An expat is an employee who works from a foreign country. Paying expats can present challenges with regards to taxes, currency exchange rates, and local labor laws.
Additionally, employers have to make sure that when paying expat employees, they’re taking into account both tax requirements in the employee’s home country as well as in the country they live in. This can often be a complex process requiring expertise in both countries.
Foreign earned income exclusion and other tax provisions
Expats may have certain tax benefits from their home country. For example, in the U.S there’s foreign earned income exclusion, which allows expats to exclude a portion of their foreign earned income from US federal income tax to alleviate double taxation. Other countries, like Canada and Australia, have similar tax provisions – though with slight differences.
Additionally, there are countries that have tax treaties with each other, which can also help expats avoid double taxation.
Differences between expat and immigrant
Expats and immigrants can sometimes get mixed up, though the definitions differ quite a bit.
Expats temporarily live in a foreign country and are there for a specified period of time, while still keeping their home country citizenship and not obtaining citizenship in the country they’re temporarily in.
An immigrant, on the other hand, is a person who’s permanently moved to a new country.
Paying expats across the globe
For companies with a global workforce, paying expats can get complicated. Not only do you have to deal with the regulatory environment of the expat’s location, but the rules of their home country must also be considered. On top of that, ignorance of the existing tax treaty benefits pertaining to the expat employee can be a serious financial liability.
A payment execution platform can help by offering regulatory knowledge for the relevant countries in question as well as offering payment automation and clear data visibility to mitigate human error.