SESSION 4A: EXPATRIATES AND INTERNATIONAL ASSIGNEES

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1 SESSION 4A: EXPATRIATES AND INTERNATIONAL ASSIGNEES A TAX GUIDE FOR AN EMPLOYER S FIRST TIME Hayley Lock KPMG Melissa Rowbottom Hatch

2 Overview International tax framework Outbound from Australia Inbound to Australia

3 International tax framework Australian domestic legislation Residency of individuals Source of employment income Double taxation agreements Residency of individuals Source of employment income

4 International tax framework Bilateral Social Security Agreements Austria Belgium Croatia Chile Czech Republic Finland Germany Greece Hungary India Ireland Japan Korea Latvia former Yugoslav Republic of Macedonia Netherlands Norway Poland Portugal Slovak Republic Switzerland United States of America Reciprocal Health Care Agreements United Kingdom Republic of Ireland New Zealand Sweden Netherlands Finland Belgium Norway Slovenia Malta Italy

5 Outbound from Australia key considerations Employment taxes: PAYG withholding on employment income Taxation of fringe benefits Social security taxes: Superannuation guarantee obligations Medicare levy and Medicare levy surcharge Other employer obligations: Payroll tax Workplace accident insurance

6 Taxation of employment income Employer obligations Residency and payroll set up PAYG withholding obligation? FBT on fringe benefits? Tax resident of Australia remaining on Australian payroll (note 1) Yes Yes Tax resident of Australia on foreign payroll (note 2) No No Foreign resident of Australia (note 3) No No Note 1: This would also address scenarios where a foreign entity payrolls the employee and that entity has a sufficient connection to Australia in accordance with the considerations in TD 2011/1. Note 2: This scenario assumes the foreign entity that is payrolling the employee does not have a sufficient connection to Australia in accordance with the considerations in TD 2011/1. It is important to note that while a PAYG withholding and FBT obligation may not arise, the employee will still be subject to tax on these items in Australia through the annual individual tax return. Note 3: This scenario covers both those individuals who would not be considered a tax resident under Australia s domestic tax legislation and those who would be tie-broken to the other state under the Residence Article of the relevant DTA. In these circumstances, the taxation outcomes are the same regardless of which entity payrolls the employee.

7 Social security taxes Superannuation Residency and payroll set up Tax resident of Australia remaining on Australian payroll Tax resident of Australia on foreign payroll Foreign resident of Australia subject to a Certificate of Coverage Foreign resident of Australia (no Certificate of Coverage) Superannuation Guarantee obligation Yes No Yes No Medicare levy and Medicare levy surcharge

8 Other employer obligations Payroll tax Workplace accident insurance

9 Inbound to Australia key considerations Employment taxes: PAYG withholding on employment income Taxation of fringe benefits Social security taxes: Superannuation guarantee obligations Medicare levy and Medicare levy surcharge Other employer obligations: Payroll tax Workplace accident insurance

10 Taxation of employment income Employer obligations PAYG withholding Local payroll Foreign payroll with PAYG withholding variation Foreign payroll with shadow payroll Taxation of fringe benefits No LAFHA Foreign benefits

11 Social security taxes Superannuation Guarantee Certificates of coverage Senior foreign executive exemption Departing Australia Superannuation Payments Medicare levy and Medicare levy surcharge Reciprocal health care agreements Medicare levy exemptions

12 Other employer obligations Payroll tax Consider wage thresholds and grouping provisions Foreign payroll Workplace accident insurance

13 Conclusion Outbound employees Determine whether the employee will be an Australian tax resident or a foreign resident while on assignment. Consider the residency position under the relevant double tax agreement (where in place). Where an employee remains a tax resident in Australia and on Australian payroll, the employer should consider a PAYG withholding variation for foreign taxes. Where an employee remains a tax resident in Australia and on Australian payroll, the employer must produce a PAYG payment summary foreign employment. Where an employee remains a tax resident in Australia, fringe benefits must be included in the FBT return and double tax may arise. Apply for a certificate of coverage where this is available under a bilateral social security agreement. If remaining an Australian tax resident the employee should consider retaining Australian private health insurance. Determine if payroll tax is payable (generally not if the employee will be outside Australia for more than six months). Determine if Workers Compensation insurance should continue to apply in relation to the employee (consider the employee s principal place of employment).

14 Conclusion Inbound employees Determine whether the employee will be a temporary resident. Consider whether to run a shadow payroll or apply for a PAYG withholding variation. Consider whether there are fringe benefits that can be provided on a concessional basis. Apply for a certificate of coverage where this is available under a bilateral social security agreement. Consider whether the employee would be considered a senior executive such that SG contributions are not required. Agree with the employee how the employee will recover superannuation through the Departing Australia Superannuation Payment process. Agree with the employee how the Medicare levy exemption certification process will be undertaken. Where employee from an RHCA country, ensure the appropriate level of private health insurance is obtained to avoid MLS. Ensure wages paid from a foreign payroll are included for payroll tax and the calculation of wages for Workers Compensation insurance purposes.

15 Hayley Lock & Melissa Rowbottom 2016 Disclaimer: The material and opinions in this paper are those of the author and not those of The Tax Institute. The Tax Institute did not review the contents of this presentation and does not have any view as to its accuracy. The material and opinions in the paper should not be used or treated as professional advice and readers should rely on their own enquiries in making any decisions concerning their own interests.