Foreign-based businesses are increasingly expanding their global operations into the U.S. As they do, they’re bringing talent with them from their home countries.
Most foreign businesses thoroughly prepare employees for the move. Many, however, do not convey the full impact of relocating their workforce, especially the resulting tax implications for employees.
Smart Business spoke with Lourdes Rabara, a tax professional at Sensiba San Filippo LLP, to learn about the challenges of transferring foreign workers into the U.S. She also discusses best practices business owners should implement as they plan their expansion.
What are some of the biggest challenges involved in relocating employees to the U.S.?
Expanding into the U.S. can be a complicated process for both the business owner and the employees. How the move is executed can lead to the successful growth of the firm, or if mismanaged, the failure of the company.
A critical step for business owners who are planning a move is to appoint a team of business advisers to assist them with the vast amount of preparation required. There are key areas of support business owners should provide to their employees. These include offering financial assistance and opportunities to meet with a tax professional, and talking with an HR professional to address cultural changes, language and workplace requirements. Business owners should ask their financial adviser to share referrals to other service providers with whom they have a trusted relationship.
What financial effects should be considered?
Business owners need to ensure that their employees have the financial tools to make the transition. As a best practice, business owners should have an equalization policy in place. This policy is specifically designed to ensure that each employee’s real income is equalized with the income they were receiving at home. That consideration takes into account all financial variables including changes in cost of living, taxes and more.
A financial adviser can help clients build plans that include understanding and calculating all of the financial effects of transplanting employees. This should ‘make them whole’ for any loss of income or expenses incurred because of the move.
What are the employee tax ramifications that employers should consider?
Tax compliance can be difficult for U.S. citizens. For foreign employees working in the U.S., compliance requirements can be overwhelming without proper guidance. Business owners should have resources available in advance to help their employees navigate the financial and tax implications.
Many factors can affect the tax situations of foreign employees. Considerations include how long they will be working in the U.S., marital status, the tax situation in their home country, foreign assets held and more. For example, if an employee will be working in the U.S. for more than 183 days, he or she may be treated as a resident of the U.S. That would mean worldwide income must be considered.
There could also be an issue of double taxation and the application of foreign tax credits. If an employee is involved in the ownership of foreign companies or holds substantial foreign assets, he or she may have additional reporting requirements.
Working in the U.S. can be challenging on many levels. Employers who desire happy, productive employees should make every effort to ensure the transition is as smooth as possible. Partnering with a U.S. based adviser that is experienced with the issues that affect foreign companies expanding into the U.S. is a great first step.
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