Expat and Expert: A Global Mobility Dialogue, Part 1 of 2
By Rory Shedden, Director, Solution Development, Radius
and Katie Davies, VP International Solution Development, Radius
As director of solution development at Radius, early in 2016 I was asked by our leadership team to consider relocating from our Bristol, UK office to our corporate HQ in Boston. I’d happily lived and worked abroad before, so I was excited to have this opportunity. I’m now officially living and working in Boston as a UK expat on a two-year assignment.
In this post and in a follow-up article, I’ll talk about some of the exciting and challenging aspects of these moves from my perspective as an expat. To add color and technical insight, my comments will be interspersed with those of one of Radius’ resident global mobility experts, Katie Davies. Katie has been providing authoritative advice about short- and long-term expatriate assignments for years, and her comments will be directed to both expats and their employers. Her insights will allow them to better prepare themselves for the realities of working abroad. Katie is also, by the way, a fellow UK expat living and working in Radius’ Boston office.
Rory (the expat): As I mentioned, I’m lucky enough to have lived abroad before. Around six years ago, I successfully applied for a job in Germany and moved from the UK to join the new organization. This was a largely unstructured international work experience which essentially saw me and my girlfriend cancel our apartment-rental contract in the UK, buy plane tickets and get on with it.
As a 20-something with no mortgage, kids or investments, the move couldn’t have been easier. No visas or work permits were required. There were no language barriers since my girlfriend and I were fluent in German. To top it off, we both had jobs waiting for us in Germany.
As it turned out, we stayed in Munich for three very exciting and fulfilling years. While I said earlier that the move couldn’t have been easier, looking back on it, there are two things we could have done better during our time in Germany. For one, we could have set clearer timelines for ourselves regarding our stay. The debate of whether we would stay another six months or another year felt constant and was mentally draining. In addition, we should have requested employer tax support (or organized it ourselves) from day one. Because we didn’t, we had to pay a preparer to help with a backlog of tax returns before we returned to the UK.
Katie (the expert): As Rory’s experience in Germany attests, even the simplest of relocations brings serious considerations, both for the expat and his or her employer. In Rory’s case, he was going to Germany “under his own steam,” and found work through his own efforts. Immigration was not a consideration since he was moving from one EU country to another.
It’s worth noting, however, that while immigration between the UK and other EU member states was not a consideration for Rory six years ago, it is a consideration for others in his situation today, since we now have the uncertainty of Brexit to contend with. This highlights one critical fact related to expat assignments, or really any international activity: Regulations change, they are not etched in stone.
As always when operating internationally, the key is to conduct due diligence in advance so you will “know before you go.” In the very simplest of expatriate arrangements — like Rory’s in Germany, which did not involve a host-country employer — the expat can be considered a so-called local hire. That is, someone who is essentially working on local employment terms, being paid on a local payroll with the associated income tax and social security deductions being made by the local employer.
Even in such cases, however, the expatriate is not in fact the equivalent of a local citizen. The expat in some cases may need to file home-country tax returns. If the expat is a US citizen or green-card holder, this is in fact always the case, since Uncle Sam doesn’t easily give up on collecting taxes. Most other countries have the concept of breaking tax residence, and in some cases home-country tax filings may be minimized or even eradicated in full years of absence, assuming there is no residual personal income in the home country.
Rory: Yes, it’s certainly something I wish I’d planned better back then. Even in what seemed a simple situation I would have benefited from investing a little more time up front.
Katie: Nothing could be truer. The expat and his or her employer must understand that assignments almost always come with host-country tax-filing obligations. Expats are usually required to register with the local national tax office, as Rory discovered. In some cases they may also be required to register and file with city- and/or state-level authorities. Perhaps needless to say, not only are the requirements different — right down to filing deadlines — they are often written in another language, and many expats do not (like Rory) speak the language of the host country.
Rory: It’s not just income taxation. In Germany, they also have a church tax on workers.
Katie: Church taxes are not uncommon in EU countries, but they are something of an aberration in the rest of the world. What’s more of a concern for most expats are social security and retirement planning considerations. In a situation like Rory’s in Germany, in which the worker is essentially a local hire, the expat will invariably need to contribute to the local country’s social security regime. These contributions support certain national benefits that could potentially be used in the short term, such as unemployment insurance or sickness and accident coverage. They also will include some element of state pension contribution.
Depending on the length of time the expatriate plans to be in-country, his or her social security contributions as they relate to state pensions may be seen as effectively wasted. The administrative effort required to collect a state pension in an overseas regime at a future point in time (typically many years out), even where all qualifying requirements have been met, is usually not worth the time and effort required to secure the payment. This doesn’t even account for having to deal with the resultant home- and host-country income taxes at retirement, or other factors such as currency exchange rates, bank charges and complicated rules governing cross-border pension payouts.
Rory: So what you’re saying basically is that my social security contributions in Germany may not amount to much, if anything, when I retire? I can’t say this is much of a surprise.
Katie: I’m afraid that’s often the case. In the end, then, someone in Rory’s former situation in Germany will have to pay into the German social security scheme, but practically speaking may not be able to realize any pension benefit down the line. As always the devil is in the detail and forwarding planning and thinking is required to ensure that informed decisions are being made, and realistic expectations set, now and in the future.
In part two of this post, Rory and Katie discuss short-term assignments and planning for Rory’s current expat assignment in the US.