With declining trend of Covid-19, there has been an unanticipated surge in visa and work permit queries and applications. Along with regular intra-group secondments, companies with an ambition to expand their worldwide footprints and access new markets are deploying their employees to countries where they may not have a group company or a subsidiary. Hiring managers are also actively recruiting international talent with global experience by providing cross-border remote work opportunities.
Transnational expansion is essential for any organization, but it is also important that any such overseas assignments and hiring must be carefully managed to avoid any unexpected compliance issues that could result in fines, penalties, or other roadblocks in foreign jurisdictions.
At the same time, such movements are especially challenging for the expats and their accompanying families. It is equally important to ensure that they are well taken care of, not just logistically, but also in terms of emotional settling in.
Continue reading to learn about some critical pitfalls that mobility or hiring managers must be aware of when planning assignments or recruiting overseas.
1. Immigration and visa irregularities
In general, immigration and visa regulations prohibit employment or remunerative activities on tourist and business visas. Noncompliance may result in fines and penalties for the employer, and expats may be blacklisted or deported.
Every country has its own set of qualifications for work permits and employment visas, and it is vital that applications are properly scrutinized and supported by appropriate documentation in order to apply for the correct visa type. Similarly, certain countries, such as Singapore, Nigeria, and Egypt, issue quotas to employers for recruiting foreigners. Establishing quota eligibility prior to submitting an application is crucial to avoid rejections and delays in visa or work permit issuance.
If assignees are travelling with family and dependents, it is important that they travel on the appropriate family or dependent visa and do not engage in economic activity unless they apply for a work visa separately.
Are you having difficulty managing documentation and visa applications for your assignees? Reach out to the immigration team at Expat Orbit for guidance and support.
2. Mobility policies and agreements are not properly defined
For overseas secondments to be cost efficient, compliant, and well managed, it is important to have a well-defined policy framework, process, and agreements in place. Secondment terms such as tenure, home and host compliance obligations, payroll location, cost cross charge between companies, etc. must be adequately documented via policies and intercompany agreements.
The secondment letter and host employment contract must explicitly define and document assignee’s relationship with the home and host entities.
These agreements form the basis of justifying assignees relationship with the host entity and home entity before the relevant authorities. The deeper the employment nexus between the assignee and the host, the lower the home entity’s compliance risk, particularly permanent establishment exposure. Click here to read more about risks and exposures owing to cross border secondments and remote working
3. Ignoring the social security implications
Every country’s social security legislation differs, and expatriates in some countries may be subject to additional regulations. Depending on the assignment period, type, and assignee’s relationship with the host entity, social security compliances at the host location may become applicable.
Where overseas operations are predominantly supported by individual consultants and contractors, social security regulations may not apply; however, in the case of regular secondments, it is crucial to pre-assess host country regulations and applicability to the assignees.
Participation in social security schemes is essential when mandated by host regulations, unless:
- A Social Security Agreement (SSA) exists between the host country and the assignee’s home country
- The assignee has secured a Certificate of Coverage (COC) from the assignee’s home country
In such instances, the assignee is exempt from social security obligations and is also eligible for additional benefits under the applicable SSA.
When assignees are seconded to a host country without a subsidiary or group company, or when remote employees are employed locally in such countries, a thorough examination of the host country’s social security compliances becomes even more critical.
4. Inaccurate assessment of tax residency and resulting tax compliances
When planning or executing overseas assignments, mobility teams must maintain a track of the assignee’s travel calendar, particularly the stay days in the home and host countries.
The home and host country’s tax residency are assessed based on assignee’s nationality, assignment duration, and physical stay days, and this becomes the starting point for determining the taxability in the home and host country.
While the host country, or more specifically the ‘source state’, where employment is exercised, has the primary right to tax assignment income, due to the assignee’s nationality, country of domicile or residency, there may be a situation where the worldwide income is taxable in the home country, also referred as the ‘residence state‘.
Exercising respective rights governed by the domestic tax laws, the assignment income may be taxable in the host as well as the home country. In such a situation, relief under the bilateral tax treaties may be sought, which provides for exemption and relief from double taxation
There are various myths about home and host country taxation in the context of overseas secondments, if you are grappling with similar concerns, see here for a more extensive study.
5. Lack of clear understanding of employees v/s consultants
When expanding the overseas team or hiring globally, it is critical that the overseas workers are properly onboarded as employees or consultants based on the engagement terms, roles, responsibilities, and manner of executing the job obligations.
Depending on the hiring arrangement payroll, tax withholding, socials security obligations and even applicability of indirect / value added taxes would be determined. Here are a few guidelines to help you distinguish between an employment contract (contract of service) and a consultancy contract (contract for service):
- Supervision and control – Employees are subject to the employer’s direction, control, and supervision, whereas consultants are not subject to any such direct control or supervision
- Allied benefits – Employees are entitled to participate in insurance, social security, or retirement benefit programmes, whereas consultants are not entitled to any employment-related schemes or benefits
- Exclusivity and office hours – With exclusive contracts, employees are required to follow office regulations, working hours, and shifts. Consultants are not required to follow any specified shift timings or office hours and can deliver services to multiple organisations at the same time
- Work quality – The employer is solely responsible for the quality of work performed by employees, whereas consultants are accountable for the quality of work performed and may be held liable to the payer for making good any substandard or faulty work
Even when mobility teams employees are aware of the fundamental differences between employment and consulting, misclassification occurs frequently due to overlapping roles and in the urgency of concluding overseas hiring and initiating assignments. Employees misclassified as consultants may not be participating in social security schemes, and employers may end up withholding incorrect taxes. Similarly, onboarding consultants as employees may result in noncompliance with withholding tax and indirect tax regulations at the host location.
Misclassifications, whether made in error or on purpose, can have major effects when challenged by government authorities, and may result in additional outflows due to taxes, fines, interest, and most importantly, reputational damage. If you are having difficulty structuring your overseas assignments and hiring, especially in locations where your organisation may not have a legal entity, consider engaging overseas team through a professional organisation in the host country that would onboard your employees or consultants with the necessary documentation and compliances.
Here’s a link to a recent case study about how Expat Orbit’s Employer of Record (EOR) services helped a leading MNC manage its overseas assignments more efficiently. The scope included not just documentation and compliances, but also employee safety, insurance, accommodations, and, most critically, managing cultural adjustment challenges that the assignees faced.
6. Overlooking the importance of settling in support for expats – Duty of Care
More often than not, mobility teams are so occupied managing the compliances related stuff that they tend to ignore the most important factor – the ‘human’ aspect of the people moving into the other country, working and living with the people of a different culture in a new place altogether. Research reports over the years have highlighted that companies implicitly waste thousands of dollars and innumerable productive hours, just because they are unable to provide the right relocation, community and emotional support to the expatriating employees.
To ensure a motivated and well settled international workforce, mobility teams should ensure to:
- Engage destination service providers, who don’t just provide the logistical support, but are adept in understanding the expatriate challenges. Be it helping them find the right accommodation, acclimatizing them with their new city, travelling around, learning the new language and understanding the cultural mindset of their host country colleagues
- Additionally, it is important to ensure that these expats and their accompanying families have enough support to find community support in the foreign country. Helping them connect with other expatriates, or advising them on tourism, some reliable expat networks they can be a part of or events they can attend to truly enjoy their stay and combat loneliness will go a long way in ensuring successful assignments
Ignoring the importance of a good support to expats has the potential to undermine all the efforts put in for robust compliances. Reach out to us to know more about how you can ensure a warm, comfortable support for your expat employees and accompanying families.
Key takeaways for mobility teams and hiring managers:
- Establish a firm policy structure for seconding employees or recruiting talent abroad
- Maintain a continual record of assignees’ travel schedules and tax residency
- Determine all required tax, immigration, and social security compliances applicable at the host location. With efficient planning and evaluation, compliance costs can be effectively minimised
- Consider using an EOR partner for assignments or recruiting in regions where there is no host organisation or subsidiary
- Do not ignore the importance of duty of care that mobility teams have towards expatriate employees
If you are struggling with any of the above pitfalls, contact the specialised team at Expat Orbit for seamless support in your global expansion journey.