When it comes to taxes and payroll, every country does it differently. That can leave expats in a tricky space regarding paying foreign employees overseas. The payroll process might not be as straightforward as in their home country, and there can be legal consequences for getting it wrong.
In this guide to paying wages to overseas employees, we’ll cover country policies (and how to research them), registering the overseas employee, and how a third party can assist with the process.
Country-Specific Policies That Impact Overseas Employees
When a company moves into a new market, registering the business in the country is usually a prerequisite to opening doors and hiring staff. However, the process of registration can differ widely among countries — but that’s no excuse not to figure it out. If you circumvent the laws with a stealth employee, that could get caught and your business could be fined.
In addition to registering the business, you’ll want to make sure you understand payroll and tax regulations at the federal and municipal levels. The best way to research these country-specific policies is to lean on contacts in-country who can easily explain the nitty-gritty of what your business needs to do to legally hire and pay overseas employees.
Registering Overseas Employees
Once your business is legally set up overseas, it’s time to open doors. This might mean transferring personnel to the new location or hiring local employees. At this point, you’ll have to do the necessary paperwork to register and pay your employee. This differs by the location of your overseas company. Some options include:
- Set up an offshore workaround: Offshore workarounds are formalized arrangements for overseas employers to hire and pay employees without having to set up a formal place of business. This is the simplest option, if it’s available.
- Treat your team like contractors: In several countries, including the U.K., foreign-based employees can assume responsibility for their social security and tax filings, much like self-employed contractors. The company can then hire local workers without handling withholdings on their accounts.
- Legalize local payroll through registration: Some countries, including France, Sri Lanka, and Estonia, allow overseas companies to register as “payroll only” to pay employees working in a satellite branch.
- Have employees self-declare to local the tax agency: Employees doing business in Africa have the option to self-declare their tax status as foreign patrolled to local authorities.
- Keep employees on U.S payroll: If an assignment is short-term in nature, it’s usually accepted practice to keep the employee on U.S payroll rather than make other arrangements.
Get Professional Assistance With Paying Overseas Employees
Launching into a new market is difficult enough without having to worry about the legalities of foreign hiring, payroll and taxes. As an expat tax preparation service, Expat CPA can help your business understand and meet legal obligations without worry.
Our consulting services include tax planning for expats and tax return review, including filing amended returns or correcting omissions on recent taxes. We can also handle tax projections, where we look at the potential tax implications of life changes such as relocation, real estate purchases, and temporary return to the U.S.
Review our consulting services or contact us to schedule an appointment.