International Employment Legal and Tax Planning

International workers are assigned to foreign affiliates under different legal and employment schemes, which may vary from a temporary, short term transfer limited to a specific project or task, to a longer term secondment to the foreign affiliate while maintaining the main employment relationship with the parent company, to a full and complete transfer abroad with termination of the employment with the parent company and a new hiring with the foreign affiliate on a permanent basis.

Each legal scheme creates different legal and tax challenges. At the employer’s level, international short term transfer or secondment of workers poses the risk of creating a permanent establishment of the parent company in the host country, where the worker performs its services, exposing the parent company to withholding responsibilities and income tax filing and payment obligations, with potentially harsh penalties if left overlooked. At the employee’s level, spending time in the host country in excess of a certain number of days may expose the employee to local tax income filing and payment obligations, at federal and state level, which need to be coordinated with tax filing in the employee’s country of residence.

New hiring by the foreign affiliate with termination of the original employment with the parent company requires a complete restructuring of the employee’s remuneration package, acquisition of proper working visa or permit for the employee, registration of the employee with the local state’s agencies, setting up of payroll and compulsory workers’ compensation and unemployment insurance coverages, and new tax filing for the employee in the host country.

In addition to income taxes, social security taxes and public pension contributions need specific attention, with proper study and evaluation of all options as available pursuant to applicable social security agreements, including the election to continue paying the social security contributions in the country of origin with exemption in the host country, or starting a new pension contribution period in the host country and then totalizing it with the pension contribution period accrued in the country of origin to preserve and maximine retirement benefits.

In this area, we advise clients on the proper planning and execution of international assignments of workers to foreign affiliates in the United States or Italy, from structuring the employment agreements and remuneration packages, to handling employment administrative and legal requirements, advising on social security tax issues and managing the tax filing and payment obligations both for the employer and the employee.