How to Negotiate Tax-Efficient Overseas Contracts of Employment

Many of Greenback’s clients come to us both excited and nervous about receiving the opportunity of an assignment abroad. There’s a thrill of being able to head to a new destination to live, work, and experience, but there are also the negotiations. What should they ask for, or be aware of, while navigating overseas contracts of employment? From a tax perspective, we’ve got your answers.

Compensation for Overseas Job Contracts

When considering your negotiations for an overseas contact of employment, the first topic is compensation. While the salary and bonus potential are primary, there are other compensation items to consider.

Accommodations in the Host Country

Will your employer be taking care of all accommodation-related concerns? If not, you need to ensure that the cost of living allowances are included under a separate clause, and the monetary compensation associated is laid out clearly, so that you can easily utilize the foreign housing exclusion.

Employee Benefits During Overseas Employment

Will there be different employee benefits, such as an end-of-service bonus, leave entitlements, education allowances for children, travel allowances, and healthcare insurance for your family while working overseas? All of these should be discussed. Try to ensure that conditions relating to these are specifically sanctioned and made clear by the company in your job contract.

Perks and Incentives

This category of the employment contract can include a wide variety of things ranging from management bonuses and other monetary or non-monetary incentives offered to the overseas employee. Examples include travel rewards or other non-financial bonus opportunities. While it can be overwhelming to consider all these options, one bit of advice is to prioritize those important to you and deal with those first.

Keep in mind that housing, car, bonuses, and many other perks are generally considered taxable compensation to you for US purposes. So, it is wise to find out if additional US taxes are owed and if the company will help to pay for such taxes.

Social Security While Working Abroad

While you may be primarily concerned with compensation (and understandably so), it’s important to consider social security implications when negotiating your job contract. Over twenty countries have “totalization agreements” with the US, which help to determine the beneficiary of your overseas social security payments (generally the US on short-term assignments, but not always, particularly if the employer is a foreign entity). However, understanding these agreements is key, as they ensure you aren’t paying into two separate social security systems while you retire under one system. If your host country doesn’t have an agreement, the chances are high that you’ll end up paying your social security dues to the American government and your host country as well. Understanding how the employer is treating this can be important in evaluating a contract for employment abroad.

Work Visas and Residency Permits Overseas

In general, expats don’t need to negotiate or pay for any work or residency permits in their overseas employment contracts. In fact, most countries require the company to justify your employment and submit the relevant paperwork to the authorities. Companies who regularly hire expats are generally accustomed to the procedures, and you’ll often only need to follow directions. However, it’s a good question to ask.

Return Flights Following Overseas Employment Contracts

Is your family going with you? If not (or even if so), flights to and from your home country are generally going to be expected. Many employers that utilize extended contracts also include flights home for the holidays – usually one return ticket for the whole family per year. Or, in some other situations, the employee pays for the tickets and is then reimbursed by the company. Several extra days of vacation are also commonly given to accommodate time spent flying.

Have Other Questions About Negotiating Overseas Employment Contracts?

Don’t let the fear of what might happen from a tax perspective keep you from taking a dream assignment! If you’d like assurance on issues of taxation pertaining to the items in this article or any other, reach out to our expert expat team today.