companies have chosen another route: short-term expat assignments.

What is a short-term expatriate assignment?

This type of expatriate assignment can last between three months to a full year. Like long-term assignments, each company defines short-term assignments differently. Because the employee plans on returning home after such a short amount of time, there are additional benefits that must be considered. Short-term expatriate assignments can offer great flexibility and less commitment, but less fluidity and insurance. Many companies will not allow the family to accompany the employee on these short-term assignments but will provide other options such as more frequent trips home, furnished accommodations, per diems, travel allowances, etc. Relocation management companies, such as WHR Group, can help manage short-term expatriates and provide the structure and benefits available to this group of assignees.

The problems of dissatisfaction and homesickness became apparent with long-term moves, so short-term overseas engagements were developed as an alternative to pulling up roots and moving families across the globe for extended periods. From your company’s perspective, a short duration generally costs less upfront, and it gives you more flexibility when developing a mobile, global workforce. Additionally, the consequences of  individuals becoming “taxable”  in the foreign location can be managed effectively, thus significantly decreasing the cost of the expat assignment. Lastly, the pool of candidates willing inevitably increase s as it’s a short-term expat assign ment, which has reduced impact potential on families and financial ramifications.

The cons of short-term expatriate assignments revolve around demands to rotate a variety of personnel, which requires more planning and administrative time for everyone involved. There is a trade-off between a series of short-term assignments versus a single long-term assignment. What works for your company may not work well for others.

Extended business traveler

These types of expatriate assignments can really rack up frequent flier miles. If your workers travel internationally on business for a duration that only lasts a week or two, they are still, technically, expatriates. Typically, these employees are not on a formal assignment; however, there are still potential tax and  immigration considerations  that need to be made when sending someone on these extended business trips.

For everyone involved, business traveling simply causes less disruption. Your workforce has much more control over how they perform duties and you don’t have to permanently allocate resources to a foreign location.

Work visa requirements differ widely from country to country and can be impacted by the home and host locations involved. In some instances a worker may enter into the country on a work permit waiver, but in other countries it may be illegal to perform a single work duty without having the proper work visas in place.

Regardless of the assignment type that is considered, each type of expatriate assignment has its strengths and pitfalls. Every company needs to determine what is optimal for their workforce and the business need s requiring these assignments. Let the experts at WHR Global help guide your employees and company through these types of decisions and implementations.

Read More: The Importance of Repatriation Assistance

Read into How the Preparation of Your Expats Can Ease Their Transition

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How to prepare expats for foreign assignment

Return on investment (roi) is key  for a global hr team managing expat employees on international assignment. rates of expat failure can be as high as 40% , depending on the industry. as investment in an assignment can be more than $300,000, failure is expensive in both financially and timewise. , choose the right person.

Preparing expatriates for foreign assignment begins as early as the selection process. Research by Cut-e shows the ability to excel at a role may not be enough for expat success . The most accomplished new expats have a range of soft skills including:

• Emotional stability
• Sensitivity to other cultures
• Better than average interpersonal skills
• Demonstrated flexibility

Ensure candidates demonstrate these and similar traits with practical examples at interview stage.  

Pre-assignment training

Preparation is key when any employee is moving abroad to work. Global HR can support the employee by developing thorough pre-assignment training . This should help:

• Anticipate potential challenges
• Develop strategies to overcome them
• Better understand societal and business norms
• Understand the overarching goal of their overseas assignment

This is particularly useful for those working abroad for the first time. Ideally pre-departure training covers topics like:

• Cultural training
• Local language skills
• Information on the host country  

Home and host mentors

Support on the ground.

One of the leading causes of expat failure is the unhappiness of an expat’s spouse or family. Ensure the expat and their family has practical support from HR in the destination country. This should cover elements like:

• Finding a place to live
• Setting up a bank account
• International Health Insurance
• Enrolling children in school
• How the tax system works  

Interviews with expats in Personnel Today highlighted the importance of information, contacts, and processes fitting together, so settling in is easy.  

Stay in contact

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International Assignments: How to manage international assignments

• Briefing Notes
• Useful Links

Assignment policy

Employers that would like to deal with international assignments in an effective and efficient way should have a flexible but robust international assignment policy in place.  This policy should address the full spectrum of assignments that are now commonplace, from the traditional secondment (long or short-term) to the commuter assignment or project worker, and should be consulted prior to an employee leaving the UK.

A typical policy will cover such matters as identifying the compensation and benefits to be provided to employees while on secondment, as well as dealing with many of the practical issues that need to be considered, such as allowances for accommodation in the host country, the provision of flights home for the employee and his or her family, and arrangements for relocating the employee.

Compensation and benefits

Most employees will be concerned that their compensation and benefits are retained during their stay in the host country and that they are compensated for any additional expenses incurred, especially if their move is to a country where the cost of living is higher than in the UK.

Employees may be concerned about their long-term incentives and retirement benefits such as company pensions.  Typically they will want to know whether they can stay in the home company scheme and, if so, how the employer contributions will be funded post-departure.  If it is not possible to stay in the home company scheme, they will want to know what arrangements will be put in place to compensate a break in their home country pension.

Likewise, the employer will need to consider how participation in bonus plans and share schemes will be dealt with and whether or not the employee can continue to participate while on secondment.

Most expatriates will also expect to receive support for housing costs, travel expenses, medical expenses and school fees.  They might also expect to receive a cost of living allowance to help with living expenses in the host location.  Employers that are looking to ensure competitive packages should obtain relevant, up-to-date country cost of living data to enable them to carry out a meaningful comparison and benchmark their policies against similar organisations.

Tax is usually the largest part of the cost associated with secondments.  Careful planning can reduce the overall cost while taking away some uncertainty for the employee.

Tax issues in multiple jurisdictions can arise when seconding employees overseas, but these should not be daunting provided that they receive due consideration.  The employer should give thought to whether or not the employee should be “tax equalised”.  Under tax equalisation, the employee is put in no better or worse position, tax wise, as a result of taking up a secondment.  The employee will remain responsible for tax on his or her home country compensation and benefits package.  The employer will meet the tax liabilities arising on assignment-specific benefits like accommodation and school fees as well as additional taxes due to higher tax rates in the host country.  Clearly, where the host country has higher tax rates than the home country, equalising will potentially add to the employment costs.  Employers will need to take into consideration that, although taxes may be higher, some countries provide tax breaks to expatriates, which help mitigate the tax costs.

The terms of any tax equalisation policy are usually set out in the employer’s assignment policy.  It is crucial to clarify what elements of the compensation and benefits package are covered by tax equalisation, especially where long-term incentives are provided, and employers may want to consider a robust policy with regard to taxes arising in the host location on personal income.

Some countries do not allow tax efficient contributions to a foreign country’s pension scheme and it is therefore important to consider the host country tax implications on home country pension contributions for both the employer and the employee.

Administrative issues

When leaving the UK, individuals who are likely to become non-resident will need to notify HM Revenue & Customs (HMRC) by completing form P85 (leaving the UK form).  This form is a set of questions that HMRC will use to determine the employee’s UK residence and tax status.

It is outside the scope of this article to explain the circumstances when an employee ceases to be UK resident for tax purposes but, broadly, where the absence and employment abroad both last for at least a whole tax year and, during the absence, visits to the UK total fewer than 183 days in any tax year and average fewer than 91 days a tax year (taken over a period of up to a maximum of four years), subject to certain conditions, the employee will be treated as not resident or ordinarily resident in the UK from the day after leaving the UK to the day before returning (although the employee is entitled to his or her full personal allowance in the year of departure). As a non-UK resident, the employee will not be subject to UK tax on employment that is carried on outside the UK.

Tax filing and withholding of taxes in the UK and the host country will need to be considered to ensure that both the employer and employee are compliant and penalties are avoided.

Immigration issues

For the purposes of this article, we have assumed that the employee is being seconded to a European Economic Area (EEA) country.

The employer will need to consider whether or not the employee requires a work permit or some other permission to work in another EEA country.

If the employee is an EEA national then he or she will be entitled, under EU freedom of movement laws, to accept employment in any other EEA country.  However, citizens of the new eastern EU states, namely the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia and Slovenia, do not yet have full free movement rights.  The terms governing these countries’ accession allow the existing EU states to impose restrictions on their free movement.  Therefore, if the employee concerned is a citizen of any one of these eight countries the employer should check whether or not there are any restrictions on his or her working in the proposed new EEA country, before the transfer takes place.

If the employee concerned is not an EEA national then he or she will almost certainly need to obtain some kind of permission to work before travelling to the new country.  It may be that the employee needs a work permit and/or residence permit, so professional advice should be sought as early as possible.  The Van der Elst decision may be relevant.  This European Court of Justice decision means that, if certain conditions are met (which vary from country to country), a non-EEA national working for an EU employer in the EU is entitled to provide services, on his or her employer’s behalf, in another EU member state without the need to obtain a work permit.  It is vital, therefore, that the employer seeks timely immigration advice if the employee to be transferred is a non-EEA national, and this should be factored into the secondment timetable.

Social security

The UK has entered into a large number of bilateral and multilateral social security agreements that apply to secondments so as to avoid the employee paying social security contributions both in the UK and in the host country.  The general rule is that the employee will be subject to the social security legislation in the host country where he or she works, but there are exceptions to this.  If the employee is sent to work in an EEA country or Switzerland for no more than 12 months at the outset, the payment of UK social security will normally continue where a certificate of coverage E101 is obtained from the UK authorities and the conditions as stipulated in the European Social Security Regulations have been met.  If the secondment is unexpectedly extended for a period of up to another 12 months then UK social security may continue to be paid for no more than another 12 months.

With effect from March 2010, the new European Social Security Regulations (Regulations 883/2004 will replace Regulations 1408/71) will allow secondees to stay in their home country social security system for up to 24 months.

There are additional provisions that would allow individuals to remain in the UK social security system for a period of up to five years if special circumstances apply and where the UK and host EEA country authorities so agree.  After the maximum period of five years has expired, the employee will generally come within the host country social security regime, except in rare circumstances where application to stay in the home country system beyond five years may apply.

In some circumstances, when the employee comes within the scope of the host country’s social security system, he or she can continue to make voluntary payments into the UK social security system to preserve any pension rights that are dependent on continued contributions if certain conditions are met.

Secondment agreements

The employer will have to discuss the terms of the secondment agreement with the relevant employee, and consider how such terms will interact with the employee’s existing contract of employment in the home country.  The secondment agreement must make it clear that its terms prevail over those in the employee’s contract of employment.  However, the employee will have to be reminded that all the terms and conditions of his or her contract of employment will be otherwise unaffected during the secondment.

The secondment agreement should include obligations for the employee:

• to carry out the duties assigned by the secondee company;
• to comply with the standards of conduct and performance and rules and procedures of the secondee company;
• to comply with any relevant local laws or practices; and
• to devote all of his or her time and attention to the secondee company.

The secondment agreement should also inform the employee of his or her reporting line at the secondee company.  The employer will have to consider how the employee’s performance and any discipline or grievance issues are to be monitored while he or she is on secondment and who determines permissions relating to vacation requests and the like.

The employer should ensure that the secondee company’s confidential information and trade connections are adequately protected by the contract terms.

On secondment

Administration issues.

Tracking global employees is notoriously difficult, especially when they move frequently.  It is vital for the employer to keep track of such employees in order to deal correctly with tax and social security liabilities.  For instance, tax and social security payments, or the withholding of such payments by the employer, will depend on the employee’s residence status in a particular jurisdiction, which in turn often depends on the number of days that the employee spends in that jurisdiction.  Employees working in the UK before their secondment are subject to Pay As You Earn on their earnings.  If the employee remains on the UK payroll, once seconded, withholding of payments in the UK can be stopped if a No Tax code is obtained from HMRC.  However, if the employee is transferred to the host country payroll, withholding of payments in the host country will need to be considered.

The employer may have to keep track of the employee’s holidays if his or her holiday entitlement continues to accrue under the contract of employment.  The employer may also need to keep track of any sickness or injury absences if its procedures continue to apply.  It is important for the employer to ensure that the employee is under an obligation to advise it of the relevant dates and take responsibility for any negative consequences for failing to do so, such as disadvantageous tax treatment with potentially negative ramifications for it or the secondee company.  An effective tracking system is a necessity.

Some employers provide individuals with support or guidance regarding tax filings in the host location to ensure that the employee is compliant in the host jurisdiction.

Preparation for the employee’s return to the UK

Return to work with the employer

The secondment agreement should deal with the issue of the employee returning to work with the employer on termination of the secondment.  It might, for example, set out whether or not the employee is entitled to return to his or her previous position, or give the employer the opportunity to consider alternative positions.

Tax and social security issues

The returning employee will be treated as UK resident and ordinarily resident from the date of arrival if he or she intends to come to the UK to live permanently or remain for three or more years.  If the employee becomes UK resident the employee can claim his or her full personal allowance in the year of return.  Care is, however, needed where the employee will be in the UK for only a short period before being seconded once more outside the UK.  In these circumstances it may be that the employee does not become resident in the UK at all or is resident, for tax purposes, in both the UK and another country.  In cases of dual residence, the employee may be able to claim exemption or partial relief from UK tax under a double taxation agreement.  The employer should check whether or not such an agreement is in place and gauge its effect on the tax position.

All employees coming to the UK should complete a Form P86 and submit this to HMRC.  This will allow determination of their residence and tax status.

Corporate issues

Although it is outside the scope of this article to consider these issues in depth, a number of corporate issues should be taken into account when sending employees abroad.

One of the key questions is who will take responsibility and bear the costs of the secondment.  Often this is not clear and will need to be answered before the correct tax treatment can be established.

The employer should consider who is to be responsible for dealing with obtaining tax and social security refunds paid erroneously in the home country and identifying if tax and social security should have been paid elsewhere.

It should also consider whether or not there are any recharge arrangements in place if the home company is to continue paying the employee’s salary and benefits package.  If not, the employer’s corporate tax function will be able to advise on whether or not an arrangement should be put in place.

Where an employee is being sent to set up a new business in a new location, the employer should consider whether or not a permanent establishment might be created, resulting in any income derived from the new location being subject to corporation tax in that jurisdiction.  A permanent establishment may consist of a place of management, a branch, an office, a factory or a workshop.

The employer should also identify whether or not there is an employer social security liability arising in the host country, and who is responsible for dealing with this and making any necessary payments.

Seconding employees abroad can be a minefield.  However, where the employer has robust assignment policies in place and effective systems for dealing with the taxation and social security issues, this will reduce management time in dealing with expatriates and help make the assignment a successful one for both employee and employer.

The golden rule is, where possible, to plan ahead to save time and money.

This article was first published on XpertHR, the award-winning subscription website for HR professionals.  ( http://www.xperthr.co.uk/default.aspx )

For further information or to discuss the issues raised, please contact Guy Abbiss ( [email protected] ) or Bina Gayadien ( [email protected] ) on +44 (0) 203 051 5711.

Content is for general information purposes only.  The information provided is not intended to be comprehensive and it does not constitute or contain legal or other advice.  If you require assistance in relation to any issue, please seek specific advice relevant to your particular circumstances.

Content is for general information purposes only. The information provided is not intended to be comprehensive and it does not constitute or contain legal or other advice. If you require assistance in relation to any issue please seek specific advice relevant to your particular circumstances. In particular, no responsibility shall be accepted by the authors or by Abbiss Cadres LLP for any losses occasioned by reliance on any content appearing on or accessible from this article. For further legal information  click here .

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International Assignment Management: Expatriate Policy and Procedure

Our philosophy.

[Company Name] is a global company that operates over X offices worldwide. The transfer of employees between the various [Company Name] units, from headquarters to subsidiaries, between subsidiaries and from subsidiaries to headquarters, enables our company to better utilize its human resources, while offering efficient support to its business activity. In addition, it enables our executives and professionals to gain international business experience and opens up wider promotion paths.

The objective of this procedure is to define the processes, terms and conditions for transferring personnel from one [Company Name] unit to another and to provide guidelines for the benefit and relocation package for such employees. While differing laws in various countries may influence some aspects of the policy implementation, the basic guidelines are to be maintained in order to ensure a unified company policy.

The effective date of this policy is [Insert Date].

Definitions

Expatriate (Hereinafter “Ex-pat”) - An employee who is relocated from his/her home country to work at one of the subsidiaries of [Company Name] abroad or at Corporate Headquarters for a period exceeding one year.

Host country/ subsidiary - The receiving or destination country/subsidiary of the Ex-pat.

Home country/subsidiary - Originating country/subsidiary of the Ex-pat.

General Approval process for an Ex-pat assignment

The transfer of an employee from headquarters to a subsidiary, between subsidiaries or from a subsidiary to headquarters, is contingent upon joint discussions held between the divisions and the subsidiaries.

The Ex-pat position must be granted budgetary approval from the division and approved by the Corporate HR Forum. The host country has veto power over the corporate offer for all candidates except those in top management positions. In January of each year, the HR Forum will convene in order to discuss general Ex-pat recruitment needs for the upcoming year.

Contract approval process

Contracts of subsidiary management team are coordinated and approved in advance by the relevant Co-President and Corporate VP of HR. The rest of the Ex-pat’s contract is coordinated and approved in advance by the Corporate VP of HR.

The employment offer, including salary, benefits and job description, is generated on behalf of the subsidiary by the host country HR Manager and/or relevant VP.

When an Ex-pat relocates from one subsidiary to another, the receiving HR Manager will transfer the offer to the HR Manager in the Home Subsidiary and to the Corporate VP of HR.

As a rule, the entire process of transferring employees between the various company units (subsidiaries/headquarters) under Ex-pat terms is coordinated by Corporate VP of HR (as described above).

Standard Assignment Period

Ex-pat status is restricted to a period of up to 5 years. After this period, the employee is no longer employed under Ex-pat terms and conditions, but rather, under local terms. Exceptions are granted under very limited circumstances and require written explanations and approval of the subsidiary president and the Corporate VP of HR. Under no circumstances will the extension of Ex-pat status exceed an additional 3 years.

Transferring from one subsidiary to another is considered a new assignment in this context.

Terms of Assignment Termination

Completion of the Ex-pat assignment requires a ninety (90) day mutual notice period. If the Ex-pat assignment is termi­nated by the company for any reason other than a breach of the employment agreement on the part of the employee, s/he will be relocated to his/her home country in accordance with the company’s then-current relocation policy and will be exempt from repaying the standing relocation loan

Relocation Allowance

In the event that the employee resigns from the company or from the assignment, he is required to repay the relocation allowance on a pro-rata basis as well as take responsibility for household moving arrangement and expenses (excluding countries in which the law requires the Company to cover Ex-pat relocation expenses, even in case of employee resignation).

Budget allocation

All Ex-pat benefits will be allocated to the host country budget.

Commitment to Hiring the Ex-pat When His/Her Assignment is Completed

[Company Name] makes no commitment to re-hire the employee in his/her home country after his/her Ex-pat assignment is completed.

However, should the employee work in his host country during the ninety (90) day notice period (see above), the employee will be granted the right to work for three (3) months at the company in the Home country on local terms as determined by the home country HR manager on a case-by-case basis.

Commitment to return to the company upon assignment completion

The employee makes no commitment to return to the company upon completion of his/her assignment. However, s/he may be eligible for repatriation benefits (see “Repatriation Policy & Benefits”) upon return to his/her home country.

Spouse Status/Domestic Partners

[Company Name] will extend spouse status to domestic partners. Ex-pat terms apply to the employee, his/her spouse or domestic partner and their children.

Salary Review

Salary review takes place in accordance with the host subsidiaries policy as approved by corporate policy.

The Ex-pat is responsible for paying any tax liability incurred from benefits and compensation received in both his/her host and home countries (excluding countries in which the employer is required to deduct the taxes from all paid benefits).

Option Plan

Options are granted, if applicable, in accordance with host country policy.

Retention of Home Country Social Benefits

The company will cease to fund payment to retirement plans for Ex-Pats for the period of employment in one of the Company subsidiaries. Following are details on the implementation of the decision:

Ex-Pats Recruited from within [Company Name]

Upon the termination of employee-employer relations with [Company Name] – prior to his relocation to the subsidiary, the Ex-Pat will sign an employment termination agreement with [Company Name]. The amounts accumulated by the employee in various funds, will be released

Ex-Pats Recruited from outside of the Company

In accordance with the above-mentioned policy, no amounts will be allocated to retirement and national insurance to Ex-pats recruited from outside the company as of January 2004.

Ex-Pats Currently in Office

Employees will be granted the option to choose between the termination of employer-employee relations and between the continued payments of funds, up to a ceiling of 5 years after their departure to the host subsidiary – a time in which, according to the procedure, the employees cease to carry Ex-Pat status.

The termination of employee-employer relations, in this context, is accompanied by the release of accumulated funds only, with no supplement. Any employee decision (continued payment of funds or termination of relations) will be backed by a document signed by the employee.

Health Insurance

The Employee and his immediate family are covered by local or international health insurance as per the host country’s policy.

Performance Appraisal

In accordance with host country policy (as per corporate policy).

Recruitment and Selection of Ex-pats

Ex-pat recruitment is conducted either internally (i.e. within the company) or externally.

Internal Recruitment

The recruitment process must include a professional recommendation from the division/unit/subsidiary and personality assessment of the employee and his/her spouse conducted by the HR manager (in Corporate, HR manager of the relevant Division or by the Recruitment manager) and/or by an external assessment agency.

Once a final decision is made in the home country, the internal candidate will be interviewed at the host country.

Should the host country HR manager decide to hire, s/he will issue a contract to the employee in cooperation with the HR manager in the home country.

The home country HR manager is charged with care of the administrative processes surrounding the relocation of the employee, including the signing of a non-paid-vacation/leave of absence agreement, which identifies preservation of rights benefits but otherwise confirms the lack of a contractual relationship between the home country company and the employee.

External Recruitment at Corporate

In cases where there is no suitable internal candidate the Corporate Recruitment manager in cooperation with the HR Manager of the relevant division, will manage the search.

The external candidate will be interviewed by corporate managers and by the HR department. Assuming the candidate makes a positive impression, an external personality and capabilities assessment process of both the candidate and his/her spouse will be performed by a specialized agency.

Once Corporate makes positive recommendation, the candidate will be interviewed by the host country.

An acceptance by the Subsidiary will result in either:

• The Subsidiary offering the position to the candidate and employing him/her from day one (the preferred option), or:
• The candidate signing a temporary agreement with Corporate until completion of the training period and/or residency visa procedures. In this case, a secondary employment agreement for the assignment will also be signed with the Subsidiary.

Engagement in an Ex-pat employment assignment is contingent on successful attainment of work authorization in the host country. The process for being granted a work visa differs with the country of destination. Company is responsible for supporting the application for a work visa for the employee and a residence visa for the family.

It is the responsibility of the host country HR manager in coordination with the home country HR manager to take care of the process.

Family Visas

[Company Name] is obliged to support the application of a residency visa only for the Ex-pat’s immediate family (for this matter, the term “immediate family” relates to the spouse and children of the Ex-pat).

The employee has the responsibility to monitor the accuracy and expiration dates of visa documentation for himself and his/her family in order to maintain a lawful working status in the host country.

Language studies

The allotment of English/local language lessons will be approved in accordance with each Subsidiary’s existing policy.

Cross-Cultural Orientation

Written material containing informative details relevant to the country of destination will be delivered to the employee by the HR Department. A complementary cross-cultural workshop will be also coordinated for the employee, his/her spouse and their adult children. The workshop will concentrate on the psychological/emotional stages that the employee and his/her family are likely to face during the transition to a foreign country.

The workshop will be coordinated by the HR Department in the home country once the contract is signed.

Preview Trip

The candidate who expresses a sincere intention to accept the Ex-pat assignment and his/her spouse/domestic partner (if they have school age children) are eligible for a preview trip.

The preview trip is approved for up to 5 working days. It is recommended that the preview trip be combined with a business trip.

The company will pay for round trip economy airfares to the host country and per-diem according to the home country’s per-diem travel policy.

The potential candidate should notify the host country’s HR manager re: his/her preview trip schedule so that proper arrangements can be made.

The potential candidate will meet with his/her direct manager and related business VP’s or managers to learn more about the scope of the job as well as the host country milieu.

House hunting should be done during the preview trip. If possible, it is recommended that an apartment be identified so paperwork can be processed and the apartment readied for when the Ex-pat’s arrival to start his/her assignment.

Visits to potential schools should also take place during the preview trip.

Temporary Housing (at home country)

Expats will be allowed to choose between using their 30 days of hotel and rented car right in their Home Country or at the Host Country, as long as they don't exceed the 30 days period limit.

Special Vacation Days for Arrangement

The Ex-pat is eligible for 5 days vacation leave, in addition to the annual leave, before going on the assignment, in order to arrange his personal matters.

Traveling and Settling-in Policy & Benefits

Cargo Shipment

The company pays for a 20-foot container, insured for up to $40K (US).

It is the responsibility of the host country HR manager to coordinate cargo shipment, except in the case of Ex-pats departing or repatriating from and to Corporate. In such cases, the Customer Department of the Operations Division coordinates the shipment.

For Ex-pats moving from one subsidiary to another, on a sequential assignment, the Repatriation Policy and Benefits re: cargo shipment, shall apply.

No payments will be allocated for the storage of freight for longer than the period required to release the container from Customs.

The company will provide the Ex-pat with a Relocation Allowance to assist with miscellaneous transition expenses. The amount of the allowance will be $3K (US) for singles and $4K (US) for couples with or without children.

The payment will be provided in the home country or upon arrival in the host country as per local procedures.

If the Ex-pat resigns before completing two years of his/her assignment, he/she will be required to pay back the Relocation Allowance to the company on a pro-rata basis.

Household Goods Loan- Company Inc.

Upon arrival at Company Inc., the Ex-pat is eligible to apply for an additional no interest loan of up to $2.5K (US) to assist with miscellaneous costs.

The loan is repaid as per subsidiary policy.

Temporary Housing and Rental Car

Upon arrival at the country of destination, the company will pay for car rental and hotel accommodations for a period of up to 30 days. During this time the employee is expected to make longer term automobile and housing arrangements.

Special Vacation Days for initial settling

Upon arrival to new country the Ex-pat is eligible for 5 days vacation leave, in addition to the annual leave, for arranging his personal matters.

At-Post Policy & Benefits

Annual Leave- as per host country policy.

Holidays and Leave - as per host country policy.

Housing- as per host country policy.

Car- as per host country policy.

Ex-pats are eligible for home leave after each year, as long as they have a balance of one-year service commitment in the host country upon return from home leave.

Home Leave Duration

The duration of the home leave will be up to 21 days, as listed below:

5 days – Training and meetings that will be regarded as working days at Corporate headquarters or at the Home Subsidiary headquarters. In case there is no need for the employee to attend any business meetings/training or if his home country is far from subsidiary headquarters, these 5 days, if taken, will be on the account of the employee’s annual vacation days allotment together with the other 10 days mentioned below.

6 days – Weekends

10 days – Annual vacation days

[Company Name] will cover the round-trip coach fare from and to the country of origin for up to a 21-day visit by the employee and his/her family. In the event that the employee’s family extends its visit beyond the 21-day period and in the event that this extension incurs additional costs to the tickets, these costs will be borne by the employee.

Home Leave Expenses

The Ex-pat is eligible for a special (taxable) allowance towards expenses during home leave:

Senior Subsidiary managers (Presidents/Vice Presidents) will be eligible for $2,000 (US). They are also eligible to a car for their use during the working days they are requested to work during their home leave period, up to a 5 days limit. Any other car expenses during the Home Leave period are covered by the $2,000 that Senior Subsidiary Managers are entitled to as Home Leave Expenses.

Other Ex-pats will be eligible for $1,300 (US).

Application for Home Leave

Ex-pats will fill the home leave application form and obtain direct manager’s, relevant VP’S and host country HR manager’s approvals prior to taking the leave. This process should take place 3 months prior to the starting date of the planned home leave.

Children’s Education

[Company Name] pays for children’s education from Kindergarten through Secondary School or High School Grade 12 equivalent or from age 2 to age 18, depending on local practice.

In countries where the local school system is inappropriate or in an unfamiliar language, International/ American/ British/ Canadian School may be an appropriate alternative.

Educational expenses supported by the company include the following:

• School registration fee
• Tuition fee
• School bus transportation fee
• The company does not pay for the following:
• Summer school
• Summer camp
• School field trip

Academic Studies

Ex-pats (who are not subsidiary management members) will have the option to apply for academic studies, with a subsidy of the company, according to the local subsidiary’s terms and procedures.

Ex-pats who are subsidiary management members (VP’s and Branch managers) will have the option to apply for academic studies, with a subsidy of the company (based on the subsidiary terms and procedure). The applications will be submitted with the subsidiary recommendations to Corporate HR VP for final approval

Family Member in Home Country

The company will provide a round trip economy air ticket for the shortest route to the host country as per the home leave policy of frequency of the Ex-pat, for family member/s who continue to reside in the home country. Family member/s in this case includes sons and/or daughters of the Ex-pat until age 18 or completion of mandatory military service.

Death in the Family

In the event there is a death in the Ex-pat’s family or the Ex-pat’s spouse’s family the company will pay for round trip economy air tickets to the Ex-pat’s home country for either the Ex-pat or his/her spouse. The Ex-pat is entitled to 7 working days paid leave under such circumstances. For the matter of this paragraph, “Family” is defined as: father, mother, spouse, son, daughter, brother or sister.

Tax Preparation Assistance

The Ex-pat is eligible for tax consultation reimbursement as per host country policy.

Repatriation Policy & Benefits

The benefits set forth below will be valid for a period of up to three months after the date of assignment completion and only in conjunction with a bona fide move of a permanent nature back to the employee’s country of origin or to a subsequent assignment in another subsidiary.

Upon assignment completion the company will arrange and pay for the Ex-pat’s cargo shipment. An Ex-pat with 3 or more children will be eligible for a 40-foot container insured for up to $40K (US). An Ex-pat with fewer than 3 children is eligible for a 20-foot container, insured for the amount of up to $40K (US).

It is the responsibility of the originating country HR manager to coordinate the shipment, except in the case of Ex-pats repatriating to Corporate. In this case, the Customer Department of the Operations Division coordinates the shipping.

No payments will be allocated for the storage of freight in the host or home country for a period exceeding that required to release the container from Customs.

Special Vacation Days for Arrangement (Host Country).

The Ex-pat is eligible for 5 days vacation leave, in addition to the annual leave for arranging his personal matters, before departing to his/her home country or before going on his/her next Ex-pat assignment.

Temporary Housing and Rental Car (Host Country)

The company will pay for car rental and hotel accommodations for a period of up to 12 days if needed, at the employee’s regular location, prior to the Ex-pat departure from the host country. The host country HR manager is responsible for the coordination of these arrangements.

Benefits for Employees Returning to Work at Company in Home Country

The employee is eligible for 5 days vacation leave, in addition to the annual leave, to assist with his/her settling-in arrangements.

Repatriation Grant

The company will reimburse the employee for up to $1,000 (US), as per receipts, to help with repatriation expenses. “Repatriation Expenses” include such expenses as temporary accommodations, rental cars and tutoring.

Responsibility

This procedure may be changed occasionally. All changes require the approval of the Corporate VP Human Resources.

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How to Avoid Expatriate Failure

• Anne Morris

IN THIS SECTION

Deploying an employee to work overseas on assignment or as a relocation is an investment which can help your organisation take advantage of the global economy. Unfortunately, as is the case with any potentially lucrative investment, international assignments carry a high risk of failure. Expatriate failure can be expensive for your company and an unwelcome experience for the assignee, especially if they are forced to return to the UK prematurely and having not completed their assignment or met their objectives.

An awareness of the common causes of expatriate failure can help your HR department plan a water-tight international relocation strategy, to protect your organisation’s commercial objectives and the employee’s wellbeing and support their ability to perform.

This guide discusses practical steps that HR professionals can take to minimise the chances of expatriate failure, but also to derive the maximum benefit from overseas assignment success. In most cases, international assignments afford the expatriate employee the chance to acquire valuable new skills and experiences, which can be put to good use by the company upon their return.

What do we mean by expatriate failure?

Expatriate failure is a term used to describe any unsatisfactory outcome of sending an employee on an international assignment. This encompasses ‘complete’ failures, which would usually result in the employee returning to the UK without completing the assignment; and ‘partial’ failures, which may include poor performance or failure to achieve specific commercial outcomes.

The cost of expatriate failure

Globally, expatriate failure rates are consistently high due to the mental, emotional and physical strain placed on employees who relocate abroad.

Research has shown that expatriate failure rates are higher among employees sent to developing countries and lower among those sent to economically flourishing countries. In some parts of the world, relocating an employee from the UK carries around a 50% chance of failure.

Successful long-term international assignments typically cost an employer as much as three times the employee’s annual salary.

If the assignment is not a success, your organisation may not see the commercial gains needed to balance the investment and could be forced to spend more money bringing the employee home ahead of schedule.

Beyond the financial cost, there is also the impact of the experience on the employee. They may have been selected for their skills and knowledge, and a premature and unsuccessful return to their home country may impact their confidence and their pride, potentially precipitating a fresh start with a new employer.

Reasons for expatriate failure

There are many factors that can contribute to expatriate failure. Often, failings in the expatriate employee’s support system both at home and abroad are to blame.

In other cases, the assignment was doomed to failure from the outset, as the employer choose the wrong person to send on the overseas project.

If your expatriate employee does not possess the personal qualities necessary to thrive in the new environment, no amount of support provided by the organisation can ensure the assignment is a success. When planning any international relocation, keep the following common causes of expatriate failure in mind.

Poor candidate selection

When there is a lot riding on the success of an overseas project, employers often select their best and brightest employee for the international role with little regard for the other qualities they will need to be successful. While you must choose an employee with the skills and experience necessary to complete the project, personal qualities such as adaptability, open-mindedness and a love of different cultures are arguably more important. To avoid expatriate failure, employers should consider their candidate’s personality, lifestyle, interests and previous experience with foreign cultures. Keep in mind that a ‘love of travel’ will not always translate to expatriate success, especially if the employee in question spends a lot of their travel time in English-speaking areas, around other British people (e.g. at holiday resorts) or in foreign places where they can easily access familiar foods and other items from home.

The following attributes may also minimise the likelihood of expatriate failure:

• The ability to speak a foreign language (even if that language is not spoken in the overseas location, interest in foreign languages suggests interest in other cultures, and a willingness to learn new skills)
• Being single or without children (do not rule out people with dependant families altogether but finding a candidate who could relocate by themselves reduces the chances of expatriate failure being caused by domestic issues)
• Excitement about the project itself (it is not enough simply to find an employee with exceptional skills, they must also be genuinely passionate about the organisation’s goals and feel personally invested in the success of the overseas project)

Inadequate support systems

Comprehensive support structures are essential for international assignment success. Expatriate failure is often caused by lack of practical support in the host country and/or disconnection with the home environment. It is crucial that relocation support does not end as soon as the employee has arrived at their new destination. Your expatriate employee should be assigned a personal mentor in their host country, whose role it is to oversee their adjustment to the new environment and be a first point of contact when they require additional support. You should account for both in-work and personal-life issues when assigning a mentor. Consider that the employee may need assistance with:

• Negotiating the new work environment
• Building social connections outside work
• Organising services like having a phone line installed or making an appointment with a doctor

Just as employers must choose the right employee for an overseas assignment, they must choose the mentor for that employee wisely. If possible, select a mentor with expatriate employee experience so that they can empathise with the relocating employee’s struggles.

Lack of expatriate training

Expatriate failure becomes far more likely in situations where the employee has been given insufficient training prior to the move. Expatriate preparation should not be rushed and must include cultural and language training where applicable, in addition to basic training regarding their role and assignment. Your expatriate employee must be prepared with:

• The language skills necessary to communicate with their colleagues, navigate, purchase provisions and services, and make casual conversation
• Knowledge of cultural and societal norms in their host country (especially any differences which could lead to conflict or cause offence when not acknowledged)
• Basic knowledge of the area in which they will be living and working (e.g. public transport, schools, restaurants and other facilities)

Effective planning is the key to avoiding expatriate failure. Employers must ensure that every aspect of the employee’s new work and living situation has been considered, so that measures can be put in place to prevent problems. International relocation training plans vary in content and structure, depending on location and the duration of time the employee will be abroad. In general, it is wise to allow for at least one month of training time prior to the move. Preferably, this training should be conducted within your employee’s normal working hours.

Poor communication

Employers should develop a plan for structured communication with their overseas employee. Part of your support plan should include keeping the expatriate employee ‘in the loop’ with regular communications from the UK office. Consider assigning a point of contact at home and scheduling weekly or fortnightly update calls or emails. ‘Casual’ communication arrangements are not sufficient as the absence of a structured plan often results in dwindling contact, which may leave the employee feeling isolated.

Make sure your expatriate employee knows who to contact if they require additional support beyond scheduled communications. Your training programme should include making the employee aware of potential issues they may experience while settling into the new environment, such as culture shock, social isolation or domestic difficulties (when relocating with a spouse or child). The employee must understand that such difficulties can ultimately lead to expatriate failure and for that reason, they have a responsibility to report problems and seek assistance. Make it clear that you are keen to offer all necessary support but that you can only do so when you are kept informed about problems, as they arise.

Prepare for repatriation 

When planning to avoid expatriate failure, keep in mind that it is not only your employee’s experience abroad that must be considered. Depending on the length of time your employee was overseas, they may need help settling back into the UK work environment. You cannot call the international assignment a success if the employee’s performance or personal wellbeing suffer due to insufficient support when they return home.

Failure to consider the implications of repatriation often results in poor talent management. Consider the fact that the returning employee has likely acquired valuable new skills, knowledge and experience during their time abroad. These are assets to your business that may be wasted by sending the employee back to their previous job role. It may be more appropriate to move the employee to a new role in higher management or an entirely different sector within the company. Ideally, this is something you should consider and discuss with the employee when ironing out your initial plan and the terms of the international relocation. Remember that at every stage of planning, prioritising your employee’s career goals and personal wellbeing is the secret to avoiding costly and disruptive expatriate failure.

Need assistance?

DavidsonMorris’ global mobility specialists work with global employers to support development of high-impact talent mobility strategies and programmes. We understand the challenges pf overseas assignments facing both the employer and the employee and can work with you to provide expertise and insight into effective management of assignments to avoid expatriate failure.

Expatriate failure FAQs

What are the major causes of expatriate failure.

A number of reasons are commonly cited for expatriate failure, including social isolation, culture shock, family pressure and responsibility overload. Ultimately, the employer should develop and follow a robust and extensive candidate selection process and provide ongoing support while the employee is overseas to minimise the risk of assignment failure.

How should you select candidates for overseas assignment?

Beyond technical and organisational knowledge and competencies, assignees should also demonstrate an understanding of what the experience will entail and the ability to cope with the full demands of living overseas such as having a positive mindset, showing adaptability in challenging circumstances, language ability, local cultural knowledge and confirmation of family support for the move.

How can DavidsonMorris help?

DavidsonMorris are experienced global mobility advisers, working with global employers to help improve the impact and return on their global mobility programmes. We can provide guidance and insight into how to select and support overseas assignees to minimise the risk of expatriate failure.

Last updated: 2 May 2023

About DavidsonMorris

As employer solutions lawyers, DavidsonMorris offers a complete and cost-effective capability to meet employers’ needs across UK immigration and employment law, HR and global mobility .

Led by Anne Morris, one of the UK’s preeminent immigration lawyers, and with rankings in The Legal 500 and Chambers & Partners , we’re a multi-disciplinary team helping organisations to meet their people objectives, while reducing legal risk and nurturing workforce relations.

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Pros and Cons of Different Assignment Structures for Mobility Programs

As companies adjust to the new reality of work and reassess their mobility programs, there is an opportunity for them to examine the costs associated with running their mobility programs and explore innovative solutions. We are witnessing a renewed interest in mobility as companies seek to adopt the best structure for their business and employees. While non-traditional forms such as remote and hybrid work are becoming more prevalent, there is also renewed interest in both short and long-term assignments. 

This innovation has already been reflected in the evolution of new mobility policies supporting employees working from outside of their usual office locations, including “ Work from Anywhere ” or “Virtual Assignment” policies. Many companies have also increased their use of non-traditional assignment types such as business travelers or short-term rotations.

Download part one of our "Future of Mobility Survey: Remote Work" to discover how HR and mobility managers are creating policies that tackle the unique challenges posed by a remote workforce.

Based on these evolving trends, it may be easy for organizations to overlook the use of more traditional mobility arrangements to support their business growth and talent management goals. However, long-term assignments, short-term assignments, and permanent transfers each have attributes that warrant consideration when determining the most appropriate way to meet the objectives for your company and employees.

As mobility programs continue to evolve, it is important to understand the advantages and disadvantages of traditional assignment types and permanent transfers. Let's take a closer look at the benefits and drawbacks of these options.

Traditional assignment types – long-term and short-term assignments

One of the most commonly used relocation types is an “assignment.” An assignment is the relocation of an employee from one country to another for a specific period of time. A long-term assignment will generally exceed one year, where a short-term assignment will generally be shorter than one year. Below we have outlined some of the benefits and drawbacks for these assignment types.

Benefits and drawbacks of long-term assignments

Long-term or expatriate assignments have long been a popular option for companies who need to transfer or obtain expertise, set up new entities/markets, or provide career development opportunities, especially for future global leaders within the organization. Here, the longer-term nature of the assignment lends itself to building better long-term relationships and in-depth knowledge that can be invaluable to your organization.

From an employee perspective, another benefit of a long-term assignment is the possibility of remaining on their Home country payroll. In this way, employees can often:

• Receive compensation in their Home country currency, avoiding the need to convert Host country currency in order to pay Home country expenses such as student loans or mortgages.
• Participate in the Home country benefit plans. For example, a US citizen/resident employee on a 3-year assignment to the UK can continue contributing to the Home country 401(k), flexible spending plans, and will remain covered by Home country incentive compensation plans.
• Continue participation in Home country social security. In this way, there will be no break in the required time period to meet the coverage requirement for receiving the social security payments upon retirement. For employees at a later stage in their career, continued participation in Home country social security may be a deal-breaker.

Despite these benefits, a major drawback of the long-term assignment is often cost. Assignments can be more expensive to the company due to several factors, including:

• Providing additional allowances and benefits for the assignee. Common examples of these additional compensation elements include cost-of-living adjustments, hardship allowances, Host country housing, and moving expenses.
• Meeting additional compliance requirements. Employees may now have Home and Host country tax filings. And your organization may have Home and Host country reporting and withholding obligations, including related administration expenses such as the cost of establishing and running a shadow payroll.
• Implementing a tax reimbursement policy for your assignee. Tax equalization remains the most common policy for long-term assignments.
• Handling on-going costs incurred for immigration, tax planning, budgeting, internal administration, etc.
• Failing to benefit from the expertise gained by your assignees by not retaining them as employees or finding a suitable position to use their new skills upon repatriation.

It is important to note that proper planning and policies can help to reduce or eliminate many of these drawbacks.

As many factors, including employment, tax, and immigration law, and the availability of bilateral tax and social security agreements can impact the tax and payroll requirements for an assignment, it is important to consult with your mobility tax and legal advisors to make sure the long-term assignment is structured in an appropriate way.

Benefits and drawbacks of short-term assignments

Short-term assignments may allow companies to achieve several of the same benefits as longer-term scenarios, while also addressing several of the challenges. Benefits to the company of using short-term international assignments include:

• Like long-term assignments, an employee on a short-term assignment will often continue to receive compensation in the Home country payroll, seeing the same benefits as described above.
• The company may be able to offer a more modest compensation and allowance package to the employee, helping to reduce the overall tax and assignment costs to the company.
• For US tax purposes, certain reimbursements such as temporary lodging and per diems may be paid tax-free for certain temporary assignments of one year or less. Other countries may have similar rules for temporary assignments.
• Depending on the availability of income tax treaties and social security agreements, Host country taxes may be avoided or limited. For example, an employee on a 5-month assignment from the US to the UK may be able to avoid UK income tax if they will spend less than 183 days in the UK during a 12-month period, remain on the US payroll, and have their compensation expenses continue to be borne by the US entity. The availability of a social security totalization agreement would also provide for the ability to continue on US rather than UK social security through obtainment of a certificate of coverage from the US Social Security Administration.
• Short-term international assignments could result in a larger pool of potential employees for the international assignment program.

Despite these additional benefits, the shorter duration of the assignment may ultimately not provide enough time to allow the organization and assignee to accomplish all the objectives of the assignment. Additionally, the employee may not have enough time to fully “settle in” and develop relationships with the Host country office and clients.

Short-term assignments, as compared to a long-term or expatriate assignment, typically (but not always) result in a lower tax and assignment cost to the company. However, it is important to consider factors that may lead to additional cost, such as:

• Depending on location and the scenario, paying an employee under the expatriate policy may be less costly than providing a per diem and reimbursement of expenses.
• Administering a short-term international assignment may take more time than a long-term assignment. This could happen due to the length of the short-term assignment changing and requiring more constant support by the program administrator and/or tax services provider (e.g., monitoring the assignment).
• There are certain exclusions (e.g., Foreign Earned Income, Housing) and foreign tax credits available on a qualifying employee’s US federal individual income tax return that help alleviate double taxation that might occur as a result of an international assignment. These exclusions and credits may result in a lower tax cost to the company if the assignment is just over one year, rather than short-term.
• An employee on an expatriate assignment will often break state residency during the assignment period; an employee on a short-term international assignment generally will not break state residency. Thus, the state tax cost for the company will often be higher for the short-term international assignment.

Benefits and drawbacks of permanent transfers

Another commonly used relocation type is a permanent transfer or “transfer.” A transfer is a one-way relocation of an employee to a Host country for an indefinite period. In a typical transfer scenario, the individual will become an employee of the Host country entity, with Host country payroll and benefits.

Transferees will typically receive less company support than assignees. For example, instead of receiving allowances designed to keep an individual in a neutral purchasing position in comparison to their Home location (i.e., through provision of housing, cost-of-living, and other allowances), a transferee may receive a local pay package with limited or no allowances. Instead of tax equalization, they may only receive limited tax compliance assistance such as tax return preparation in the Home and Host countries for the year of transfer. Due to reduced support, transfer cases may initially have lower overall costs for the company than assignments.

Permanent transfers are often considered in scenarios where specific skills are needed/not available in the Host location, where the cost of an assignment is considered too high, or for employee-initiated moves . Because of the transfer to local payroll, administrative costs and complexities may also be reduced as the Host country entity would handle any reporting or withholding obligations. In addition, the risk of creating a taxable presence for the Home country entity (e.g., permanent establishment) is also reduced as the individual has severed employment ties in the Home country. However, despite these potential benefits, a transferred employee will likely receive compensation in Host country currency, and Host country benefits may differ from Home country benefits. Transferees are generally not eligible to contribute to Home country retirement/benefit plans such as the 401(k) plan for US employees, or contribute to Home country social security, which may be a significant drawback for those that are at senior or executive level or those approaching retirement. Additionally, employees take on exchange rate risk, potential cost-of-living issues, and potentially higher taxes.

From a talent management perspective, it may also be more difficult or costly to later relocate an employee who has been transferred rather than assigned to a location. A transferee will now be tied to a pay package and cost-of-living in the Host location, which will create a new point of reference for future moves.

What is the best relocation type for your company?

As has been shown, the type of relocation best suited for a given employee and your organization will be based on many factors. Key questions to consider include:

• Why is the employee moving? Is the move initiated by the individual or needed by the organization?
• What are the organizational goals relating to the move? Is the timeline for the proposed relocation reasonable to achieve these objectives?
• Does the employee’s career and personal goals align with the proposed scenario?
• Does the scenario support the longer-term career development objectives for the employee—e.g., will there be ongoing support to make sure the investment in the employee is not lost due to not having an appropriate repatriation plan?

Effective management of cross-border assignments can help firms that are trying to grow their business in key global markets while simultaneously reducing costs. There is no one-size-fits-all approach, hence, every assignment type and policy should be closely reviewed by the company based on the specific assignment objectives.

If you have questions about different assignment structures or how they could impact your global mobility program, schedule a free consultation  with our team. We are happy to discuss your specific situation.

Author Mark Tirpak

6900 Wedgwood Rd N, Ste 400

Maple Grove, MN 55311

+1.888.486.2695 | [email protected]

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What Is an Expatriate?

Understanding expatriates.

• Retiring Abroad

Foreign Earned Income Exclusion

Foreign tax credit, expatriation tax.

• Pros and Cons of an Expatriate

The Bottom Line

• Taxpayer Types

Expatriate (Expat): Definition, With Pros/Cons of Living Abroad

Julia Kagan is a financial/consumer journalist and former senior editor, personal finance, of Investopedia.

Lea Uradu, J.D. is a Maryland State Registered Tax Preparer, State Certified Notary Public, Certified VITA Tax Preparer, IRS Annual Filing Season Program Participant, and Tax Writer.

Investopedia / Julie Bang

An expatriate, or expat, is an individual living and/or working in a country other than their country of citizenship, often temporarily and for work reasons. An expatriate can also be an individual who has relinquished citizenship in their home country to become a citizen of another.

Key Takeaways

• An expatriate is somebody who has left their country of origin in order to reside in another country.
• Expats may leave home for work reasons and seek more lucrative employment in a different country.
• Expatriates may live for a while overseas or completely renounce their citizenship of one country in favor of another.
• Retiring abroad has become an increasingly popular option.
• The IRS may impose an expatriation tax on individuals who renounce their citizenship, usually based on the value of a taxpayer's property or income in the United States.

An expatriate is a migrant worker who is a professional or skilled worker in their profession. The worker takes a position outside of their home country, either independently or as a work assignment scheduled by the employer, which can be a company, university, government, or non-governmental organization.

If your employer sends you from your job in its Silicon Valley office to work for an extended period in its Toronto office, you would be considered an expatriate or "expat" after you arrive in Toronto.

Expats usually earn more than they would at home, and more than local employees. In addition to salary, businesses sometimes give their expatriate employees benefits such as relocation assistance and housing allowance. The expat will need to open a local bank account that will allow them to function in their new home.

Living as an expatriate can be exciting and present an excellent opportunity for career advancement and global business exposure, but it can also be an emotionally difficult transition that involves separation from friends and family while adjusting to an unfamiliar culture and work environment. Hence, the reason behind the higher compensation offered to these migrant workers.

Special Considerations: Retiring Abroad

Much expatriation occurs during retirement. While most Americans spend their retirement in the U.S., a growing number are opting to retire overseas . People are motivated to relocate abroad at an older age for several reasons , including lower cost of living, better climate, access to beaches, or some combination of those and other reasons. However, it can also be tricky to navigate taxes, long-stay visas, and the language and cultural differences experienced when settling down in other countries.

Popular retirement destinations include countries in Central and South America, the Mediterranean, and parts of Europe.

A common choice presented to a retiree expat is between permanent residency and dual citizenship. Note that neither dual citizenship nor residency gets you out of filing a U.S. tax return every year. It is both surprising and burdensome, but Americans still have to pay income taxes wherever they live, and they owe it no matter where their income was earned.

You may also have to file an income tax return in your country of residence, although most deduct the amount American residents pay to the U.S. via treaties that minimize double taxation.

If you're a retiree or near-retiree who's on the fence, you face a tough decision that will require some soul searching and research—and maybe a trip abroad (or several) to test the waters before you make any decisions.

For Americans working abroad as expatriates, complying with United States income tax regulations is an added challenge and financial burden because the U.S. taxes its citizens on income earned abroad. To avoid double taxation , the U.S. tax code contains provisions that help to reduce tax liability . Taxes paid in a foreign country can be used as a tax credit in the U.S., which when applied against the expat’s tax bill, reduces it.

The Foreign Earned Income Exclusion (FEIE) , for example, allows expats to exclude from their tax returns a certain amount of their foreign income, which is indexed to inflation. For 2023, this amount is $120,000. For 2024, it is $126,500. An expat that earns, say $180,000 in 2023 from their job in a foreign country that is tax-free will only need to pay U.S. federal income tax on $180,000 - $120,00 = $60,000.

The FEIE does not apply to rental income or investment income. Therefore, any income made from interest or capital gains from investments will have to be reported to the IRS. The Foreign Tax Credit (FTC) is a provision that ensures expats are not double-taxed on their capital gains.

For example, assume an expat falls in the 35% income tax bracket in the U.S. This means their long-term capital gain on any investment is taxed at 15%.

Since the FTC provides a dollar-for-dollar credit against taxes paid to a foreign country if the expat paid 10% tax to the country where they work, they'd only have to pay 5% tax to the U.S. Likewise, if they pay no tax to the foreign country, they’ll owe the full 15% tax to the U.S. government.

If the income tax paid to a foreign government far exceeds the amount of the credit (because the foreign tax rate far exceeded the U.S. rate), the expat will forfeit that amount. The credit, however, can be carried into the future.

An individual who has renounced their citizenship in their home country and moves to another is also referred to as an expatriate for tax purposes and is subject to an exit tax known as expatriation tax .

According to the Internal Revenue Service (IRS), the expatriation tax provisions apply to U.S. citizens who have renounced their citizenship and long-term residents who have ended their U.S. residency for tax purposes, if one of the principal purposes of the action is the avoidance of U.S. taxes .

This emigration tax applies to individuals who:

• Have a net worth of at least $2 million on the date of expatriation or termination of residency
• Have an average annual net income tax liability that is more than $190,000 if the expatriation date was in 2023 ($201,000 if the expatriation date is in 2024) over the five years ending before the date of expatriation or termination of residency
• Do not (or cannot) certify five years of U.S. tax compliance for the five years preceding the date of their expatriation or termination of residency

Advantages and Disadvantages of Becoming an Expatriate

Living and working in another country for an extended period of time can have its benefits. These can range from new experiences and adventure to more practical considerations like a lower cost of living or being closer to extended family abroad. Depending on where you settle, you may also get government perks like free healthcare and education and more favorable taxation.

There are also some potential drawbacks. Regarding taxation, unless you fully relinquish your American citizenship, you will still need to file tax returns each year and may need to pay taxes to Uncle Sam, even on income earned in your new country.

You'll also be a long way from home, potentially. This can make seeing friends and family more difficult, and time zone differences can also interfere with finding a good time to link up by phone or video chat. Learning a new language and customs can also be difficult for some, and certain items or products that you like may not be available where you live. And remember that not all countries enjoy the same level of political and economic stability that the U.S. does.

New experiences and maybe a better climate

Potentially lower cost of living

Potential access to affordable healthcare

Potential for double taxation

Long way away from friends and family

Language, cultural, political, and economic barriers

Potential challenges securing the proper visa

What Does It Mean to Become an Expatriate?

An expatriate or "expat" is somebody who leaves their country of origin and settles abroad for an extended period of time, often permanently.

What Is Expat Taxation?

Americans living overseas still have to file U.S. tax returns unless they relinquish their American citizenship. Several international tax treaties exist to help minimize double taxation.

What Is an Expat Community?

When people relocate to a foreign country, they often find comfort in seeking out other foreigners, especially from their home country. Expat communities are enclaves of people from a similar national origin, often with their own school and shopping options. In many countries, English-speaking enclaves are called "Anglo" communities.

Expats typically have to navigate a complex web of tax rules and regulations, which can be challenging to understand and comply with. Though retiring abroad to a lower cost of living, there are retirement considerations to comply with. In addition, expat U.S. Federal taxes are complicated, though they may rely on tax credits and income exclusions to receive favorable U.S. tax treatment.

Bonache, Jaime, and et al. " The Interaction of Expatriate Pay Differential and Expatriate Inputs on Host Country Nationals' Pay Unfairness ." The International Journal of Human Resource Management , vol. 20, no. 10, October 2009, pp. 2137.

The Wall Street Journal. " Americans are Saving Money by Retiring Overseas ," Slide 2.

International Living. " The World’s Best Places to Retire in 2023 ."

World Economic Forum. " The World's Best Retirement Destinations Might Surprise You ."

Internal Revenue Service. " Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad ," Page 3.

Internal Revenue Service. " Tax Treaties ."

Internal Revenue Service. " IRS Provides Tax Inflation Adjustments for Tax Year 2024 ."

Internal Revenue Service. " Foreign Earned Income Exclusion ."

Internal Revenue Service. " Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad ," Page 15-16.

Internal Revenue Service. " Foreign Tax Credit ."

Internal Revenue Service. " Topic No. 409, Capital Gains and Losses ."

Internal Revenue Service. " Foreign Taxes that Qualify for the Foreign Tax Credit ."

Internal Revenue Service. " Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad ," Page 24.

Internal Revenue Service. " Publication 519, U.S. Tax Guide for Aliens ," Pages 23-24.

Internal Revenue Service. " Expatriation Tax ."

Internal Revenue Service. " 26 CFR 601.602: Tax Forms and Instructions; Rev. Proc. 2023-34 ," Page 21.

Internal Revenue Service. " 26 CFR 601.602: Tax Forms and Instructions: Rev. Proc. 2022-38 ," Page 19.

Internal Revenue Service. " Publication 519, U.S. Tax Guide for Aliens ," Page 24.

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