Global Tax, Immigration, and Employment: How Companies Can Stay Compliant
The global mobility programs of multinational companies are subject to numerous regulations and laws, not only at home, but in foreign locations. Among the latter are rules surrounding immigration, employment, and taxation of workers, which can be some of the most challenging to navigate.
Most companies understand the need to adhere to local regulations when entering a foreign market and will not intentionally violate these. However, due to the complexity of each country’s criteria, there may be instances where compliance can become difficult, despite an organization’s best efforts.
Failure to research local laws or seek professional assistance could quickly thwart a company’s global expansion plans; a lack of knowledge or understanding of a jurisdiction’s laws will not be sufficient to insulate it from the consequences of noncompliance.
Should a violation be identified, the consequences can be significant, and can include fines, blacklisting, penalties, criminal charges, imprisonment, and/or future restrictions on business activity. Noncompliance violations can also invite ongoing scrutiny from authorities and tarnish a company’s reputation.
Common Non-compliance Issues
Below are examples of common non-compliance issues HR teams should be aware of in each of the three categories noted above, which can serve as a starting point for mitigation and prevention strategies.
Immigration Non-compliance: Typical examples of these can include:
- Entering on the wrong type of visa, failure to obtain a work permit
- Overuse of business visas
- Overstaying a visa or exceeding cumulative days limits
- Failure to meet record keeping and notification obligations
- Failure to establish a proper legal entity for work permit sponsorship
Tax Non-compliance: Tax compliance can be one of the more problematic areas for companies expanding into foreign markets. Depending on an assignment’s structure and extent of the business activity, there can be non-compliance risks for both the local corporate entity and home country company, as well as the worker. Common examples of these include:
- Misclassification of an independent contractor
- Failure to pay corporate tax for locally created revenue (i.e., permanent establishment)
- Failure to withhold taxes in the host country under a dual payroll structure
Employment Non-compliance: All host country employers are obligated to comply with domestic labor laws for both local and expat employees. Even if an employee is assigned under a contract from the home country, local employment laws will apply and may supersede these contract terms (especially those that are unfavorable to the employee).
These rules, which should be carefully reviewed by multinational companies and their local subsidiaries, pertain to probation periods, termination causes, severance pay, and contentious contract terms such as non-compete clauses. Common examples of employment law violations include:
- Termination without cause or proper notice
- Non-payment of severance
- Illegal non-compete clauses prohibiting related work
- Failure to provide agreed benefits or allowances
For more details, including specifics on remediating and avoiding non-compliance issues and compliance concerns for U.S. companies, please see the white paper – Remediating and Preventing Tax, Immigration and Employment Non-Compliance.