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What’s the first thing that comes to mind when you think about global employment taxes? Probably something along the lines of “complicated” and “overwhelming.” The thing is, taxes at a local level are complex enough, right? But dealing with tax laws in other countries often leaves companies questioning how to compliantly onboard and pay global team members.
Global tax laws are constantly shifting. This continual change makes every step feel like a potential landmine waiting to detonate. The good news is that you are seeking information, which is your greatest ally when it comes to navigating the global tax minefield.
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With global employment taxes, the right way is the only way
Some companies evade global employment payroll tax complexities by simply wiring money to their employees. This might seem tempting at first, but the truth is that you are gambling with your international reputation.
If you want to be taken seriously by top global candidates and local governments, consider that payroll taxes include:
- Reporting and withholding income tax
- Unemployment contributions
- Retirement contributions
- Social services
- Retention requirements
Five tips to navigate global employment taxes
1. Don’t make assumptions
The first mistake many companies make is assuming that taxes in other countries work the same as in their home country. Your best bet is to expect the unexpected. This outlook will help you learn and focus on the nuances in every new country.
Companies not only have to grapple with differing tax requirements in every country but also the rapid global changes. For example, social security tax rates vary significantly from one country to another. The rate in Germany in 2021 was 19.98 percent, while in France, it was 45 percent.
Additionally, countries are constantly passing new tax laws, such as Japan’s inhabitant tax, which is part of standard legal deductions in payroll taxes. In Canada, as an employer, you must make tax contributions to the Canada Pension Plan.
In summary, assumptions will inevitably lead to mistakes in your global taxes. Make it a point to research all the tax laws in the region you want to hire talent in.
2. Understand worker classification
You are not always going to be looking for full-time employees. Perhaps there is a specific project fit for a contractor. Just like in your home country, contractors, full-time, and part-time workers require specific contracts and are paid differently. Taxes for these worker types are also different.
Misclassifying an employee as a contractor can bring serious legal consequences and hefty fines.
If a company is misinformed and hires a contractor to carry out the tasks of a full-time employee, it can result in worker misclassification and potentially hundreds of thousands of dollars in payroll taxes.
The complexity of the issue comes from the various legal definitions each country assigns to the term contractor vs. employee.
For example, in Brazil, contractors are to work on a project basis only because indefinite relationships are presumptively employment relationships. Brazil-based companies usually implore contractors to set up their own commercial entity. In the absence of a commercial entity, companies should obtain the contractor’s registration as an independent worker.
In China, the labor law states that an employment relationship exists if an individual is subject to a company’s rules and regulations, if the worker’s services are vital to the company, and if the company has a right to control the professional’s work. If you hire a contractor under these terms in China, they will be considered an employee regardless of any employment agreement between you and the contractor.
The importance of understanding worker classification in every country cannot be overstated. Being informed will help you avoid possible penalties.
3. Be prepared to adapt
In today’s global business environment, worker classification is not the only tax consideration you will have to make. The rise of remote work and remote work visas has significantly increased the number of expats and digital nomads in the global hiring pool.
If you have a team member that wants to move to another country, or your company needs to relocate an employee or hire an expat, there are major tax implications to consider. For example, if a remote work visa holder spends more than 183 days in a consecutive 12-month period, they will be considered a tax resident in Estonia.
If your team members establish legal residency in another country, you could be responsible for additional payroll taxes — and you may be obliged to make the necessary local tax deductions for your team members in their home country as well.
Be prepared to adapt to new global tax requirements in a short period. For example, “in 2020, the Inland Revenue Authority of Singapore (IRAS) granted temporary tax concessions on employment income through to June 30, 2021. These concessions were for citizens and residents who could not travel back to overseas employers and needed to work remotely from Singapore.”
Now that this relief has ended, citizens, residents, and non-residents may be subject to employment tax. In this case, employers will have to figure out the length of time that their employees spent in Singapore to try to figure out the necessary tax deductions.
Consulting local legal experts is crucial to maintaining global compliance when hiring international team members. Your legal department should be up to date with global changes and able to adapt to team members relocating and changing destinations constantly. This is key to succeed in today’s business world.
4. Don’t underestimate the consequences of tax noncompliance
We have already discussed some of the causes of tax violation, such as worker misclassification. However, apart from the monetary consequences, there are significant repercussions for your company brand.
If you are faced with global tax noncompliance, many governments will ban you from doing business in their country. In addition, the blow to your company’s reputation will spread worldwide. Saving money by trying to circumvent international tax laws can be tempting, but the resources you can potentially save don’t even compare to the financial and long-term consequences you’ll face.
Compliance should be your first priority when hiring globally, not your last. If you are compliant, everything else will fall into place.
5. Always work with experts
Lack of experience or information regarding global tax laws can cause legal missteps and irreversible consequences. Just like watching Law and Order won’t turn you into a lawyer, a quick Google search won’t make you a tax expert either.
Global experts will do more than navigate global tax laws — they will give you the freedom to focus on your international hiring efforts and grow your company worldwide. Many companies think that their bottom line is worth going at it alone, only to find out that the cost of global mistakes is more than they can handle.
Experts will help you enter and exit international markets at your own pace while overseeing your bottom line and reputation.
Navigate global tax laws with a global partner
Companies that fail to understand worker classification and ignore legal nuances usually end up paying the price of global failure. However, working with a global employment platform can streamline processes related to international employment taxes.
Globalization Partners’ fully compliant Global Employment Platform™ is powered by in-house legal and financial experts who can assist with any questions regarding global payroll, benefits, and taxes. In addition, our end-to-end solution and industry-leading technology supports the entire HR process, providing all the tools you need to manage your global workforce.
Learn more about how Globalization Partner’s Global Employment Platform™ can help you navigate global employment taxes and grow your global workforce. We invite you to read our Global Growth Playbook or contact us for more information.
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THIS INFORMATION IS FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE LEGAL OR TAX ADVICE. You should always consult with and rely on your own legal and/or tax advisor(s). Globalization Partners does not provide legal or tax advice and the information is not tailored to the specific situations of your company or your workforce. Globalization Partners makes no representations or warranties concerning the accuracy, completeness or timeliness of this information. Globalization Partners shall have no liability arising out of, or in connection with, the information, including any loss caused by use of, or reliance on, the information.
