Since the introduction of the EU’s ‘freedom of movement for workers’, you might be mistaken for thinking that it’s easy to send employees to work in other member states.
By Helen Cowley, director of tax, Cassons
An overseas secondment could be, for example, a temporary transfer of an employee to a Spanish customer to train staff or otherwise assist.Whatever the reason for the assignment, there will be three key stages that you will need to bear in mind to keep costs low and to ensure you are compliant.
Stage one is the preparation required before the employee even starts the assignment. This will include all of the practical issues outside of the scope of a tax related commentary such as this. But careful consideration of the employee’s contract and planning of the remuneration package (to include tax free benefits and tax deductible expenses) can save both you and your employee significant sums of money.And you need to bear in mind that you will probably be following both Spanish and UK tax rules.
One of the key questions you will need to ask is ‘which country will have taxing rights over the employee’s salary?’ It’s possible for PAYE tax to be collected in both countries if your employee is tax resident in the UK but working in Spain. Double tax relief will ultimately be available but there may be a cash flow disadvantage (pay tax twice now and reclaim later) and complications with operating two payrolls.Stage two is the support you offer your employee while on secondment. This should include ongoing advice and assistance with tax filings from an accountant in Spain. Having a tax equalisation policy in place effectively means that the employee is in the same financial position despite being subject to different tax rates in Spain.
The final stage is the period after the employee has returned to the UK when it may be necessary to tidy up any Spanish taxes and filings relating to post secondment remuneration. There’s a lot to consider but the key to a successful assignment is in the planning, which will include professional advice in both jurisdictions.Enjoyed this? Read more from Dean