The five key questions to be asked before sending your first employees abroad

As part of the business’s international development, sending employees abroad to reach new markets is very common. However, sending the first employees abroad (the ambassadors) usually brings unsurmountable new challenges to Human Resources teams and to the CFO. The first question that usually comes to mind is the cost of this expatriation. However, in reality the cost is the last question to be asked. In fact, well before reaching this step, other problems must be resolved.

What are the first questions to be raised and steps to take when sending your first employees abroad?

1. Will the assignment abroad create a permanent establishment?

In other words, will there be a tax liability for the Company due to this activity abroad?

The concept of permanent establishment is defined in the O.E.C.D Model as a "fixed place of business through which the business of an enterprise is wholly or partly carried on". The OECD Convention Model contains a list of examples of permanent establishments: a management office, a branch, an office, a factory, a workshop, a mine, an oil or gas well, a quarry, or any other place of extraction of natural resources. However, it is possible to have a permanent establishment even with an employee working remotely from home.

Therefore, at this stage it is highly recommended to consult with a tax lawyer who will be able to determine whether the foreign activity may be qualified as a permanent establishment or not.

2. What will be the conditions for the exercise of the activity abroad?

The conditions for the exercise of the assignment should also be closely examined. Immigration formalities (respect for the permits required to work in the host country), on-site infrastructures (facilities for finding accommodation, schools for children, etc.), as well as formalities safety / security elements, particularly in countries at risk.

3. What will be the obligations arising from labor law and from the provisions of the collective agreement?

The third point to be checked is the application of labor law (employment contract and mobility clause) and the application of the collective agreement in the context of an assignment abroad. For example, under French law, companies covered by collective agreements, such as the collective agreements for public works, Bureaux d'Études Techniques (Syntec) or metallurgy, will learn that they contain special provisions concerning the sending of employees abroad and for instance oblige the employer to guarantee their assignees with the same level of social protection to the one they benefited in France.

4. What tax consequences and applicable social security for my assignees?

This will require determining the tax residence of the employee (which is not based solely on the 183-day rule, contrary to popular belief) in relation to the rules of domestic law, the rules of the host country, but also, to the provisions of the tax treaty between the two countries in the event of a conflict of residence. Again, the company will have to turn to the tax expert who will analyse the facts and will be able to determine the extent of the tax liability of the employee.

The applicable social regime will often be the first element of choice for the company. The notions of secondment and expatriation will enter the vocabulary of human resource practitioners with, after a learning phase, an understanding that it will always be necessary to specify a secondment or expatriation in the sense of social security (as opposed to a secondment / expatriation within the meaning of labor law for example). In short, a secondment is the maintenance of affiliation to Home social security and an expatriation is an affiliation to the host country social security regime. The choice here will mainly depend on the host country's regime (cost and level of coverage) and, in particular, on the duration of the assignment (with a tendency to secondment for short-term assignments). The high cost of social security contributions in France quickly needs to be compared, since affiliation with the foreign system will offer a financial advantage in most countries. In addition, the existence of a possible voluntary coverage via the CFE (Caisse des français de l'étranger) in addition to the local social security scheme offers interesting possibilities (This is also applicable for a supplementary pension with the Humanis Group CRE- IRCAFEX.)

5. What support for my employees?

Once these elements have been addressed, the employee's package can be detailed and questions will also arise at this stage such as cost of living differences between the home and host cities, moving needs, accommodation budget, exchange rate fluctuations, implications for children (School) and spouse in case of family expatriation...

These elements will require a rapid development, if not of a full international mobility policy, of at least the main principles to be respected (international mobility guidelines). This embryonic policy will also have to stick to the company's strategy on its talent management and its operational needs in order to simplify and accelerate the implementation of future departures abroad.

Once all these questions have been addressed, the company will finally be able to calculate the cost of the assignment abroad (without forgetting to include the cost of the multiple providers).

If not already done, the CFO or human resources manager should at this stage turn to expatriate management specialists as we are at UniMobility. In the end, this is the only and best decision to make!