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International Staff Mobility: Tax Issues

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International staff postings provide an excellent growth opportunity for a business.

Whether the company prefers to hire from abroad or send resources from here, this decision includes multiple human, financial, legal and tax aspects that will influence the success of this process.

Posting impacts

A business with some of its staff posted abroad would not be able to function efficiently and reduce posting costs without proper tax planning and efficient compliance services.

It is imperative for both employers and employees to comply with the foreign country’s tax laws and regulations, otherwise the tax authorities could impose hefty fines or penalties. Employees must have a clear understanding of the impact of the posting on their personal tax and resulting compliance obligations for both the country of residence and the host country. Employers must establish a fair and just remuneration plan, pay taxes as applicable, file income tax returns and comply with indirect taxes accurately and in a timely fashion, locally and internationally.

Tax obligations, even without a head office

Entrepreneurs often believe that they do not have to worry about payroll deductions for an employee sent abroad, corporate taxes and the sales taxes of the country in question when they do not have a head office abroad. This is not always the case!

As an example, a Canadian company carrying on sales in the United States that decides to send a sales person there for a certain amount of time to develop the U.S. market could be subject to the following U.S. tax obligations:

  • Registration as a U.S. employer;
  • Remittance of the sales person’s U.S. payroll deductions;
  • Filing of employee and company U.S. state and federal tax returns;
  • Registration for U.S. sales taxes.

These resulting tax obligations may be considerable for a Canadian company that is not familiar with the laws of the host country. As such, it is important for entrepreneurs to learn more about their organizational and tax structure. The objective is to minimize the overall tax rate and avoid situations where foreign activities could increase the tax burden.

A company that knows how to plan and rigorously adheres to the tax laws can considerably reduce the operating risks and expenses related to its international activities. Our team of international tax experts can guide you in your foreign posting process by offering you integrated consulting and compliance services that cover all of the tax, personal and organizational aspects of international staff mobility.

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