September 3, 2021

Is Tax Equalization A Good Fit For Your Company And Employees?

When it comes to global assignments, tax equalization is a hot topic. The reason this is a popular global mobility tax service is that when an employee moves from one country to the next, a new and often complex tax issue arises. Sometimes the change in tax residency can mean that a global employee ends up paying more in taxes than they would have paid if they never moved at all.  

As a global mobility tax provider, many of our clients utilize tax equalization as a part of their global mobility recruitment strategy.

If you need help with the administering of tax equalization or setting up a policy, you can always schedule a free consultation with the Glomotax team to discuss more.

What Is Tax Equalization?

Typically, tax equalization ensures that the tax an employee pays does not increase or decrease as a direct result of a global assignment. A global tax provider like Glomotax facilitates this process by stepping in on behalf of the company to estimate, evaluate and eliminate any additional taxes paid by the employee.

In this tax balancing act, the company pays any additional tax directly related to the assignment. This also includes paying the tax liability on any assignment allowances considered taxable in the home or the host country (if applicable).

How Does Tax Equalization Affect My Company’s Mobility Program?

From a company standpoint, offering this tax service as a part of the global assignment process can attract new talent, increase the likelihood that the employee will take the assignment, and positively affect the employee’s experience in order to support a global business strategy.

A tax equalization settlement can come at a financial cost to the company’s bottom line. However, that doesn’t mean it should be viewed as just another optional assignment expense.

Providing tax equalization to an employee embarking on a global assignment can be largely beneficial to the company as a whole and not just the employee. Companies utilizing tax equalization are seeking to be strategic about deployment, they need the right people in a particular area, or simply require a global workforce for expansion.  Ensuring your top talent is in the right place at the right time could prove to be invaluable.

How Can It Help From The Employee’s Perspective?

An employee who is tax equalized by their company will feel peace of mind. They can confidently move abroad, knowing that they won’t take a financial hit when relocating for work.

Global relocation should be enticing for key individuals needed in specific parts of the globe. Most companies find it a sound business practice to assist these individuals with additional tax expenses they might incur for a global assignment.

Do We Need A Tax Equalization Policy At Our Company?

The answer is, it depends. Having a tax equalization policy can help you determine upfront how much your company is willing to cover in expenses before making any offers to the employee. A policy also outlines in detail how the program works and what the employee can expect. Setting expectations early in the relocation process is key to employee satisfaction. Having a policy for global assignments can be a smart move for any global company.

If you have any questions about tax equalization or policy for your company and employees, contact us. We are happy to help you find out if tax equalization as a strategy or policy is good for you.

Kimberly Engstrom, CPA

Kimberly is a Senior Manager, joining the firm in 2006. In her role, she specializes in the coordination of global engagements, providing individual tax planning and compensation recommendations to meet the client’s strategic goals. 

Kimberly is a Certified Public Accountant with over 25 years of experience. She received a Bachelor’s degree in Political Science from the University of California, Santa Barbara.

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For 15 years, Global Mobility Tax, has been assisting startups and early growth companies to navigate the tax implications of a global workforce. We provide strategy, consulting, and tax services to organizations and individuals that relocate internationally.

Contact us for any of your global mobility questions or concerns.

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