The Impact of Commuter Policy
Commuter policy stands out as an increasingly popular solution in the global mobility toolkit. We see more clients include it as part of their stable of policies for implementation, like long-term, short-term, and permanent moves. This policy is common particularly in Europe, due to the closer proximity of countries to one another. As countries emerge from the COVID-19 pandemic and companies adopt hybrid work arrangements that involve some combination of in-office and remote work, we anticipate international commuter policy may gain more popularity.
Performing employment work across international borders always generates income tax and social security consequences. In particular, the risk of double taxation is high.
In evaluating the income tax impact, we generally start with the country where the employee is physically present to perform the work. Employment income is typically taxed at source, or in the location of the income-generating activity. The commuting employee travels to work in the host country on a recurring and frequent basis – so the time spent and income earned in the host country can rise to a material level. At the same time, the commuting employee also will continue to perform work in the home country, where they have connections triggering tax resident status. Most countries tax their residents on worldwide income and provide a credit for foreign tax paid on double-taxed income.
With respect to social security, many countries have agreements with their trading partners. These agreements enable continued contributions in the resident or home country, and exempt contributions in the destination country, if conditions are met.
AssignmentPro Cost Estimate
AssignmentPro Cost Estimate offers solutions to help you manage these complex international commuter scenarios. The baseline commuter template can get you up and running fast – no need to create it from scratch. Enter the commuter pattern as a percent to represent the time spent working in the destination country to source base compensation for destination tax computation.
Equus Tax Engine
The Equus Tax Engine has built-in logic to automatically calculate foreign tax credit or foreign income exemption, as applicable, to minimize double taxation. Additionally, the Tax Engine holds social security agreements and applies them to automatically determine if home or both countries’ contributions should be included.
If your organization is adding a commuter policy to its mobility program, we can help you estimate the costs. Contact your Client Accountant Manager or Tax Lead for more information.