step by step - expatriation

preparing

The meeting with the expatriate is one of the essential moments of the expatriation process. This meeting must take place once all the steps in the section “the choice” have been undertaken (i.e. decision concerning the social status, the definite package and the annex to the work contract have been all finalized).

This will not be the first meeting with the employee since the future expatriate will have already been identified, chosen and the details of his future position will already have been explained to the future expatriate.

This meeting with the expatriate will be necessary to discuss all the other aspects of the assignment abroad: discuss his status in regard to labor law, his social status, his package, immigration aspects, his relocation, his tax status in France and abroad and all the administrative obligations prior to the departure from the home country.

Therefore, the meeting is really to reduce to the minimum the questions the future expatriate could have regarding his assignment. Indeed, do not forget that an expatriation is an important moment in the life of an employee from a career perspective but also from a personal point of view. For this reason, it is normal that the employee has numerous questions and the role of the human resources is to reduce these grey areas in the mind of the employee.

Technical points

Social coverage
This aspect is essential to the expatriate. Two main aspects are key: his retirement rights and the health coverage for him and his family during the assignment.

The human resources really need to address these aspects with the future expatriate.

Whether the employee is seconded or expatriated, a French expatriate, for example, needs to be reassured that he will keep on contributing to French retirement. If the employee is expatriated, he needs to be explained the compensation that has been set as the basis to calculate his retirement contributions right (i.e. base salary and bonus or entire expatriate package). It is also necessary to contribute on the complementary plan if your company has one unless there is a real suspension of the French work contract.

Health coverage is also essential and human resources will have to clearly explain how the health coverage system will work during the assignment (i.e. level of reimbursement, how to obtain a reimbursement, confirm coverage of all members of the family, etc).

Once these have been discussed in details, other aspects of his social status need to be addressed (i.e. unemployment, private health plan, etc).
Explaining the package
While it is correct to think that the employee does take this new assignment for his career or his experience, it is necessary to remember that the financial aspect is also very important. Therefore, if you have chosen to apply an “evolving” package with a tax equalization, foreign premiums, cost of living adjustment, etc, it is necessary to clearly explain to the employee how each of these elements will be calculated.

Therefore, it is important to start by making a clear difference between the home local salary and the premiums / benefit-in-kinds. This is important because it will help the employee to understand clearly what is extra compensation and what is for his regular performances.  This will also help when the employee comes back to his home country because if the employee clearly understands what he gets as a regular salary during his assignment, he will understand the home package he is coming back to.  However, it is important to try to make his base salary increase as it would have if he had remained in his home country.

If the premiums, cost of living adjustments and other benefit-in-kinds evolved from one year to another, it is very important to explain to the employee the possible evolutions of those (as well as discuss with him any evolution of his package during his assignment).
Income taxes
Discussing the tax questions is a part that is a little more technical and the human resources are not always comfortable discussing this with the expatriate. For this reason, it is often advised to call on a specialized firm to discuss this point with the expatriate, avoiding errors in handling complex tax issues.

Two main aspects need to be addressed regarding income taxes: French income taxes and foreign income taxes.

The expatriate has one main issue in this matter: where will I be paying my taxes?

Tax residency is not something that can be chosen by either the expatriate or the employer, it is decided by international tax treaties and local tax rules. In that aspect, determination of where income taxes need to be paid has already been determined by tax authorities.

For example, an employee is expatriated to the United States for a period of three years with his family. The employer has decided to apply a tax equalization package but keeping the employee on a French payroll. The first erroneous assumption is to think that the employee must pay income taxes in France because he remains paid by his French employer. Indeed, it is not the “nationality” of the employer that determines tax obligations but the place where the employee usually resides with his family or where his vital interests reside or where the employee usually works. Therefore, the employee who is located for a period of three years in the United States will be due income taxes in the United States because this is where he lives most of his time. In France, where the employee gets paid, unless he has some French source income (i.e. rental income for example), no French income tax return will have to be filed.

The human resource people will therefore have to understand the general rules of international tax obligations. If this is not properly addressed, it is very likely that the employee will not bother with his tax filing obligations while abroad. For example, he might continue filing a French income tax return and pay his taxes in France even though he does not owe anything and filing late and generate penalties and late interests in the United States. Upon a tax audit from the I.R.S. (US tax authorities), the employee will then request his employer’s assistance to resolve his personal tax obligations, forcing the employer to spend lots of time, maybe money, for a situation that could have been avoided right from the beginning of the assignment.

Therefore, we highly recommend that a specialized firm in international tax matters be consulted at the time of departure of the employee to inform the employee of his tax obligations in each country and also to assist the employee in filing his tax returns within the proper time limits in each country.

Administrative obligations prior to the employee’s departure and practical advice

Once all the technical aspects of the expatriation have been addressed, it is always appreciated by the expatriate to receive some practical advice prior to his departure in order for him not to forget anything.
Termination of contracts
The expatriate must remember to terminate all his contracts in the home location: housing, water, electricity, memberships (i.e. television, telephone, internet, magazines, etc).
Mail transfer
Forgetting to have your mail transferred is one of the common mistakes made by employees’ expatriated. Forgetting to have your mail transferred can result in having penalties and interests due on late payment bills which can result, at worst, to have your home local bank account blocked to pay these bills.

In addition, depending on the country where you will work, the mail system may not be always very trustworthy. Therefore, two things should be done:

- verify the trustworthiness of the mail system in the host location;
- make sure that your mail will be forwarded at a reliable address (an international or local address of someone reliable)

The French post-office international or Fedex both have very reliable services so do numerous other companies.
Bank accounts
An international change of assignment can result in a change of residency for the employee. Because of this change of residency, it is necessary to make with your banker to make sure that this factor has been taken into account. For example, in many countries, tax withholding will change on certain accounts depending on your tax status, certain accounts are not even accessible unless you are a resident of the country where you have your bank account.

The employee must also consider opening an account in the host location. This will help him in having easy access to the local currency, as well as reduce financial and exchange rates’ cost from transferring money to one currency to another and from one bank to another.
Driving license, passports, election card, etc
First, it is very important for the employee to ask, prior to his departure, an international work permit from the proper authorities (i.e. in France, this is done at your local “prefecture”). Normally, this is obtained quite easily but, without this document, it will be impossible to drive outside Europe. In certain countries, an international driving licence will not be enough but will make obtaining a local driving licence easier

Having a valid passport for the employee and members of the family is also a necessity prior to leaving the home location. It is important because it will allow you to enter the host country but will also be necessary for administrative formalities and for identification purposes in the host country. In numerous countries, you will also have to obtain resident papers.

It is also necessary to remind the employee to register himself with the home country embassy or consulate in the host country. This will allow the employee to vote while abroad and meet other expatriates from the same home location whom can be a great asset (i.e. supporting group when arriving, make rapid business and personal acquaintances with host folks, etc).