Assignment Abroad Times 2016 Uk

The Government is yet to clarify the future status of non-UK EU nationals/REX/Shutterstock

The process for the UK leaving the EU is yet to be set in motion, but employers should start thinking about the long-term implications for the movement of staff between the UK and other countries, say employment and immigration law experts Peter Finding and Zoe Jacob.

The legal consequences of the UK’s withdrawal from the EU, particularly in relation to the sensitive issue of the free movement of workers, will ultimately be driven by political developments.

But it is easy to see how Brexit might, in time, have a significant impact on the movement of staff between the UK and the rest of the world. So what should HR practitioners be considering in the immediate aftermath of last month’s leave vote?

Brexit HR webinar:  13 July 2016

What does the UK’s vote to leave the EU mean for HR? Despite the uncertainty surrounding the terms of Britain’s exit, you should start preparing for the HR aspects of running a business outside the EU.

XpertHR’s live 60-minute webinar will look at the implications for HR, the outlook for employment law, and the next steps in the Brexit process.

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The first point to make is that nothing should change in relation to the legal position of employees working elsewhere in the EU until the end of the withdrawal process.

This process is started by the UK giving notice to the EU under Article 50 of the Lisbon Treaty, which at the time of writing is yet to be invoked.

The timetable for withdrawal is therefore unclear at present, but is likely to take at least two years and may be extended by agreement.

Nevertheless, both employers and employees will be thinking about the longer term.

International assignments after Brexit

We see the free movement of labour in the employment market in international assignments and the local engagement across the EU of workers from other member states.

In many instances, assignments are time limited and tend to be no longer than a couple of years. As such, many of the arrangements currently in place will finish before Brexit actually happens and no action will be required.

However, while there may not be an immediate legal impact on short-term assignments, the effects of Brexit may be felt in other ways.

The cost of an international assignment may vary as a result of volatility in the currency markets, making it less attractive to the employer. For instance, a British company that uses euros to pay the salaries of workers assigned from the Eurozone may see costs escalating following the devaluation of sterling.

A common reason for the failure of international employee assignments is the difficulty faced by the employee and their family in settling into a new environment.

The ambiguity regarding the UK’s position in Europe may be very unsettling for both for UK nationals working abroad, and for EU nationals in the UK – particularly in respect of the lack of clarity over EU workers’ future rights.

Engage early with the workforce as this will help to gauge and monitor trends in attitudes and concerns, and will also act as a platform from which to calm any fears.

It also means you can take appropriate action to prevent those fears resulting in key workers deciding to return to their home country. Offering employees, and their families, support in applying for documentation to confirm their right to reside in the UK may assist in allaying fears.

Conduct a Brexit risk audit

Longer term assignments may continue into the post-Brexit period. Now is an opportune time for businesses to conduct a thorough audit of the potential liabilities that could arise in relation to assignment arrangements following the UK’s departure from the EU.

There are a few issues to look out for in particular. It is relatively common for an assignment agreement to provide that the employer will fund immigration advice for the assignee’s benefit.

This was often straightforward where EU workers could move freely throughout the union, and so has tended not to be a significant cost.

Clearly, this position is subject to potentially significant change, and the demand for more complex immigration advice for assignees could create additional costs for employers.

Terms governing how assignees are paid, particularly regarding exchange rate mechanisms, are worth revisiting, given the extent to which sterling has lost value since the leave vote.

Furthermore, the framework for determining both the relevant law of a contract, and which country’s courts would determine any dispute, are rooted in EU law.

While there is a chance that the existing rules will remain more or less the same, this is one of many complexities that will have to be addressed in years to come.

Employers might want to think about changing their contracts ahead of time to provide for alternative dispute resolution methods such as arbitration (although such provisions would not be enforceable under current rules).

Future trends and non-UK EU nationals

Previously, the cost/benefit analysis applied by UK employers in determining where to locate the workforce has clearly favoured EU assignments. Looking further ahead, this may change in favour of other global locations if it becomes more costly to move staff around the EU.

The changing political landscape may also lead some businesses, particularly those in the financial sector, to move entire sections of their operations to other jurisdictions.

The future for non-UK EU nationals working in the UK is not clear. At the time of writing, none of the political players has suggested that these individuals would be required to leave the UK, although this is unlikely to be confirmed until a new Prime Minister is in place.

Indeed, the UK will likely want to protect the rights of UK nationals living in European Economic Area states and to accept reciprocity in this area during any negotiation.

In the meantime, individuals may wish to regulate their arrangements either by applying for registration certificates if they have been working in the UK for less than five years, or for certificates of permanent residence if they have been working in the UK for five years or more.

Their direct family members are also eligible to make parallel applications. As suggested above, these are steps which employers may wish (indeed, may be obliged) to support.

About Peter Finding

Peter Finding is an associate at Withers LLP.

View all posts by Peter Finding →

By Katie Davies, Senior Director, Radius

Increasingly, US companies are sending employees on what amount to short international assignments, and they may not even know it. These may be formal short-term assignments with written agreements or could simply be “international commutes” involving occasional business trips to one or more countries.

The one thing these trips have in common is that the workers will receive payments for travel, food and accommodation based on actual expenses. (Alternatively, they may receive per diems as round-sum allowances, a process that eliminates the need to file detailed expense claims for food and accommodation.) Travelers may also receive other relocation or assignment-based compensation, such as payments related to moving expenses. All or some of these payments may need to be reported to US tax authorities at year end via W2 forms. So far, so good.

But what about requirements in the host country? That’s where things can get sticky, and a lot of companies get it wrong, especially (ironically) when there’s a double taxation treaty (DTT) between the host country and the US.

Traveling employees may need to disclose their physical presence in the host country, as there could be certain responsibilities based on how many days they spend there. Even if there’s ultimately no tax liability, there may be a reporting or filing obligation. Workers may need to obtain up-front DTT approval (a rarely known requirement) or, in cases where there is no DTT, obtain an exemption under local domestic law. Typically, this is done either in advance or during the assignment by completing an application and filing it with the relevant tax office. Be particularly careful where costs (salary and/or expenses) for these travelers are either paid for by or recharged to an entity in the host country, as that will invalidate the DTT claim or other exemption and trigger tax liabilities. (That in itself is a complicated story for another time … )

In addition, some expenses, such as hotel-room movie rentals, may trigger US tax and reporting obligations under the IRS accountable plan rules. Companies should track all reimbursements and determine whether such taxes apply.

As you can see, tax payments and expense reporting surrounding short-term foreign visits can be complex, and rules vary greatly from country to country. Tracking expenses can be elusive — some companies manage the process through HR, others through the travel or finance department. It’s important to have a clear policy and communicate it to employees so that expenses don’t slip through the cracks.

Here are four examples illustrating situations that short-term international business visitors may face.

The UK

The UK’s approach to short-term business visitors has changed. In the past, the US-UK DTT prevented US employees from being taxed (subject to the rules being met). In the past few years, however, the country has adopted stricter compliance rules. Although the DTT protects US individuals from paying income tax, the employer (usually the UK company, unless the US company is considered to have a place of business in the UK under the PAYE regulations) may still have to withhold wages under the UK’s Pay As You Earn (PAYE) law. 

Businesses in countries that have a DTT with the UK can apply for a Short Term Visitor Arrangement to loosen or avoid the PAYE requirement if employees stay in the country for 183 days or less (and meet the other terms for DTT relief).

It’s important to carefully track each employee’s travel, because sometimes workers accumulate enough days in the country to trigger a PAYE reporting requirement without the employer’s knowledge. The UK has increased its PAYE auditing, so it’s better to be safe than sorry and invest in the resources necessary to accurately track the number of days your employees stay in-country.

Singapore

Singapore does not have a DTT with the US. It is an example of a country that requires foreign employees to register by completing a form — in this case a Section 13(6) notification letter — upon arrival, even if they plan to stay for less than 60 days (and are thus exempt from Singapore taxes).

Things get a little more complicated if the same employee comes back the next year.

If the employee’s total employment period is not more than 60 days in one calendar year but is more than 60 days in the next calendar year, and if the total employment period in the two consecutive years is less than 183 days, the employee can be exempt from tax in Singapore for the first year, but the employer is required to file a Singapore tax clearance return for the second.

If the employee’s total employment period is not more than 60 days in one year but is more than 183 days the next year, or if the total employment period in the two consecutive years is at least 183 days, the employee cannot be exempt from tax in Singapore even for the year which the employment period is less than 60 days — the employer must file a Singapore tax clearance return for both years.

This example shows the importance of giving more than a cursory glance to foreign laws when sending employees for a short stay.

The Czech Republic

The Czech Republic is as good an example as any for illustrating IRS accountable plan rules when requesting reimbursement for business travel abroad. The US Department of State has approved per diem rates for each foreign country, and the Czech Republic’s rates can be found here. Travel under an IRS accountable plan must meet these three conditions:

  • Expenses must have a business connection.
  • Employees must adequately account for these expenses within a reasonable period of time.
  • Employees must return any excess reimbursement or allowance within a reasonable period of time.

Short-term housing costs (for stays of less than a year) are considered on a per diem basis and are not taxable in the US as long as they don’t exceed a maximum amount specified on a chart. The same is true for meals and incidentals, such as laundry expenses. Business-related local travel can also be expensed this way.

Airfares for assignment flights are not taxable in the US, but travel for personal home leave for employees or their families is taxable.

A Word About the Affordable Care Act (ACA)

US citizens who are absent from the United States for 330 days or more don’t have to worry about the ACA’s mandatory insurance provisions. Citizens in that situation are considered to have “minimum essential coverage.”

But citizens who are absent for a shorter period, and who are not considered residents of a foreign country, must either obtain minimal essential coverage, qualify for a coverage exemption or make a “shared responsibility” payment every month. Minimum essential coverage can include a group health plan provided by an overseas employer. An exemption from minimum coverage may be obtained for a once-per-year gap that lasts less than three months.


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