We keep hearing about globalization and how the world is growing smaller. If that’s the case, why is it getting more and more complicated to send employees across borders? Shouldn’t it be getting easier?
Unfortunately, a true global economy has yet to fully emerge. Currency, language and proximity are key factors that challenge the idea of a global economy, but it is the regulatory issues that most dramatically affect global mobility. The uninitiated may believe that the more developed nations are the easiest with which to conduct business. However, expatriate compliance requirements—both taxes and immigration statutes—suggest otherwise.
Troublesome Tax Codes
So why is it that more developed countries are actually more difficult for global mobility and international business? Less developed countries just don’t have the interest or capabilities to institute complicated tax codes. Countries such as the Dominican Republic and Equatorial Guinea simply require that a certain percentage of an expat’s salary be withheld each pay period to satisfy local tax obligations. At the end of each tax year, whatever the government has taken, it retains. Whatever it has not taken, the employee retains. That’s it!
Alternatively, in more economically advanced countries such as Australia and the U.K., complexities abound. The Australia Tax Office and Her Majesty’s Revenue & Customs both have robust tax codes that multi-national corporations must follow when employing expats. Moreover, neither of these countries uses a tax year that corresponds to the January through December calendar year. For an American outbound expat (The Economist magazine estimates there to be over 7 million of them!), this means that home and host country tax returns are not easily reconciled from one to the other. Each country has its own definitions of reportable wages, and each will include different tax years from which the tax obligations are to be calculated.
Keeping track of all of the double income tax treaties, totalization agreements, secondment requirements, statutory benefits, etc., is enough to send any large multi-national scrambling. What’s the solution? You could turn to Lexicon's global compensation team for help. Also, being proactive and advanced immigration planning can be keys to remaining in compliance while still landing the right employees on the job when they’re needed. But challenges will remain. Some companies have business models that allow for a long lead time in preparing for international expansion. Other project-oriented business models have no such luxury.
Economic conditions have certainly contributed to the challenges of executing a worldwide business model. The global recession forced much of the world to turn toward a revenue-minded approach and has brought with it challenges such as withholding on cross-border remittances and local salary quotas. All of this has made it even more difficult for companies recruiting and moving employees around the world. If you're struggling with how to win and retain the best talent for your company in these global conditions, our whitepaper on the Global War for Talent can help.
Intricate Immigration Statutes
Beyond the financial compliance challenges are those related to immigration. Today, it is crucial to develop an immigration strategy early in the expatriation process. It should fully align tax and legal considerations with staffing and business execution requirements. A lack of strategy will result in significant delays in processing assignees, disputes with regulators and unanticipated costs. To understand how immigration has evolved into the complicated issue it is today, let's look back.
Not long ago, multi-national corporations displayed a cavalier attitude toward immigration. While most countries maintained some form of immigration rules and regulations, many were not clearly defined. Governments seldom spent a large amount of resources on enforcement. Companies tried to comply with immigration rules in their traditional home markets, and assignments abroad generally received de-minimus consideration.
September 11, 2001 changed the immigration world almost immediately. The U.S. introduced increased security-related immigration protocols. Other governments followed. Wholesale reviews of immigration regulations became the order of the day. While some of the most stringent security-related rules implemented immediately after the attacks were relaxed over time, the overall increased importance placed on immigration controls was not.
Immigration rules serve to protect borders and local workforces. Additionally, governments have discovered that immigration regulations can help to facilitate monitoring tax and social security compliance. This now ties immigration enforcement to revenue generation.
It is expected that immigration regulations in this increasingly global market will continue to evolve. Changes will be implemented with little to no advance notice. Failure on the part of corporations to meet compliance will most often result in financial penalties and will likely be accompanied by negative public relations. Repercussions will negatively impact both the assignee and the company. For the individual, compliance failure may result in deportation, a ban from re-entry, and financial penalty. For the employer, these failures may lead to a ban on conducting certain business and from sponsoring work permits. Even jail time for responsible company officials has become a reality.
How should we move forward? It is paramount that immigration planning not be based on past experiences but on situational needs within a consistent and strategic framework, balancing the need for rapid deployment with sound immigration strategy.
There is also significant commercial importance in ensuring immigration policies and programs are well-aligned with business needs and internal stakeholders such as legal and human resources departments. Requirements are becoming increasingly restrictive and time-consuming. As such, advanced immigration planning and coordination prove crucial in getting the appropriate employees on the job, in the right location and in a timely and compliant manner.
This can also provide competitive advantages. Even as the world economy continues its slow recovery from the global recession, many governments continue to place a heavy focus on protecting the local workforce. A company’s ability to quickly identify and solve immigration problems will be an important market differentiator.
Overcoming Compliance Obstacles
With a knowledgeable management team and careful and persistent collaboration, a company can establish the framework of international compliance that is necessary to control risk. Once a basic approach of processes and procedures is constructed and documented, it will require constant revalidation, as global regulatory statutes change daily.
The good news is that most jurisdictions tend to consider intent as well as execution. In other words, if the intent of the company is to be compliant—as can be demonstrated by documented processes and procedures in place—authorities will not look to be overly punitive when failures arise.
While this “kinder, gentler” compliance approach is a pleasant possibility, it is always advisable to hope for the best and prepare for the worst when it comes to regulatory failure. In the meantime, we can continue to dream about a true global economy that is equitable to all countries across the board.