Taking a business trip may not seem like it needs any special consideration by global mobility managers, but neglecting to plan ahead could be costly for your company. Next time one of your employees is about to head out on the road (or air!), especially to a foreign country, think about these four things and make sure the answers are well defined. When you know the potential consequences ahead of time, you’ll save yourself from headaches down the line.
1. What is the purpose of the travel?
Perhaps your employee is visiting another country to engage in a business meeting or to attend a conference or to negotiate a contract. Whatever the purpose of the travel may be, it’s very important to establish eligibility for business visitor status in the host country.
There are certain criteria for qualifying as a business traveler, and these criteria, although generally common, can be unique for each country. Providing services or doing work isn’t authorized while in another country, so it’s important to ascertain how “work” is defined and to distinguish upfront what qualifies as business travel and what doesn’t.
2. Is the objective of the business travel clearly defined or open-ended?
Typically, business travel will have a duration of less than 90 days in most countries. It is equally important to define (by country) how “days” are defined and counted. Generally speaking, anything over the limit could trigger residency, and all expenses from that day could be treated as taxable expenses resulting in unexpected expenses hitting your bottom line.
Therefore, you should plan the arrival and departure dates in advance. You should also note whether any or all compensation will be paid directly or indirectly by the host country. This will help you determine if the business travel will trigger host country taxation.
3. What are the possible tax consequences of business travel?
With global tax regulations increasing in complexity, countries are evaluating and defining the tax concept of “economic employer” with stricter guidelines when determining tax residency. The two most significant factors utilized in determining if economic employer has been triggered are:
1. The charging of costs (either directly or intra-company billed or charge back)
2. Who controls the individual’s activities
Some countries give equal weight to both conditions, but others consider that economic employer is triggered if a single condition is met. However, if economic employer is triggered, income tax treaties do not apply, and the employee’s compensation becomes taxable from day one with no allowance for spending any amount of nontaxable time in the host country.
Permanent establishment is another taxation concept where taxation can be triggered for many reasons. For example, taxation could be triggered if the business traveler generated or executed a business contract on behalf of the employer, generated revenue while traveling in the host county without a work permit or overstayed their time in country either on a consecutive or accumulative basis.
Each country interprets this concept a bit differently, of course, and there are gray areas, so it is important to consult with a tax provider to ensure compliance. Once permanent establishment is triggered, the corporate veil has been pierced and both the corporation and the individual are subject to income taxation without benefit of existing income tax treaties.
Organizations with global mobility programs must analyze the situation in each host country and advise employees on their tax liability. Either way, developing an understanding of the issue and educating key stakeholders within your company’s organization can help to avoid unpleasant surprises. Seeking outside help on the complicated subject of taxes is always a good idea.
4. What benefits need to be provided to business travelers?
It is important when structuring benefits for business travelers to clearly exhibit and document the intent of returning to the home country. Collaborating with a global mobility services provider who can help create an appropriate package of benefits that exhibit intent of returning to the home country is recommended. Typically, benefits that show intent would include:
- Reserving round trip travel
- Maintaining a home country residence
- Traveling unaccompanied by dependents
These and other benefits of this type will clearly illustrate the intention of returning to the home country.
For additional information on business travelers, check out the new benchmark study from The Forum for Expatriate Management (FEM) titled Policy in Practice 2015 Business Travelers. Several of the survey findings state that only 7% of participants believe their business travel records are very accurate, and 86% of participants believe that their organization is exposed to risk in relation to business travel. Are you one of those at risk? It’s obviously easy to overlook business travelers in the fast-paced growing global businesses of today, so make sure you take the time to prepare and protect your company.