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Most global organizations recognize the raft of potential tax and other exposures that their short-term international travelers can unwittingly create. But few companies have summoned the courage to ...

Most global organizations recognize the raft of potential tax and other exposures that their short-term international travelers can unwittingly create. But few companies have summoned the courage to turn over the rock and deal with what they find there.

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Borders business travelers Borders business travelers Document Transcript

  • INTERNATIONAL EXECUTIVE SERVICESThinkingBeyond Borderskpmg.com
  • © 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swissentity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • ContentsMapping out systems formanaging employee travel 2KPMG International Executive Services Argentina 8 Mexico 116Australia 12 Montenegro 121Austria 15 Netherlands 124Belgium 18 New Zealand 127Bosnia and Herzegovina 21 Norway 130Brazil 24 Panama 133Bulgaria 29 Papua New Guinea 136Canada 32 Peru 139China 38 Philippines 142Colombia 41 Poland 145Costa Rica 46 Portugal 148Croatia 51 Puerto Rico 151Czech Republic 54 Romania 154Denmark 57 Russia 157Dominican Republic 60 Saudi Arabia 161Egypt 63 Serbia 164Fiji 66 Singapore 167Finland 69 Slovakia 170France 72 South Africa 173Germany 75 South Korea 176Greece 78 Spain 179Hong Kong 82 Sri Lanka 182Hungary 85 Sweden 185India 88 Switzerland 188Indonesia 92 Taiwan 191Ireland 95 Thailand 194Italy 98 Turkey 197Jamaica 101 United Kingdom 200Japan 104 United States of America 203Luxembourg 107 Uruguay 209Macau 110 Vietnam 212Malaysia 113 © 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • Mapping out systems for managing employee travel2 / THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS 2 / THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS© 20112011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client servicesis a Swiss © KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and and is a Swissentity with with which the independent member firms of the KPMG network are affiliated. 23943NSS entity which the independent member firms of the KPMG network are affiliated. 23943NSS
  • Most global organizations recognize the raft of potential tax and other exposures that their short-term international travelers can unwittingly create. But few companies have summoned the courage to turn over the rock and deal with what they find there. The past few years have seen rising awareness of business travel-related non-compliance with tax and immigration laws among companies and government authorities alike. While governments see potential to boost tax revenues by targeting short-term travelers, global companies can be overwhelmed by the complexity and scope of the problem. Few organizations have company-wide systems for managing employee travel. Those that have such systems typically set them up in the wake of a major audit or dispute. By that time, the organization could have already suffered severe fines, penalties, and administrative costs — not to mention potential reputational damage in the eyes of the tax and immigration authorities, shareholders, and other stakeholders. A more proactive approach to employee business travel can help a company gain control and plan effectively to reduce related risks and costs. Business travel — more employees, more trips In many countries featured in this publication, the profile of the typical business traveler continues to change in ways that increase the employer’s related risk. Foreign postings are less likely to involve moving executives, their families, and their belongings to other countries for terms of a year or longer. Short-term business travel is on the rise as organizations globalize, work grows more project- oriented, and two-income families become the norm. By creating virtual project teams and moving talent around the globe as needed, employers can respond to global business opportunities more quickly. Many employees are happier to work on global projects by commuting or sojourning briefly in other countries without changing residences or uprooting their families. Having more employees travel more frequently for shorter periods can be more productive and less costly than traditional, longer-term relocations — but only to the extent higher tax and other costs in the host locations do not erode the gains and travel related expenses. The risk of higher costs, described in the sidebar, rises exponentially with the number of short-term trips taken. THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS / 3© 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • Keeping employees safe In addition to the trend toward commuting and shorter A World of Exposure sojourns, events of the last year highlight the importance Short-term international business travel is vital for of having a robust system in place for tracking and exchanging ideas and getting employees to work planning employee travel. Political unrest and natural together in global teams. But unmonitored and disasters such as volcanoes, earthquakes, and tidal unplanned, such travel can create a host of income waves: emergencies like these can strike without tax and other exposures. warning, creating a need to move employees out of the danger zone for uncertain lengths of time or marooning • Depending on how many days the employee spends them in a foreign country for longer than intended. working in a foreign country—in aggregate and often over more than one year—the travel could create Despite the underlying reasons, such moves can cause income tax and social security obligations for the the same tax exposures as other employee travel. In employee in that country. fact, these situations could entail even more risk, for example, when the relocation of key decision-makers • The extent of an employee’s travel in a country could from one country to another constitutes a shift in trigger income tax, social security, payroll tax and/ business functions with transfer pricing or permanent or withholding obligations for the employer and the establishment implications. When such events occur, employee. quick access to data about your employees’ whereabouts • Employees entering a country on business without and options for relocating them safely and economically the right immigration documents — or staying in the could be crucial. country for longer than the documents allow — could expose themselves and their employers to fines, Real-time monitoring and advance planning penalties and future travel restrictions. Clearly, today’s global organizations need to be ready to do more than respond after-the-fact to compliance obligations • An employee’s activities in a foreign country, such as created by a mobile workforce. Companies need to have concluding contracts on the employer’s behalf, could systems in place to monitor employee travel in real-time be construed as creating a permanent establishment and eliminate exposures before they occur. there, opening the company to taxation as a resident in that country. In developing a company-wide approach to managing • The employee’s services in the foreign country could employee travel, the first step is to determine who have indirect tax implications (e.g., by creating VAT should take ownership. Given the range of issues that remittance or collection obligations or nexus for employee travel can produce, companies often have purposes of business taxes imposed). difficulty knowing who is accountable. Responsibility for • Cross-border charges between related companies for managing employee travel issues spreads across many the services of business travelers should comply with parts of the business, with different aspects coming transfer pricing policies in the relevant jurisdiction in under the purview of human resources, tax, finance, order to avoid adverse tax assessments. information technology, and the travelers themselves. Proper planning that takes into account domestic Once a chain of accountability is established for laws, administrative policies, and potential tax treaty overseeing the various elements, companies can institute relief can help a company manage and mitigate such a global process for tracking and managing employee exposures before the employee heads out. travel. The next step is to put in place centralized, automated procedures and mechanisms, as described the sidebar, to help ensure the process is followed.4 / THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS© 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swissentity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • Short-term travel under sharper scrutinyCompanies are well advised to gain control over theirbusiness travel management without delay. As noted, Getting the World by the Tailshort-term business travel and the potential for non- In the ideal case, all employees of a globalcompliance have caught the eye of governments seeking organization would have a central mechanism forto increase tax revenues. Around the world, enforcement assessing future business trips and helping mitigateactivities in the area are growing more intense. tax compliance and other risks before any travel canTax and other authorities are not only applying the be booked. Such a system would:rules more strictly, they are also improving their • quantify how much time the employee has alreadymethods for detecting non-compliance. National spent in a foreign jurisdiction in the past and howinitiatives to heighten border security over the last much more time he or she can spend there withoutdecade have taught agencies within governments becoming a tax residentthe benefits of collaboration. Now governmentdepartments are sharing information more frequently, • break down tax residence guidance at both nationalfor example, as customs, immigration and tax and subnational (e.g., state or local) levelsauthorities work together more closely to fulfill their • enumerate any social security, payroll tax, and/ormandates. Travel-related tax assessments, fines and withholding tax implications that could arise frompenalties are increasing as a result. extended business travel in the proposed host country • advise whether the employee’s planned activities (e.g.,Global travel policies and central systems are key meeting suppliers, attending conferences, negotiating sales) could have permanent establishment or otherIn this publication, we provide a high-level overview consequences in the foreign jurisdictionof the taxes and other considerations in countries • specify what visas or other immigration documentsaround the world. To plan for and manage short-term are required by business travelers in the foreigntravel effectively, however, companies need a means to countryintegrate this information with the particulars of their • list any other requirements or obligations that shouldemployees’ business trips. be taken into account by people traveling to theInstituting global travel policies and a central system to particular country.manage them can do more than help an organization Such systems should also track employees onavoid running afoul of the rules summarized in the international assignments in the event that naturalfollowing pages. Sound policies supported by a robust disasters or political developments make it necessarysystem can demonstrate good governance and foster to find and relocate them quickly.goodwill with tax and other authorities, help preparefor emergencies by providing an economical means tofind and move employees to safety, and provide data tohelp the organization analyze the costs and benefits ofemployee travel programs. THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS / 5 © 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • 6 / THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS© 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swissentity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • KPMG’s International Executive Services Argentina Mexico Australia Montenegro Austria Netherlands Belgium New Zealand Bosnia and Herzegovina Norway Brazil Panama Bulgaria Papua New Guinea Canada Peru China Philippines Colombia Poland Costa Rica Portugal Croatia Puerto Rico Czech Republic Romania Denmark Russia Dominican Republic Saudi Arabia Egypt Serbia Fiji Singapore Finland Slovakia France South Africa Germany South Korea Greece Spain Hong Kong Sri Lanka Hungary Sweden India Switzerland Indonesia Taiwan Ireland Thailand Italy Turkey Jamaica United Kingdom Japan United States Luxembourg Uruguay Macau Vietnam Malaysia THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS / 7 © 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • ArgentinaIntroduction Contact Rodolfo P Canese Mendez . Adriana LaurinoA person’s liability to Argentinean tax is KPMG in Argentina KPMG in Argentinadetermined by residence status for taxation Partner Partnerpurposes and the source of income derived by T: +54 11 4316 5869 T: +54 11 4316 5784 E: rcanese@kpmg.com.ar E: alaurino@kpmg.com.arthat individual. Income tax is levied at progressiverates on an individual’s taxable income for theyear, which is calculated by subtracting allowabledeductions from the total assessable income,with the exception of foreigners who are in thecountry for less than six months; foreigners whoare in the country for less than six months areassessed tax at a flat rate.Key messagesExtended business travelers are likely to be taxedon employment income relating to their Argentineanworkdays.8 / THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS© 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swissentity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • Income tax Tax rates For 2010, net taxable income is taxed at graduated ratesLiability for income tax ranging from 9 percent to 35 percent for both residents andA person’s liability to Argentinean tax is determined by nonresidents. The maximum tax rate is currently 35 percentresidence status. A person can be a resident, a nonresident on income earned over 120,000 Argentine pesos (ARS).on a ”permanent” basis, or a nonresident for Argentinean Foreign beneficiaries may be subject to a flat rate if incometax purposes (foreign beneficiary). tax is withheld at the source (see the section on employeeIndividuals are considered to be resident in Argentina when: compliance obligations and employer reporting and withholding requirements).• They are of Argentinean nationality, whether by birth or naturalization, except for those individuals who have lost their residence status. Social security Liability for social security• They are foreign individuals who have become permanent Argentinean nationals and expatriates living in Argentina residents of Argentina (and have a permanent visa) or are subject to social security contributions. Social security who are not residents but have spent sufficient time in contribution exemption is granted on request for foreigners Argentina during a 12-month period. on short-term assignment (less than two years).Generally, individuals who have been resident in Argentina Currently, social security taxes represent 17 percent ofwill lose their residence status when they acquire gross wages. Since March 2011, a monthly cap amountpermanent residence in another country or remain in of ARS13,879.25 has been applicable to the employees’another country for 12 months or more. contributions; employers’ contributions are not capped.The 1998 law also established a new category of individuals In accordance with the laws currently in force, the cap iswho are considered to be nonresidents present in Argentina updated every March and September.on a permanent basis. For example, foreign individuals whose Summary of the applicable rates and taxable bases forpresence in Argentina is based on the grounds of employment salaried personsthat is duly accredited and requires their permanency in Employer (I) Employer (II) EmployeeArgentina for a period not exceeding five years are considered (Percent) (Percent) (Percent)to be nonresidents. The same treatment applies to familymembers who accompany them. Pension fund 10.17* 12.71* 11.00***The general rule is that people who are residents of Argentina Pensioner’s 1.50* 1.62* 3.00***are assessable on their worldwide income. Nonresidents are Healthcare Fundgenerally assessable on income derived directly or indirectly Family Allowance 4.44* 5.56*from sources in Argentina. Extended business travelers are Fundlikely to be considered nonresidents of Argentina for tax Unemployment 0.89* 1.11*purposes or foreign beneficiaries. FundDefinition of source Medical Care 6.00** 6.00** 3.00***Employment income is generally treated as being Total 23.00 27.00 17.00Argentinean-sourced compensation where the individual Source: KPMG in Argentina, June 2010performs the services while physically located in Argentina. Notes:Tax trigger points (I)  mployers for manufacturing, commercial, and service activities, ETechnically, there is no threshold/minimum number of days invoicing less than ARS48 million a year.that exempts the employee from the requirements to file and (II)  ommercial and service activities invoicing more than ARS48 million Cpay tax in Argentina. To the extent that the individual qualifies a year.for relief in terms of the dependent personal services article Additional information:of the applicable double tax treaty, there will be no tax liability. *These percentages apply to the total remuneration without any limit.The treaty exemption will not apply if the Argentinean entity **These percentages apply, without any limit, to the total remunerationis the individual’s economic employer. since November 2008.Types of taxable income ***These percentages apply to the total remuneration or to the monthly limit of ARS13,879.25 (taxable salary, called ”MOPRE”)For extended business travelers, the type of income that is since March 2011.generally taxed is employment income. THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS / 9 © 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • Argentina has entered into formal social security totalization There are two kinds of visas: temporary resident andagreements to prevent double taxation and allow cooperation permanent resident.between Argentina and overseas tax authorities in enforcing Temporary residenttheir respective tax laws: A temporary visa (Residencia Temporaria) provides – Bilateral treaties: Spain, Portugal, Italy, Chile, Greece permission for an individual to stay in the country on a – Multilateral treaties: Uruguay, Paraguay, Brazil nonpermanent basis to develop certain activities. This visa is granted for one year and can be renewed every year. Once they – Ibero-American treaty: Argentina, Bolivia, Brazil, Colombia, have arrived in Argentina, individuals and their employers can Costa Rica, Chile, Ecuador, El Salvador, Spain, Paraguay, proceed in making arrangements to obtain their DNI (personal Peru, Portugal, Uruguay, Venezuela. The Convention will ID card in Argentina). come into force and effect on the first day of the month following the date when the deposit of the seventh Permanent resident instrument of ratification, acceptance, approval, or joining A permanent visa provides permission for an individual to was made. However, this action will affect the relationship stay in the country indefinitely. between said states once the Implementation Agreement Once they have arrived in Argentina, individuals and their is signed by said states. The deposit of the seventh employers can proceed in making arrangements to obtain instrument of ratification to the SEGIB made by Bolivia in their DNI (personal ID card in Argentina), Argentine driver’s February 2011 implies that its coming into force will be license, and tax registration. in May 2011. The visas for residency and work are not differentiated inCompliance obligations Argentina. Therefore, if the individual’s spouse or dependantsEmployee compliance obligations receive visas, they will also be able to work in the country.The deadline for filing individual income tax returns and paying Double taxation treatiesany annual tax due depends on the final digit of the taxpayer’s In addition to Argentina’s domestic arrangements thattax board registration number and usually ranges from April 15 provide relief from international double taxation, Argentinato April 20 following the tax year-end, which is December 31. has entered into double taxation treaties with approximatelyIndividuals whose only source of income is employment 18 countries to prevent double taxation and allow cooperationincome, which may often be the case with extended between Argentina and overseas tax authorities in enforcingbusiness travelers, do not need to file tax returns if the their respective tax laws.income was subject to withholding at the source unless their Permanent establishment implicationsannual gross income exceeds a minimum that is set by the There is the potential that a permanent establishment couldArgentine tax authorities (currently set at ARS144,000), be created as a result of extended business travel, but thisin which case it becomes mandatory. would depend on the type of services performed and theFor many types of income, including any income other than level of authority the employee has.employment income paid to a nonresident, the payer must Indirect taxeswithhold tax at the source and remit taxes withheld to the The standard rate of VAT is 21 percent. VAT or IVA (impuestotax authorities. al valor agregado in Spanish) is a general tax onEmployer reporting and withholding requirements consumption within the Argentine territory. It is levied on theWithholdings from employment income are covered delivery of goods or the rendering of services by any personunder the Pay-As-You-Go (PAYG) system. If an individual is or legal entity conducting an economic activity and on thetaxable with respect to employment income, the employer importation of goods and services.has a PAYG withholding requirement. Foreigners who are VAT is levied on:present in Argentina for less than six months are subject to awithholding rate of 24.5 percent on their gross compensation. • The sale by VAT taxpayers of movable property located in ArgentinaOther • Work, leasing, and services specified in the law, providedWork permit/visa requirements they are performed in ArgentinaForeign nationals generally must obtain visas at Argentine • The final importation of movable propertyconsulates in order to enter Argentina. A waiver of the visa • The use or exploitation in Argentina of services that arerequirement is available to nationals of most developed supplied by nonresidents (i.e., import of services)countries if a trip is brief and for tourism or nonemploymentbusiness purposes. Executives coming to Argentina forthe purpose of engaging in employment must obtain a visa(prior to departure) with the Argentine migratory authoritiesthrough the Argentine company that will act as their employerduring the assignment.10 / THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS© 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swissentity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • Employment income is not subject to VAT. Transfer pricingFor VAT purposes, the concept of taxable “sale” includes: Argentina has a transfer pricing regime that applies to transactions made with foreign affiliates and other entities.• Sales and other transfers for consideration of movable More details can be found in Argentine Tax Office Law 20.628 property located in Argentina (payment in kind, allocation and relevant amendments, as well as in Decree 1344/98 and of property on the liquidation of a company, contribution to General Resolution No. 1122/01. a company) A transfer pricing implication could arise to the extent that• The incorporation of movable goods produced by the the employee is being paid by an entity in one jurisdiction but taxpayer in the case of leasing and rendering of exempt performing services for the benefit of the entity in another services or those excluded from taxation jurisdiction, in other words, when a cross-border benefit is• Transfers of movable goods that are attached to the soil being provided. This would also be dependent on the nature at the time of the transfer, provided they have their own and complexity of the services performed. Forms F742 and individuality and represent goods in trade for the taxpayer F743 require disclosure of related-party transactions with foreign entities. Management fees can be deductible but must• The removal of movable property by the owner for personal meet an arm’s-length standard and be directly related to the use or consumption income being generated, and the relevant documentation• Transactions carried out by commission agents, must be kept. consignees, and others who sell or buy personal property Local data privacy requirements in their own name but on behalf of third parties Argentina has data privacy laws, including the Law for theUnder the VAT system, tax is levied at each stage of the Protection of Personal Data enacted in 2000 and the relatedmanufacturing and distribution process on a noncumulative regulations enacted in 2001. The laws are enforced by thebasis. The accumulation of tax is avoided through the National Data Protection Commissioner. The Europeandeduction of VAT invoiced to an entity. The entity pays VAT on Union (EU) has determined that Argentina’s laws meet thethe total amount invoiced by it in each monthly tax period, EU’s”adequacy” standard for data flows outside Argentina.but is entitled to recover the input VAT that was invoiced to Exchange controlthe entity during the same period. Exchange houses and banks trade foreign currencies freely.If, in any tax period, the credit for input VAT is higher than A visitor would be well advised, however, to travel with U.S.the amount of VAT due on output, the entity is not entitled dollars in Argentina, as these are exchangeable and are oftento a refund (unless the refund is related to exports). In cases accepted directly as payment.where there is an excess, it is credited against future VAT Nondeductible costs for assigneesliabilities. Nondeductible costs for assignees include contributions byIf a business manufactures taxable supplies in Argentina, an employer to non-Argentinean pension funds and medicalit will be required to register and account for Argentine VAT. insurance premiums.Note that under Argentine VAT legislation, it is not possiblefor a non-Argentine entity to register voluntarily in Argentinaand act as an”Argentine established entity. VAT must be filed ”on a monthly basis. THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS / 11 © 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • AustraliaIntroduction Contact Andy HuttResidents are taxed on worldwide income whereas nonresidents KPMG in Australiaand temporary residents are generally taxed on Australian- Tax Partnersourced income only. T: +61 2 9335 8655 E: ahutt@kpmg.com.auA person’s liability to Australian tax is determined by residencestatus for taxation purposes and the source of income derivedby that individual. Income tax is levied at progressive rates on anindividual’s taxable income for the year, which is calculated bysubtracting allowable deductions from the total assessable income.Key messagesExtended business travelers are likely to be taxed on employment income relating to their Australian workdays.12 / THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS© 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swissentity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • Income tax In January 2011, the Australian government proposed theLiability for income tax introduction of a one-year levy to help fund the rebuildingA person’s liability to Australian tax is determined by as a result of the recent floods. If introduced, an additionalresidence status. A person can be a resident, nonresident, 0.5 percent will be payable on taxable income betweenor temporary resident for Australian tax purposes. AUD50,000 and AUD100,000, and 1 percent on taxable income in excess of AUD100,000. Those affected by theA resident of Australia generally refers to an individual who floods or those with taxable income of less than AUD50,000enters Australia with the intention of remaining for more than will not be liable.six months (or who actually spends more than six months inAustralia during an income year). A temporary resident is a Social securityresident of Australia who is in Australia on a specific temporary Liability for social securityvisa and meets other prescribed conditions. A nonresident Superannuation is a mechanism requiring individuals toof Australia is generally someone who spends less than save money for retirement. It prescribes that employerssix months in Australia. The general rule is that a person who is make a contribution of 9 percent of earnings (up to aa resident of Australia is assessable on worldwide income. maximum contribution of AUD3,799.80 per quarter) into anNonresidents are assessed on income derived directly or Australian superannuation account. An exemption from theindirectly from sources in Australia (subject to the interaction superannuation requirement can apply for certain seniorof a double tax agreement). Temporary residents are executives or where there is a totalization agreementassessed on employment income from all sources derived between Australia and the home country.after arrival in Australia and all Australian-sourced investment Medicare Levy is payable only by residents and temporaryincome (subject to the interaction of a double tax agreement). residents from countries that have reciprocal healthExtended business travelers are likely to be considered agreements with Australia. The Medicare Levy rate isnonresidents of Australia for tax purposes unless they enter 1.5 percent of taxable income. The Medicare Levy SurchargeAustralia with the intention to remain in Australia for more may also be payable depending on the employees’ level ofthan six months. income and whether the employee has appropriate privateDefinition of source health insurance. If applied, the Medicare Levy SurchargeEmployment income is generally treated as Australian- rate is 1 percent of the total of taxable income plus reportablesourced compensation where the individual performs the fringe benefits.services while physically located in Australia. Nonresidents are not liable for the Medicare Levy orTax trigger points Medicare Levy Surcharge.Technically, there is no threshold/minimum number of days Foreigners may be exempt from superannuation. The Medicarethat exempts the employee from the requirements to file and Levy and Medicare Levy Surcharge may be payable.pay tax in Australia. To the extent that the individual qualifiesfor relief in terms of the dependent personal services articleof the applicable double tax treaty, there will be no tax liability. Compliance obligations Employee compliance obligationsThe treaty exemption will not apply if the Australian entity is Tax returns are due by October 31 following the tax year-the individual’s economic employer. end, which is June 30. Where a tax agent is used, thereFringe benefits tax is levied on the employer. The maximum is an automatic extension. Tax returns must be filed bytax rate is 45 percent. nonresidents who derive any Australian-sourced income (other than Australian dividend income, interest income,Types of taxable income or royalties, which are subject to final withholding tax).For extended business travelers, the types of income thatare generally taxed are employment income and Australian- For many types of income, including any income other thansourced income and gains from taxable Australian assets employment income paid to a nonresident, the payer must(such as real estate). Fringe benefits, which are broadly withhold tax at the source and remit taxes withheld to the taxnoncash employment income, are subject to fringe benefits authorities.tax, which is levied on the employer. Employer reporting and withholding requirementsTax rates Withholdings from employment income are covered underNet taxable income is taxed at graduated rates ranging from the Pay-As-You-Go (PAYG) system. If an individual is taxable15 percent to 45 percent. Nonresidents are subject to tax with respect to employment income, the payer has a PAYGat 29 percent on the first 37,000 Australian dollars (AUD) of withholding requirement. Where the payer is a nonresident,income and graduated rates ranging from 30 percent to this may be varied to zero by application to the Australian Tax45 percent for the remaining income. The maximum tax rate Office (with the liability arising on lodgment of the return).is currently 45 percent on income earned over AUD180,000 in In addition, employers may be liable to payroll tax at a statethe case of both residents and nonresidents. level where the annual payroll exceeds certain threshold levels and an exemption does not apply. Rates, thresholds, and exemptions vary between states. THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS / 13 © 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • Other services for the benefit of the entity in another jurisdiction,Work permit/visa requirements in other words, when a cross-border benefit is beingThe appropriate visa must be applied for before the individual provided. This would also be dependent on the nature andenters Australia. The type of visa required will depend on the complexity of the services performed.purpose of the individual’s entry into Australia. Local data privacy requirementsDouble taxation treaties Australia has data privacy laws.Australia has an extensive tax treaty network. Exchange controlIn addition to Australia’s domestic arrangements that provide Australia does not restrict the flow of Australian or foreignrelief from international double taxation, Australia has entered currency into or out of the country. However, certaininto double taxation treaties with more than 40 countries reporting obligations are imposed to control tax evasionto prevent double taxation and allow cooperation between and money laundering. New legislation requires financialAustralia and overseas tax authorities in enforcing their institutions and other cash dealers to give notificationrespective tax laws. of cash transactions over AUD10,000, suspicious cash transactions, and certain international telegraphic or otherPermanent establishment implications electronic funds transfers (there is no minimum amount).There is the potential that a permanent establishment could All currency transfers (in Australian or foreign currency)be created as a result of extended business travel, but this made by any person into or out of Australia of AUD10,000would be dependent on the type of services performed and or more in value must be reported.the level of authority the employee has. Nondeductible costs for assigneesIndirect taxes Nondeductible costs for assignees include contributions byGoods and services tax (GST) is applicable at 10 percent on an employer to non-Australian pension funds.taxable supplies. GST registration may be required in somecircumstances.Transfer pricingAustralia has a transfer pricing regime. A transfer pricingimplication could arise to the extent that the employee isbeing paid by an entity in one jurisdiction but performing14 / THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS© 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swissentity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • AustriaIntroduction Contact Hans ZoechlingA person’s liability to Austrian tax is determined by residence status KPMG in Austriafor taxation purposes and the source of income derived by that Partnerindividual. Income tax is levied at progressive rates on an individual’s T: +43 1 31 332 259 E: hzoechling@kpmg.attaxable income for the year, which is calculated by subtractingallowable deductions from the total assessable income.Key messagesExtended business travelers are likely to be taxed on employment income relating to their Austrian workdays. THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS / 15 © 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • Income tax For the assessment of an individual who is subject to limitedLiability for income tax tax liability in Austria, the amount of EUR9,000 is addedA person’s liability to Austrian tax is determined by residence automatically by the tax authorities to the taxable income instatus. A person has unlimited liability to taxation (is a “tax order to reduce the tax-free amount to EUR2,000.resident”) if that person’s residence (that is, any home readilyavailable for the resident’s use) or habitual place of abode Social security(which is automatically assigned once the stay exceeds Liability for social securitysix months) is in Austria. The general rule is that such a person The Austrian social insurance scheme, which is a statutoryis assessable on worldwide income. If neither of these system, includes insurance for health, accident, unemployment,conditions is fulfilled, the person has only limited liability and pension. In principle, employment in Austria is the criterionto taxation (is a “nonresident”) in Austria, in other words, for being included. As a result, Austrian nationals and othersis generally assessable only on income derived directly working within the territory of Austria are treated equally.or indirectly from sources in Austria. Extended business The contributions consist of an employee’s element and antravelers are likely to be considered nonresidents of Austria employer’s element: The employee’s element amounts tofor tax purposes unless they enter Austria with the intention 18.07 percent. This rate applies for regular payments (thoseto remain in Austria on a permanent basis. that recur every month, such as the monthly base salary).Definition of source In addition, there is a maximum contribution basis ofEmployment income is generally treated as Austrian-sourced EUR4,200 per month for regular payments. The rates forcompensation where the work is performed or used in Austria. special payments (those that do not occur on a monthly basis, such as a bonus) amount to 17 percent; the maximum .07Tax trigger points contribution basis for special payments is EUR8,400 per year.Technically, there is no threshold/minimum number of daysthat exempts the employee from the requirements to file and The employer’s rates on regular payments amount topay tax in Austria. To the extent that the individual qualifies for 21.83 percent and on special payments, 21.33 percent.relief in terms of the dependent personal services article of The same maximum contribution bases apply.the applicable double tax treaty, there will be no tax liability. Due to the EU regulation 883/2004 (respectively, 1408/71The treaty exemption will not apply if the Austrian entity is in some cases) and a number of social security totalizationthe individual’s economic employer. agreements, extended business travelers are usually exempt from Austrian social security.Types of taxable incomeFor extended business travelers, the types of income thatare generally taxed are employment income, Austrian- Compliance obligationssourced income, and gains from taxable Austrian assets Employee compliance obligations(such as real estate). Tax returns are due by April 30 of the following year or by June 30 if filed electronically. If the taxpayer is representedTax rates – 2011 by a tax advisor, the deadline is automatically extended untilTaxable income is subject to progressive tax rates of up to April 30 of the next following year.50 percent, starting at an annual income of 11,000 euros (EUR): Generally, a tax return must be filed only if the individual’s taxable income exceeds EUR12,000 (in case of wage Annual taxable taxwithholding) and EUR11,000 (in all other cases). income (euros) Tax rate on total income Income tax on employment income is withheld at the source From To (wage tax). Nevertheless, a tax return is required if the 0 11,000 0% individual has additional annual income in excess of EUR730 not previously subject to employer withholding or more than 11,001 25,000 ((income – 11,000) * 5,110) / 14,000 one form of employment. A threshold of only EUR22 applies 25,000 25,000 20.44% for foreign income from investments. 25,001 60,000 ((income – 25,000) * 15,125) / 35,000 Employer reporting and withholding requirements + 5,110 If the remuneration is paid by an Austrian employer, the 60,000 60,000 28.73% employer is obliged to calculate wage tax on the employee’s behalf and remit it by the 15th of the following month to the 60,001 no limit ((income – 60,000) * 0.5) + 20,235 tax authorities. The employer is responsible for the correct remittance.Source: Income Tax Act, 2011 Payroll-related employer taxes include municipal tax (3 percentAustrian tax law distinguishes between regular payments, of gross compensation), contribution to the Family Equalizationwhich recur every month, and special (nonrecurring) Fund (4.5 percent of gross compensation), and surcharge forpayments. If total special payments are less than one-sixth Chamber of Commerce (approximately 0.4 percent of grossof all regular payments earned within the same tax year, the compensation). Depending on the social security status inspecial flat tax rate of 6 percent applies. If one-sixth of the Austria, exemptions are available.regular payments is exceeded, the amount in excess is taxedat the progressive income tax rate.16 / THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS© 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swissentity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • Other Transfer pricing Austria has a transfer pricing regime. A transfer pricingWork permit/visa requirements implication could arise to the extent that an employee isIn general, there are no visa requirements for moves within being paid by an entity in one jurisdiction but performingthe EU (although there can be visa requirements for arrivals services for the benefit of the entity in another jurisdiction,from new member states). A visa must be applied for before in other words, a cross-border benefit is being provided.individuals from outside the EU enter Austria. The type of visa This would also be dependent on the nature and complexityrequired will depend on the purpose of the individual’s entry of the services performed.into Austria. Local data privacy requirementsDouble taxation treaties There are data privacy laws in force in Austria.In addition to Austria’s domestic arrangements that providerelief from international double taxation, Austria has entered Exchange controlinto double taxation treaties with about 90 countries to Foreign currencies can be exchanged at the daily exchangeprevent double taxation and allow cooperation between rates. Travelers’ checks can be cashed easily in Austria, andAustria and foreign tax authorities in enforcing their credit cards are accepted almost everywhere. There are norespective tax laws. restrictions on the import and export of either the euro or other foreign currencies.Permanent establishment implicationsThere is the potential that a permanent establishment could Nondeductible costs for assigneesbe created as a result of extended business travel, but this Nondeductible costs for assignees include, for example,would depend on the type of services performed and the payments by an employer that have already been treatedlevel of authority the employee has. tax-free on the Austrian payroll.Indirect taxesValue-added tax (VAT) is applicable at 20 or 10 percent ontaxable supplies. VAT registration may be required in somecircumstances. THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS / 17 © 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • BelgiumIntroduction Contact René PhilipsA person’s liability to Belgian tax is determined by residence KPMG in Belgiumstatus for taxation purposes and the source of income derived Tax Partnerby the individual. Income tax is levied at progressive rates on T: +32 27083807 E: rphilips1@kpmg.coman individual’s taxable income for the year. In certain cases,separate flat tax income tax rates apply (e.g., for terminationpayments and lump-sum pensions).Key messagesExtended business travelers are likely to be taxed on employment income relating to their Belgian workdays.18 / THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS© 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swissentity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • Income tax Resident taxpayers are entitled to personal exemptions, including exemptions for dependents. NonresidentLiability for income tax taxpayers are not entitled to any personal exemptionsA person’s liability to Belgian tax is determined by residence unless either (1) the taxpayer’s family is living in Belgiumstatus. A person can be a resident or a nonresident. or (2) at least 75 percent of the individual’s earned incomeA resident of Belgium generally refers to an individual who is subject to income tax in Belgium. Some taxpayers mayenters Belgium, as a single person or with family, with the be able to claim partial or full personal exemptions basedintention of remaining for more than 18 to 24 months on the tax treaty signed between Belgium and their home(depending on circumstances and other factors). countries.Under certain circumstances a person may qualify forexpatriate tax concessions. A taxpayer qualifying for the Social securityexpatriate tax concessions is always deemed to be a Liability for social securitynonresident taxpayer. A nonresident of Belgium is generally Extended business travelers employed by an entity locatedany individual who is not a resident or who is benefiting from in an EEA member state or Switzerland can, in most cases,expatriate tax concessions. remain subject to their home country social security scheme. They can obtain an exemption from paying social security inThe general rule is that a person who is a resident of Belgium Belgium, regardless of their citizenship. This exemption isis assessable on worldwide income. Nonresidents are based on the EEA/Swiss rules with respect to posting and/orgenerally assessable on income derived directly or indirectly simultaneous employment.from sources in Belgium. Other extended business travelers, in some cases,Extended business travelers are likely to be considered may stay in their home country social security system andnonresidents of Belgium for tax purposes unless they enter obtain an exemption from paying Belgian social security.Belgium with the intention to remain in Belgium for more This arrangement is based on the provisions of a socialthan 18 to 24 months (depending on circumstances and other security treaty signed between their home countriesfactors). Many individuals who move their tax residence and Belgium.to Belgium may qualify, however, for the expatriate taxconcessions. If no continued home country social security coverage and no subsequent exemption from social securityEmployment income is generally treated as Belgian-sourced contributions are available, an extended business travelercompensation where the individual performs the services will be subject to Belgian employee social security.while physically located in Belgium.Tax trigger points Compliance obligationsTechnically, there is no threshold/minimum number of days Employee compliance obligationsthat exempts the employee from the requirements to file and Tax returns are due in the year following the tax year-pay tax in Belgium. To the extent that the individual qualifies end, which is December 31. The actual filing due date isfor relief in terms of the dependent personal services article determined annually by the tax authorities but is typicallyof the applicable double tax treaty, there will be no tax liability. the end of June for residents’ tax returns and the end ofThe treaty exemption will not apply if the Belgian entity September for nonresidents’ tax returns.is the individual’s economic employer or if the individual is Resident taxpayers always have to file a tax return.working for a direct branch in Belgium of a foreign employer. For nonresidents who have received Belgian-sourcedSimilar rules apply if the individual cannot rely on a tax treaty. employment income, there is also a tax return filingTypes of taxable income obligation in all instances. Belgium does not have a systemFor extended business travelers, the type of income that is of final wage withholding taxes for employment income.generally taxed is employment income, including noncash Employer reporting and withholding requirementsbenefits in kind (such as housing, company car, etc.). Withholdings from employment income apply if theDepending on the actual facts and circumstances, some employee is paid via a Belgian payroll or is working for a directpayments/allowances may be tax exempt. branch in Belgium of a foreign employer. If wage withholding tax is applicable or if the employer deducts the remunerationTax rates for Belgian corporate tax purposes, the employer has toNet taxable income is taxed at graduated rates ranging from establish a wage tax reporting card (fiche 281.10).This fiche25 percent to 50 percent. Tax rates are the same for both 281.10 must be filed with the tax authorities generally in theresident and nonresident taxpayers. In addition, local tax month of March of the year following the year of payment.is due. Local tax is calculated as a percentage of incometax due. The actual percentage depends on the communewhere the taxpayer is living and may vary from 0 percent to10 percent. For nonresident taxpayers, local tax is always7 percent. THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS / 19 © 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • Other Transfer pricing Belgium has a transfer pricing regime. A transfer pricingWork permit/visa requirements implication could arise to the extent that the employee isA work permit and a visa must be applied for before the being paid by an entity in one jurisdiction but performingindividual enters Belgium. The type of work permit required will services for the benefit of the entity in another jurisdiction,depend on the purpose of the individual’s entry into Belgium. in other words, a cross-border benefit is being provided.EEA and Swiss nationals do not require work permits and/or This would also be dependent on the nature and complexityvisas, except for nationals of Bulgaria and Romania, who still of the services performed.may require a work permit. Local data privacy requirementsLIMOSA registration Belgium has data privacy laws.Any employee who is working in Belgium and who is not Exchange controlsubject to Belgian social security has to be registered with Belgium does not restrict the flow of euros or foreign currencythe LIMOSA system. This registration has to be made by into or out of the country, although Belgium has money-the employer sending the employee. In certain cases, laundering legislation. This legislation provides for a seriesan exemption may be available. of preventive measures carrying administrative sanctionsDouble taxation treaties and imposing a duty on certain specified institutions andIn addition to Belgium’s domestic arrangements that provide individuals to cooperate to detect suspicious transactionsrelief from international double taxation, Belgium has entered and report them to the Financial Intelligence Processinginto double taxation treaties with more than 80 countries Unit, an authority created for this purpose. The provisionsto prevent double taxation and allow cooperation between of the law are applicable to a broad range of mostly financialBelgium and overseas tax authorities in enforcing their institutions and professions (including lawyers, tax advisors,respective tax laws. certified accountants, company auditors, notaries, bailiffs, etc.). The law contains, among other things, specificPermanent establishment implications provisions concerning client identification and due diligence,There is the potential that a permanent establishment in transfer of funds, due diligence with regard to unusualBelgium could be created as a result of extended business transactions, restriction of cash payments for real estatetravel, but this would be dependent on the type of services transactions and for transactions by a merchant (namely theperformed and the level of authority the employee has. prohibition of cash payments over EUR15,000), and disclosureIndirect taxes of suspicious transactions.Value-added tax (VAT) is applicable to taxable supplies of goods Nondeductible costs for assigneesand services. The standard VAT rate is 21 percent, but certain Nondeductible costs for assignees include contributionssupplies are subject to reduced 6 percent or 12 percent to nonqualifying company pension schemes. Most non-rates or, in some cases, a zero rate. VAT registration, in some Belgian company pension schemes are considered ascircumstances, is required. The EU reversed charge rules may nonqualifying schemes.be applicable.20 / THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS© 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swissentity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • Bosnia and HerzegovinaIntroduction Contact Paul SucharBosnia and Herzegovina (BiH) consists of two territorial and KPMG in Bosnia and Herzegovinaadministrative entities (the Federation of BiH (the FBiH)) and the Tax PartnerRepublic of Srpska (the RS) and one district, the Brcko District T: +385 1 53 90 032 E: psuchar@kpmg.com(BD). Due to the insignificant size of the BD, this document willaddress only the legislation of BiH’s entities. Each entity has itsown income tax legislation. Generally, in both entities, a person’spersonal income tax (PIT) status is determined by residencestatus for PIT purposes and the source of the income derivedby the individual. The PIT base is determined by subtractingallowable deductions from the total income.Key messagesExtended business travelers staying less than 183 days in a year in the territory of the FBiH or the RS are taxed on theincome earned in the FBiH or the RS, respectively. THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS / 21 © 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • Income tax Social securityLiability for income tax Liability for social securityUnless otherwise specifically stated, the information Social Security Contributions (SSC) in BiH are regulated at theprovided below applies to both the FBiH and the RS. level of the entities.A person’s PIT liability in the FBiH/RS is determined by Total SSC rates applicable in the FBiH amount to 41.50 percent,residence status. The FBiH/RS PIT Law defines a resident applicable to gross salary. Out of that, 31 percent is withheldtaxpayer as an individual who: from salary and 10.5 percent is paid in addition to salary.• Has residence in the FBiH/the RS Total SSC rates applicable in the RS as of February 1, 2011 amount to 33 percent, all of which is withheld from salary.• Has residence in the FBiH and spends a cumulative period of at least 183 days in the FBiH/the RS during a calendar year The existence of a totalization agreement between BiH and the home country of an expatriate may have a bearing on• Has residence in the FBiH and earns income by carrying SSC liabilities. out a dependent activity outside the FBiH that is paid from the budget of the FBiH and/or BiH (only the FBiH). Compliance obligationsA nonresident is considered to be an individual spending less Employee compliance obligationsthan 183 days in the FBiH/the RS during any calendar year. An individual is required to submit an annual return no later than March 31 of the current year for the previous year inThe general rule is that residents are taxed on their worldwide both entities if in that calendar year the individual had incomeincome and nonresidents on income earned in the territory from more than one source (e.g., two employment contracts,of the FBiH/RS. Extended business travelers are likely to rental income, and similar).be considered nonresident of the FBiH/RS for tax purposesunless they stay in the FBiH/RS for more than 183 days over Employer reporting and withholding requirementsone calendar year. Employers performing business activities in both entities are obliged to withhold and pay PIT and SSC for their employeesTax trigger points in each entity, respectively.In the FBiH and the RS, the PIT trigger point arisessimultaneously with the payment of income. OtherTypes of taxable income Work permit/visa requirementsThe following types of income are subject to PIT: income A visa is not required for most foreigners entering BiH (suchrealized through dependent activity (i.e., employment), as EU and U.S. residents), that is, they can enter BiH underindependent activity, property and property rights, the visa-free regime. However, foreign nationals must obtaincapital investment, etc. For extended business travelers, a work permit in order to work in BiH.the types of income that are generally taxed are employmentincome and all related benefits in kind. Double taxation treaties IBiH has entered into double taxation treaties (DTTs) withTax rates several countries to prevent double taxation. Further, BiH hasThe PIT rate in both the FBiH and the RS is 10 percent (as of incorporated into its legal system, through succession,February 1, 2011 in the RS). a number of DTTs from the former Socialist Federative Republic of Yugoslavia.22 / THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS© 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swissentity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • Permanent establishment implications Local data privacy requirementsA permanent establishment could theoretically be created BiH has data privacy legislation.as a result of extended business travel, but this would be Exchange controldependent on the type of services performed and the level of Generally, there are restrictions on transfer of foreignthe employee’s authority. currencies for residents. Certain reporting obligations areIndirect taxes imposed to control tax evasion and money laundering.Value-added tax (VAT) is applicable at 17 percent for taxable In addition legislation requires financial institutions andsupplies. The registration threshold is taxable supplies of other cash dealers to give notification of cash transactions50,000 Bosnian marks (BAM) (approximately EUR25,000) over BAM30,000 (approximately EUR15,000) or suspiciousor more in the previous year. cash transactions.Transfer pricing Nondeductible costs for assigneesBoth the FBiH and the RS have a transfer pricing regime, Generally, costs paid to assignees not employed by theand if a business travelers’ costs and taxes are recharged to company are considered as a nondeductible expense or anan entity in the FBiH or the RS or if a service fee is charged on entertainment expense, unless the company can prove thethe duties performed by the business traveler, such charges business purpose of the travel.may be subject to scrutiny under the transfer pricing rules. THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS / 23 © 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • BrazilIntroduction Contact Patricia Hervelha QuintasAny individual that is considered to be a resident for tax purposes KPMG in Brazilin Brazil is subject to Brazilian taxation over worldwide income Tax Partner(wages, interest, dividends, rental income, capital gains, etc.) T: +55 11 37361257 E: pquintas@kpmg.com.brunder certain circumstances and depending on the type of visaheld on arrival in Brazil.Different circumstances prevail for extended business travelers toBrazil, depending on the type of visa they hold. Any individual whois considered to be a resident for tax purposes in Brazil is subjectto Brazilian taxation on worldwide income, including wages,interest, dividends, rental income, capital gains, etc.Key messagesExtended business travelers who stay less than 183 days during any 12-month period may be able to avoid taxation inBrazil if they can be considered nonresident and no part of their wages is paid locally.24 / THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS© 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swissentity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • Income tax A Brazilian tax resident’s wages paid through Brazilian payroll is taxed at the source, and any portion of these wages paidLiability for income tax through a foreign source is taxed in Brazil on a monthlyTax residency calculation named Carnê Leão, which is a Brazilian monthlyPermanent visa income tax calculation.A foreign national who enters Brazil with a permanent visa isconsidered to be a resident for tax purposes from the day of Tax trigger pointsarrival and, therefore, is subject to tax on worldwide income Technically, there is no threshold/minimum number of daysfrom the first day of physical presence in Brazil. This type of that exempts the employee from the requirements to file andvisa is mandatory for employees who will be responsible for pay tax in Brazil. To the extent that the individual qualifies forthe company in Brazil, that is, senior employees. relief in terms of the dependent personal services article of the applicable double tax treaty, there will be no tax liability.Temporary type V visas – With or without an employment The treaty exemption will not apply if the Brazilian entity isrelationship with a Brazilian entity the individual’s economic employer.The holder of a temporary work visa is also considered to bea resident for tax purposes from the day of arrival if individual Types of taxable incomeis employed by a Brazilian entity. If there is no employment • Wages paid by a Brazilian entity are subject to withholdingrelationship with a Brazilian entity, the holder of a temporary at the sourcework visa will be considered a resident for tax purposes after • Income from investments held in Brazil is subject tothe 183rd day of physical presence in Brazil, consecutive or withholding at the sourcenot, within a 12-month period, beginning on the date of arrivalor on obtaining a permanent visa, if this date occurs after • Income earned abroad (such as wages, dividends, interest,183 days of physical presence. rental, etc.) is calculated through Carnê LeãoNonresidency • Capital gains from assets held in Brazil and abroadA foreign national who is a nonresident of Brazil for tax • Gains from the sale of stock on a Brazilian stock exchangepurposes is not subject to tax on remuneration paid outside or comparable InstitutionsBrazil. Foreigners arriving in Brazil who are holders oftemporary visas without an employment contract with a According to internal legislation, any income received bylocal company, before completing 183 days (consecutive or a Brazilian resident for tax purposes is taxable in Brazilnot) of stay in Brazil, counted within any period of 12 months, (wages, allowances, interest, dividends, rental income, etc.)are considered nonresident taxpayers. under a progressive tax table with tax rates from 0 percent up to 27 percent. Tax treaties can avoid double taxation. .5The general rule is that a person who is a resident ofBrazil is assessable on worldwide income. Nonresidents Stock option exercises are not expressly regulated, andand temporary residents are generally assessable on they are likely to be taxed, but may be taxed at a flat rate,income derived directly or indirectly from sources in Brazil. depending on the conditions of the plan.Income considered to be offshore is tax-exempt. There are no federal income taxes applied to holding assets.Extended business travelers are likely to be considered There are state and municipal taxes over property andnonresidents of Brazil for tax purposes and may be automotive vehicles, although capital gains can be subject toconsidered tax-exempt if they enter on a business visa, all a 15 percent tax rate in Brazil.their wages are paid offshore, and no part of their wages is For extended business travelers, the types of income that arepaid pursuant to a local contract or a technical assistance generally taxed are employment income, Brazilian-sourcedagreement. A business visa is not considered a work income, and gains from taxable Brazilian assets (such as realpermit, so these individuals are not permitted to perform estate). Typical allowances can be applied to employmentremunerated activities. They are able to perform ancillary income.activities such as conducting meetings, participating inseminars, meeting customers and suppliers, prospecting Tax ratesthe local market, etc. It is important to mention, however, Net taxable income is taxed at graduated rates ranging fromthat a business visa subjects the individual to the counting of 0 percent to 27 percent for resident taxpayers. The maximum .5183 days as mentioned above. tax rate is currently 27 percent on income earned over .5 3743.19 Brazilian Real (BRL). Nonresidents are subject to a flatDefinition of source 25 percent tax rate on Brazilian-sourced income paid throughEmployment income is generally treated as Brazilian-sourced Brazilian payroll.compensation where the individual performs services pursuantto a local contract or a technical assistance agreementbetween a Brazilian company and a foreign company. THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS / 25 © 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • Social security There is no provision for an individual to obtain an extension of time for filing the return. Late-filed returns are subjectLiability for social security to penalty and interest. Any balance due with the annualAny employee on a Brazilian payroll is subject to social tax return must be paid on April 30. The taxpayer, however,security contributions. The rates vary depending on the is given the option to pay the balance in six monthlyindividual’s salary level. installments, subject to interest charges, beginning on theCurrently, social security contributions are withheld at rates final filing date.of 8, 9, or 11 percent of total monthly gross salary up to a Resident taxpayers are subject to pay income tax on theirprescribed maximum amount (which is currently BRL405.86. worldwide income on a monthly cash basis. Resident taxpayersThe employer’s contribution is determined at the rate of are subject to a withholding tax system on their Brazilian-approximately 26.8 percent up to 29 percent of the total sourced income based on a progressive tax table. They are alsopayroll, with no limitation on the amount of earnings subject subject to the Brazilian monthly income tax on the sum of theirto contributions. These rates can be higher under very offshore income (wages, compensation, interests, dividends,specific circumstances. rental income, capital gains, etc.) and to file annual Brazilian income tax returns.FGTS – Brazilian indemnity severance fundThe employer is also subject to an 8.0 percent contribution on Resident taxpayers are required to pay monthly incomethe total compensation paid to the employees in favor of the tax (Carnê Leão) on their income that was not subjectBrazilian Indemnity Severance Fund (FGTS). to withholding tax by any other local source. Generally, this means offshore income and rental income receivedIn summary: from other individuals. This tax is also calculated based on a Paid by progressive tax table. The payment has to be made up to the last business day of the following month. Type of Employer Employee Total insurance percent percent percent Nonresident individuals may not be required to file a Brazilian Social 8.0, 9.0, or annual tax return if they receive only non-Brazilian-sourced 26.8–28.8 11.0 with cap income or if there is only Brazilian-sourced income paid security 11.0 through a Brazilian payroll that is subject to the flat tax rate of Severance 8.0 none 8 25 percent, which is withheld at the source. indemnitySource: KPMG in Brazil, June 2010 OtherBrazil has fixed social security agreements with the following Work permit/visa requirementscountries: Argentina, Greece, Spain, Chile, Italy, Luxembourg, A visa must be applied for before the individual enters Brazil.Paraguay, Uruguay, Portugal, and Cape Verde Island. The type of visa required will depend on the purpose of the individual’s entry into Brazil. A permanent visa is typicallyThe main goals of the social security treaties are to make required for individuals who intend to live ”permanently” insure the working time in one country is valid towards the country, for example, someone sent to be the generalthe minimum working period for retirement purposes in the manager of the local entity. Temporary visas are typically validother country, to allow the cooperation between Brazil and for two years but may be extended. Business visas are validoverseas authorities in enforcing their respective laws, and to for 90 days and are renewable once. Special visas exist forguarantee the individual’s rights. There are several questions individuals who may be present for more than 180 days but doon whether such treaties are effective in avoiding social not intend to reside in Brazil. Tourist visas are not applicable forsecurity taxation. business travelers but allow multiple entries into the country and presence for up to 90 days.Compliance obligationsEmployee compliance obligations Double taxation treatiesThe taxpayer is required to file a tax return by the last In addition to Brazil’s domestic arrangements that providebusiness day of April of the year following the end of the relief from international double taxation, Brazil has enteredtaxable year, which is December 31. Income tax is levied at into double taxation treaties with approximately 29 countriesprogressive rates on an individual’s taxable income for the to prevent double taxation and allow cooperation betweenyear, which is calculated by subtracting allowable deductions Brazil and overseas tax authorities in enforcing theirfrom the total assessable income. Nonresidents are taxed at respective tax laws.a flat rate of 25 percent. Reciprocity of treatment is also admissible between Brazil and the United States, United Kingdom, and Germany.26 / THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS© 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swissentity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • Permanent establishment implications ICMSThere is the potential that a permanent establishment could The standard rate of ICMS is 17 percent. In São Paulo,be created as a result of extended business travel, but this Minas Gerais, and Paraná, however, the standard rate iswould depend on the type of services performed and the 18 percent, and in Rio de Janeiro it is 19 percent. On interstatelevel of authority the employee has. movements of goods, the rate applied may vary based on the state of destination. Some specific products may haveA permanent establishment is created when the individual different rates (such as electricity, which is taxedremains in the country acting on behalf of the employer while at 25 percent).making decisions and deals on the employer’s behalf. IPIIndirect taxes The tax is normally charged on an ad valorem rateThere are two value-added taxes in Brazil. One is a state according to the classification of the product based uponsales tax (Imposto sobre Circulação de Mercadorias e the international Harmonized Commodity Description andServiços (ICMS)), and the other is a federal excise tax Coding System (HS), administered by the World Customs(Imposto sobre Produtos industrializados (IPI)). Organization in Brussels. Rates range from 0 to a maximumICMS is due on the physical movement of merchandise and of 330 percent and average about 10 percent. Luxury goodsis levied on interstate and intermunicipal transport services, are at the high end of the tax scale.communications, and electricity. ISSIPI excise tax is due, with a few exceptions, on all goods The standard rate of ISS is 5 percent, although there areimported or manufactured in Brazil. The tax is paid upon lower rates for specific services. Rates may vary, however,import or on the manufacture of a product. Credit is given from one municipality to another.with respect to the IPI tax paid on the raw materials or PIS and COFINScomponent parts used in the finished product or consumed The standard rates of PIS and COFINS also will vary accordinglyin production. The difference in IPI must also be paid if the to the tax system to which the company is subjected.goods or products are: Rates may vary from 0.65 percent to 1.65 percent for PIS and• Imported and sold at a higher price by the importer to a from 3 percent to 7 percent for COFINS. .6 domestic purchaser Transfer pricing• Repackaged for sale at a higher price Brazil has a transfer pricing regime. A transfer pricing implication could arise to the extent that the employee is• Sold at a higher price by the producer or manufacturer being paid by an entity in one jurisdiction but performing through a branch services for the benefit of the entity in another jurisdiction,• Sold through exclusive distributors, a joint venture, or in other words, a cross-border benefit is being provided. through an affiliated concern. This would also be dependent on the nature and complexity of the services performed.Furthermore, there are other taxes that are due on supplyof goods or services: services tax (Imposto Sobre Serviços The arm’s-length concept described in the OECD transfer(ISS)), social contribution on billing (Contribuição para pricing guidelines is not generally followed in Brazil. As a rule,o Financiamento da Seguridade Social (COFINS)), and Brazil requires the use of transactional methods that providecontribution to the Social Integration Program (Programa de for statutory gross margins. Management fees are deductibleIntegração Social (PIS)). provided that the services are considered necessary, useful, and common to the business.ISS is a municipal tax on gross billings for services. Servicessubject to the ISS are defined by federal law. Each municipality Remittance of funds abroad (e.g., management fees and(city) must have its own list of taxed services. The COFINS reimbursement of expatriated costs) will be subject tois described as a social contribution and is targeted at the several taxes and contributions that represent an extremelyfunding of social welfare programs. The COFINS can be high tax burden that can reach more than the 45 percent ofcharged on a VAT-type base (similar to the ICMS described the amount to be remitted.above) or based on gross receipts from the supply of goods Local data privacy requirementsand services. The taxation will depend on the tax system Local counsel should be sought to address any data privacychosen by the taxpayer for paying the corporate income tax. concerns and requirements.The PIS was created to fund the unemployment insuranceprogram. The PIS operates on the same basis as the COFINSdescribed above. The standard rates of VAT are: THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS / 27 © 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • Exchange control • InheritanceBrazil has strict foreign exchange controls, and remittances • Contributions to associationsabroad may encounter several Central Bank restrictions.Although remittances that fit into preset categories already • Business tripsdefined by the Brazilian Central Bank may not find difficulties • Payments in support of dependents abroadin processing, remittances that cannot be classified intothe preset categories will probably need approval from the • Educational pursuitsBrazilian Central Bank prior to processing. • Medical treatmentAll remittances of funds from Brazil abroad above BRL10,000 • Rental paymentsmust be made through the official banking system andrequire certain documentation from the bank. • Use of data servicesMost common preset categories are: • Credit cards• Real estate purchase Nondeductible costs for assignees Nondeductible costs for assignees include contributions by• Contribution to home country retirement plans by an employer to non-Brazilian pension funds. expatriates employed in Brazil• Transfer of personal assets (when leaving the country)28 / THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS© 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swissentity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • BulgariaIntroduction Contact Kalin HadjidimovAs of January 1, 2008, Bulgaria introduced a major change in KPMG in Bulgariathe personal income tax legislation with the introduction of Tax Partnera 10 percent flat tax rate, which replaced the progressive tax T: +359 (2) 9697 700 E: khadjidimov@kpmg.comschedule that had a highest marginal tax rate of 24 percent.Individuals are liable to Bulgarian personal income tax eitheron their Bulgarian-sourced income or on their worldwideincome, depending on their tax residence status. The tax dueis determined based on the gross income reduced by certaindeductible allowances, such as mandatory social securitycontributions, etc.Key messagesThe Bulgarian tax legislation specifies that Bulgarian-sourced income consists of income directly paid by Bulgarianentities as well as income resulting from activities performed in Bulgaria. THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS / 29 © 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • Income tax Social securityLiability for income tax Liability for social securityBulgarian tax residents are considered to be individuals All those working under contractual relations with a Bulgarianwho meet one of the following criteria, irrespective of their or foreign entity, self-insured people, and those performing anycitizenship: type of activity or service within the territory of Bulgaria are obliged to participate in the mandatory national social security• They have a permanent address in Bulgaria. system and must be insured against several types of risks.• They stay in the country more than 183 days in any 12-month period. Health insurance contributions are generally due for all Bulgarian citizens and foreign nationals residing in Bulgaria• They were sent on an assignment abroad by the Bulgarian on a long-term, permanent basis, regardless of the existence State, by its institutions, or by Bulgarian entities. Under this and type of contractual relations. Subject to minimum and option, the family members of these individuals are also maximum income thresholds set by the legislation, the social considered Bulgarian residents for personal income tax security and health insurance contributions are due and payable purposes. on the employment/management remuneration received.• Their center of vital interests is considered to be in For tax year 2011, the maximum insurable income Bulgaria, i.e., the individuals have closer personal and is 2,000 Bulgarian leva (BGN) (1,023 euros (EUR)). economic relations (such as family, social relations, For employees, the minimum limits vary, depending on the occupation, etc.) with Bulgaria than with another country. position they take in the company, while for self-insuredGenerally, the above-mentioned four criteria are of equal persons, the minimum monthly insurable income isimportance in determining the tax-residence status of the determined based on the income generated by the individualindividual. However, the tax legislation does provide that for year 2009 as reported in the individual’s annual personalthe center of vital interests criterion has precedence over the income tax return.permanent address criterion. If a foreign individual is assigned in Bulgaria for a certainUnder Bulgarian tax legislation, nonresidents are individuals period of time and is required to remain insured under thewho meet none of the above-mentioned residency criteria. social security system in the foreign individual’s homeThese individuals are subject to tax in Bulgaria only on the country (which is an EU member state), the individual shouldBulgarian-sourced income they have generated. obtain a certificate A1 under the EU Social Security regulationTax trigger points 883/2004 from the authorities in the individual’s homeThe Bulgarian tax legislation places no minimum threshold country. This will release the individual from payment of socialwith respect to when the individuals begin to have tax security and health insurance contributions in Bulgaria.obligations in the country. Thus, from a Bulgarian perspective,personal income tax is levied from the first day during which Compliance obligationswork is performed in Bulgaria. A double tax treaty may provide, Employee compliance obligationsin certain cases, for an exemption from taxation until the Generally, a person who receives income from sources otherindividual’s physical presence in the country exceeds 183 days. than the individual’s employment with a local entity or has simultaneous employment with more than one employer atTypes of taxable income year-end has a tax return filing obligation. A requirement toGenerally, all types of income (monetary and/or nonmonetary) file a tax return also arises if the individual is considered a taxare subject to personal income tax in Bulgaria unless they are resident and owns real estate property abroad/shares in aspecifically exempted. In view of this, the following categories foreign company or receives dividends from foreign sharesof income will be treated as taxable: employment income (irrespective of whether a tax liability arises on that income(including salary payments and all additional bonuses provided in Bulgaria).by the employer, such as car and home leave allowances andequity compensation), dividends, interest income, income A filing obligation also arises in instances where a taxfrom other economic activity, capital gains from the sale of resident has granted or received loans over specific limitsproperty, rental income, and others. (other than those from credit institutions). The annual personal income tax return must be filed either within theTax rates preliminary deadline (February 10 of the following year) orResidents and nonresidents for Bulgarian personal income final deadline (April 30 of the following year). If the tax returntax purposes are levied with different types of taxes is filed and the outstanding tax is paid by the preliminary(standard tax and withholding tax). However, their rates, deadline, a 5 percent deduction from the outstanding tax10 percent, are currently equal. Only dividends (received by liability is automatically granted. In addition, if the tax returnboth residents and nonresidents) are levied with a lower rate is filed electronically within the final deadline, a 5 percentof 5 percent. The determination of the tax base may vary, deduction is allowed. These two deductions, however,nonetheless, depending on the residence status. may not be accumulated, i.e., the maximum deduction that can be utilized remains at 5 percent.30 / THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS© 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swissentity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • Employer reporting and withholding requirements • Zero-rated supplies — These supplies, such as internationalThe Bulgarian legislation provides that it is the employer’s transport of goods and persons, are subject to a VAT rate ofobligation to withhold and remit to the state the social security 0 percentand health insurance contributions on behalf of both the • Exempt supplies —This includes supplies of a non-employer and employee, as well as the advance personal economic character, financial services, insurance andincome tax installments, on a monthly basis. Certain reporting postal servicesdocuments should be submitted by the entity followingthe remittance of these charges. If the employer is a non- Transfer pricingBulgarian entity, the social security and health insurance Transfer pricing rules allow the revenue authorities to adjustobligations remain the responsibility of the employer, so that taxable profits where transactions are not carried out onif the employer is foreign, it must register in Bulgaria for the an arm’s-length basis. A transfer pricing issue may arise inpurpose of becoming an insurer. However, if the employer is a the case where an individual is assigned between separatenon-Bulgarian entity, the withholding and remittance obligation subsidiaries of the same corporate group under a servicewith respect to the personal income tax falls entirely on the or secondment agreement. This may affect the invoicingindividual taxpayer (unless a secondment scheme exists). matters between the two entities but is unlikely to have an effect on the individual.Other Local data privacy requirementsWork permit/visa requirements Bulgaria has put in force legislation concerning dataIn line with Bulgarian legislation, certain categories of foreign protection, and companies in their role as employers arenationals must obtain a visa if they wish to enter the territory obliged to follow its provisions.of Bulgaria. Exchange controlCitizens of any of the member states of the European Union, In accordance with the Bulgarian legislation, certain types ofthe European Economic Area, and the Swiss Confederation, transactions have to be declared at Bulgarian National Bankas well as citizens of other countries (such as the United States, not later than 15 days after their execution. These includeJapan, Australia, etc.) who wish to enter and stay in Bulgaria do (i) transactions between local and foreign individualsnot need a visa. involving incoming and outgoing loans exceeding BGN5,000;Double taxation treaties (ii) granting of financial loans by the opening of a bank accountIf there is a tax treaty in force between Bulgaria and abroad, regardless of the amount of money transferred toanother country, the provisions of the tax treaty regarding the account; and (iii) making initial direct investments by localthe avoidance of double taxation should be implemented. people abroad, regardless of the amount of the investment.The treaties concluded by Bulgaria provide mainly for the Nondeductible costs for assigneesexemption with progression and tax credit methods for According to the Bulgarian personal income tax legislation,avoiding double taxation depending on the type of income the following are nondeductible:generated. Bulgaria has currently entered into tax treatieswith more than 50 countries. • The employer voluntary pension, unemployment, life, or health insurance contributions up to a certain limit, as longPermanent establishment implications as these are not provided in the form of a social expense.There is the potential that a permanent establishment couldbe created as a result of extended business travel, but this • The employee voluntary pension, unemployment, life,would be dependent on the type of activities/services or health insurance contributions above a certain limit andperformed and the level of authority the employee has, in cases where contributions are made to funds outsideas well as the provisions of the relevant tax treaty. the EU and EEA area, etc.Indirect taxesSupplies of goods and services are generally subject tovalue-added tax (VAT) based on the type of goods or natureof services provided. The following categories of suppliesmay apply:• Standard-rated supplies — These supplies are subject to VAT at a rate of 20 percent THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS / 31 © 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • CanadaIntroduction Contact James YagerLiability to Canadian tax is determined by residence status KPMG in Canadafor taxation purposes and the source of income derived by an Tax Partnerindividual. Income tax is levied at progressive rates on a person’s T: +1 416 777 8214 E: jyager@kpmg.cataxable income for the year, which is calculated by subtractingallowable deductions from the total assessable income.Key messagesExtended business travelers are likely to be taxed on employment income relating to their Canadian workdays and willhave an obligation to file a Canadian income tax return. In addition, employers have a payroll reporting and withholdingobligation, even if the employee’s income is exempt from tax in light of the provisions of a treaty.32 / THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS© 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swissentity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • Income tax The treaty exemption does not relieve a person from theLiability for income tax obligation to file a Canadian income tax return. Similarly,Liability for Canadian tax is determined by an individual’s an employer has a payroll reporting and withholding obligationresidence status. A person can be a resident or a nonresident for payments to an individual for services rendered in Canada.for Canadian tax purposes. The withholding obligation can be eliminated if the employer or employee obtains a withholding waiver from the CRA.Individuals resident in Canada are subject to Canadianincome tax on their worldwide income and allowed a credit Types of taxable incomeor deduction for foreign taxes paid on income derived from If an extended business traveler is considered a nonresident,foreign sources. There are no specific Canadian tax rules the business traveler will generally be taxed on incomefor determining whether or not an individual is resident derived from certain specific sources in Canada as follows:in Canada. The law is based on jurisprudence and Canada • Income from carrying on a business in Canada (generally,Revenue Agency (CRA) comments. Each case is determined if carried on through a permanent establishment in Canada)on its own merits. • Income from office or employment in Canada (includingBy commencing long-term or permanent employment, director’s fees)acquiring a dwelling place, moving one’s family into thecountry, and establishing residential and social ties (such as • Net income from real estate located in Canadaacquiring bank accounts, club memberships, or a driver’s • Royalty and other income from Canadian resource propertylicense), an individual may establish residence in Canada at aspecified point in time. Residence is also established by virtue • Dividends from securities issued by a company resident inof the taxpayer’s intent to remain in Canada. Where residence Canadais established by particular events, individuals are taxed as • Capital gains from the disposition of taxable Canadianresidents for one part of the year and as nonresidents for that property. Examples of taxable Canadian property include,part of the year that precedes residency. but are not limited to:An individual may also be considered a deemed resident – Real estate in Canadataxpayer if the individual is present in Canada for more than183 days in a calendar year. As a deemed resident, the individual – Capital property used in carrying on a business inis subject to tax on worldwide income. Tax relief may be Canadaavailable if the individual is also a resident of another country – An interest in a private corporation resident in Canadawith which Canada has a tax treaty. • Canadian resource propertyNonresident individuals who are employed in Canada, who arecarrying on business in Canada, or who have disposed of Employment income is taxable when received or when thetaxable Canadian property also are subject to regular Canadian individual is entitled to receive it, if earlier. Employment incomeincome taxes. Income earned in Canada from property and is subject to tax to the extent it was earned during a periodcertain other sources, such as dividends, rents, and royalties, of Canadian residence or in the case of income earned whileis subject to withholding at the source. There is no withholding nonresident, to the extent it was earned in respect of dutieson Canadian interest earned by nonresidents. performed in Canada.Extended business travelers are likely to be considered Tax ratesnonresidents of Canada for tax purposes unless they enter Net taxable income is taxed at the federal level usingCanada with the intention to remain in Canada for more than graduated rates ranging from 15 percent to 29 percent,six months. both for residents and nonresidents. The maximum federal tax rate is currently 29 percent on income earned overDefinition of source 128,800 Canadian dollars (CAD).Employment income is generally treated as Canadian-sourced compensation where the individual performs the The provinces (except Québec) use the taxable incomeservices while physically located in Canada. calculated for federal tax purposes, but can then apply their own tax rates and tax brackets to that income figure.Tax trigger points The provinces also set their own nonrefundable tax creditsTechnically, there is no threshold or minimum number of and maintain any low-rate tax reductions and other provincialdays that exempts the employee from the requirements to credits currently in place. The CRA administers both federalfile and pay tax in Canada. To the extent that the individual and provincial taxes (except Québec), thus, taxpayersqualifies for relief in terms of the income from employment calculate their federal and provincial taxes on one return.article of the applicable double tax treaty, there will be Provincial tax is computed in essentially the same way asno tax liability. The treaty exemption will not apply if the federal tax, but applying the applicable province’s tax brackets,Canadian entity is the individual’s economic employer. rates, and credits to taxable income. The provinces decide THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS / 33 © 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • upon and use their own graduated rates. Currently, the rates Like the CPP contribution, the employer is responsible forrange from 5 percent to 24 percent. In addition, two of the withholding and remitting the individual’s portion as wellprovinces apply surtaxes. as remitting the employer portion (1.4 times the individual contribution) to the tax authorities. The maximum employeeThe maximum combined federal and provincial rates range contribution for 2011 is CAD786.76, with a correspondingfrom a low of 39 percent for Alberta to a high of 50 percent for employer contribution of CAD1,101.46.Nova Scotia. CPP and EI are assessed based on earnings, and the rates areNonresidents are subject to the same provincial tax rates as adjusted each year based on actuarial calculations preparedresidents. An additional tax of 48 percent of the federal rate is by the federal government.applicable, however, (in lieu of provincial tax) on income thatmay not be allocated, because of regulation, to a province. Canada has entered into formal social security totalization agreements with over 50 countries to prevent double taxationSocial security and allow cooperation between Canada and overseas taxLiability for social security authorities in enforcing their respective tax laws. Quebec hasCanada has an extensive social security system that confers entered into separate social security agreements with variousbenefits for disability, death, family allowances, medical care, countries as well.old age, sickness, and unemployment. These programs arefunded mainly through wage and salary deductions and Compliance obligationsemployer contributions. Employee compliance obligations Tax returns are due by April 30 following the tax year-end,An employee’s responsibility is made up of two parts: which is December 31. There are no provisions for extensionCanada Pension Plan (CPP) and Employment Insurance (EI). of this deadline. Late-filing penalties and interest are generallyFifteen percent of the contributions made by an employee based upon unpaid taxes, although penalties can also beto CPP or EI are creditable against that individual’s federal assessed on certain late-filed information forms.income tax liability. The contributions are also creditable forprovincial tax purposes. The Canadian tax system is a self-assessment system. Individuals are required to determine their own liability for Paid by income taxes and file the required returns for any taxation Type of Employer Employee Total year in which taxes are payable. Individuals file their own tax insurance percent percent percent returns; spouses do not file jointly. Canada A nonresident employee is required to file a Canadian 4.95 4.95 9.90 pension plan income tax return by April 30 following the tax year to report Employment compensation and compute the tax, or claim an exemption 2.49 1.78 4.27 pursuant to an income tax treaty. The income taxes withheld insurance are applied as a credit in calculating the final tax liability for Total percent 7.44 6.73 14.17 the year. To facilitate filing a return, the employee must applyCanada pension plan for a Canadian Social Insurance Number. A return is requiredCPP must be deducted from an individual’s remuneration even if the income is exempt from taxation pursuant to theif the individual is employed in Canada, between age provisions of an income tax treaty.18 and 70, and receiving pensionable earnings. The employer Employer reporting and withholding requirementsis responsible for withholding and remitting the individual Employers are required to report, withhold, and remitportion and remitting the matching employer portion to withholding tax for each of their employees unless a waiverthe tax authorities. The maximum employee and employer of withholding tax has been issued by CRA. As a technicalcontribution for 2011 is CAD2,217 each. Individuals residing .60 matter, even short business trips to Canada are subject toin Québec contribute to the Québec Pension Plan (QPP) payroll withholding unless a waiver has been obtained. Theseinstead of the CPP program. requirements apply even if the employer is a U.S. companyIf the employee is transferred from a country that has a social that does not have a permanent establishment (PE) insecurity agreement with Canada and/or Québec, the employer Canada.may request a certificate of coverage from the other country to The payroll withholding is not the final tax. The income taxesexempt the compensation from CPP and/or QPP . withheld are applied as a credit in calculating the final tax liabilityEmployment Insurance for the year. Any additional taxes owed must be paid by April 30 toEI must be deducted from an individual’s remuneration if the avoid late payment penalties.individual is employed in Canada and is receiving insurableearnings. There is no age limit for deducting EI premiums.34 / THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS© 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swissentity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • Other highly specialized knowledge personnel. Such individualsWork permit/visa requirements may be granted an employment authorization summarilyPersons wishing to reside and work in Canada on a permanent by an immigration officer without a Labour Market Opinion,basis must satisfy Canadian immigration law requirements provided all conditions are met and the proper documentationfor obtaining permanent residence. It is possible, however, is presented.to arrange to work temporarily in Canada, either by obtaining Citizens of the United States and Mexico wishing to workan employment authorization or by qualifying for an applicable temporarily in Canada may also gain admittance to Canadaexemption. The use of legal counsel is recommended for under certain provisions of the North American Freeindividuals immigrating to Canada. Trade Agreement (NAFTA). Working people covered byGenerally, work permits are issued by Canadian immigration NAFTA are exempt from the requirement of employmentofficers abroad for non-visa exempt nationals (see http:// validation through Service Canada. In addition, other specialwww.cic.gc.ca/english/visit/visas.asp). Visa exempt nationals, exemptions are available between participating nations of theon the other end, can usually obtain it directly at the Port of General Agreement of Trades and Services (GATS) as well asEntry (POE). For both categories, however, renewals can be other international agreements.obtained within Canada). The authorization will be valid only The use of legal counsel is recommended to determinefor the particular employer, position, and time period specified whether any of these special exemptions apply. Please noteon the work permit. The time period is normally one to three that the employment authorization provides for employmentyears, but renewals may be available. for the individual applying, but not for the individual’sWhen the duration of the work permit is six months or more, a spouse or dependents. If the individual’s spouse ormedical examination may be required prior to entering Canada dependents intend to work or seek employment in Canada,if the applicant has resided six consecutive months or more they must obtain their own work permits on their own(within the last 12 months) in one of the designated countries/ merits. However, in many cases, accompanying spousesterritories (see http://www.cic.gc.ca/english/information/ (or qualifying common law partners) can become eligible tomedical/dcl.asp). Starting April 1, 2011, the general rule will an “open” working status in Canada for the whole durationimpose a maximum of four years in Canada for work permits of the foreign national’s work permit.holders. Exceptions apply, but any foreign worker reaching its Double taxation treatiesthree-year mark after 2011 should investigate the opportunity In addition to Canada’s domestic arrangements that provideto apply for Landed Immigrant status. relief from international double taxation, Canada has enteredIn many cases, the Canadian immigration officer may not into double taxation treaties with approximately 90 countriesissue an employment authorization unless the immigration to prevent double taxation and allow cooperation betweenofficer has first obtained a favorable Labour Market Canada and overseas tax authorities in enforcing theirOpinion (LMO) from Service Canada in the locale where respective tax laws.the employment is to occur. To obtain such an opinion, Permanent establishment implicationsthe prospective Canadian employer must present the job A permanent establishment could be created as a result ofoffer and all supporting documents to Service Canada. extended business travel, but this would be dependent onIf Service Canada decides the admission of a nonresident the type of services performed and the level of authority theindividual will not adversely affect the employment employee has.opportunities of Canadian residents, it will issue anemployment validation. The Canada/U.S. income tax treaty has a provision, which became effective in 2010, that may result in aIt is important to note that starting April 1, 2011, any employer deemed permanent establishment, even if a permanentwho was not compliant with an LMO or Temporary Foreign establishment does not otherwise exist. Under this provision,Worker Program (TFWP) requirement in the previous a deemed permanent establishment may result if a companytwo years will become ineligible to hire any foreign worker in one country provides services in the other country forfor a period of up to two years and may also end up “listed” an aggregate of 183 days or more in any 12-month periodpublicly on the Canadian Immigration Web site. with respect to the same project or connected projects forFor multinational corporations, one notable exception to customers who are resident of that other country or whothe requirement of an employment validation from Service maintain a permanent establishment in that other country forCanada relates to employment that, in the opinion of an which the services are performed.immigration officer, will create significant employment Indirect taxesbenefits or other opportunities for Canadian citizens or The Goods and Services Tax (GST) applies at a rate ofpermanent residents. This exception provides the basis for the 5 percent to most goods acquired and services rendered inadministratively created category of intracompany transferees Canada. Five provinces have a Harmonized Sales Tax (HST)in senior executive or managerial capacities, as well as THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS / 35 © 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • that is comprised of a 5 percent federal component and a considered a small supplier, but can still choose to registerprovincial component that varies by province. In Ontario, voluntarily for GST/HST purposes. A person who voluntarilyNew Brunswick, and Newfoundland, the HST rate is registers is subject to the same obligations and rules as13 percent. In Nova Scotia and British Columbia, the HST other GST/HST registered persons.rate is 15 percent and 12 percent, respectively. In all material Other special rules apply to, among other entities, charitiesrespects (tax base and mechanics), the HST system is and taxi businesses.essentially identical to the GST system. Registration – Non-Canadian entitiesBusinesses (suppliers) that are registered for GST/HST The registration rules that apply to Canadian entities alsopurposes are required to collect and remit GST/HST on apply to non-Canadian entities that make taxable supplies intaxable supplies they make and are generally entitled to Canada in the course of a business carried on in Canada.claim offsetting input tax credits for GST/HST paid on theirexpenditures. Nonresident registrants without a permanent establishment in Canada will generally be required to provide and maintainThe word supply includes most forms of goods and services. security with the Canada Revenue Agency.The scope of the GST/HST is not restricted to the provisionof goods and services by way of sale but also includes Provincial indirect taxesother types of transactions, such as leases and rentals, The provinces of Saskatchewan, Manitoba, and Prince Edwardbarter transactions, and the granting or assignment of a right. Island each levy, retail sales taxes on tangible personal property and certain services. The rates vary from 5 percent toZero-rated supplies (e.g., basic groceries and exported goods) 10 percent. The legislation and rules vary among the provinces.are also taxable supplies but at a 0 percent rate. Suppliers ofzero-rated supplies are generally entitled to claim input tax The province of Québec levies an 8.5 percent Québec Salescredits for the GST/HST paid on their expenditures. Tax (QST) that applies to the GST-included price of taxable supplies. The QST is generally the same as the GST inTaxable supplies do not include exempt supplies such as most application. One of the main differences is the treatment ofhealthcare services, financial services, and residential rentals. financial services, which are exempt for GST but zero-ratedSuppliers of exempt supplies are not entitled to recover the for QST.GST/HST paid on related expenditures. Transfer pricingGenerally, the GST/HST applies to the value of the Canada requires that transactions with nonresidents beconsideration for taxable supplies of goods or services made undertaken at arm’s-length. Canada’s transfer pricing regimein Canada. While the consideration is usually expressed in generally follows the OECD guidelines. Transfer pricingmoney, the consideration, or part of the consideration, may be implications could arise to the extent that the employee isother than money, such as property or a service. In such case, being paid by an entity in one jurisdiction but performingthe value of the consideration, or part of the consideration, is services for the benefit of the entity in another jurisdiction,the fair market value of the property or service. in other words, a cross-border benefit is being provided.The payment of money and the provision of an employee’s This would also be dependent on the nature of the servicesservices to an employer are not supplies. However, performed.certain actions carried out for no consideration may, in some The CRA and Income Tax Act Section 247 provide the transfercircumstances, cause GST/HST to be payable, for example, pricing authority. CRA Information Circular 87-2R and variousimports of services and intangibles by a Canadian branch from transfer pricing memoranda published by the CRA providea foreign branch of the same financial institution, or benefits guidelines to the regime.provided to employees. In determining whether a deduction is allowed for transferRegistration – Canadian entities pricing purposes, it must first be determined whether anGenerally, if a person makes taxable supplies in Canada and intra-group service has in fact been provided (i.e., whetherthe value of its taxable supplies made inside or outside Canada the activity provides a respective group member with(including any associated entities) exceeds CAD30,000 economic or commercial value to enhance its commercialin the last four calendar quarters or in a single calendar position). It must also be determined whether the intra-groupquarter, the person is required to register, collect, and remit charge for such services is in accordance with the arm’s-the GST/HST on its taxable supplies. If the value of taxable length principle. The costs must be specific, identifiable,supplies made in Canada by the person and its associated and reasonable. 1Furthermore, the service should not beentities is below this registration threshold, the person is36 / THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS© 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swissentity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • duplicative of the service provided by the company or a third Every individual entering or leaving Canada is required toparty. Each case must be determined according to its own report any importation or exportation of currency or monetaryfacts and circumstances. In all cases, proper documentation instruments in excess of CAD10,000. The currency ormust be maintained to support the transfer pricing monetary instruments are subject to forfeiture or assessmentmethodology used. of a penalty if not properly reported.Local data privacy requirements Currency refers to the currency of any country. A monetaryCanada has data privacy laws. The Personal Information instrument refers to any financial instrument that isProtection Electronic Documents Act establishes 10 privacy immediately negotiable; is a bearer instrument, such as aprinciples and applies to all inter-provincial and international bearer bond; or is a security, government, or corporate notetransactions. Businesses must generally obtain opt-out or bond.consent in order to collect, use, or disclose personal Importation or exportation refers to carrying currency orinformation. The law has received an ”adequacy” rating from monetary instruments on one’s person or causing anotherthe European Union. The Privacy Commissioner’s Office has person to do so, including a courier or mail delivery.broad powers to ensure compliance. Various provinces haveimplemented separate data privacy rules that are largely Electronic money transfers between financial institutionssimilar to the federal law. are subject to separate reporting procedures typically handled by the financial institutions.Exchange controlNo direct controls are in effect on the movement ofcapital or other payments either into or out of the country.The government is in the process of actively strengthening itsanti-money-laundering regime to align with international bestpractices. There are some limitations on foreign investment inspecific sectors, but these have been significantly liberalizedsince 1985.1 In Canada, compensaion related to stock options may not be included in the charge. THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS / 37 © 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • ChinaIntroduction Contact Dawn FooDomiciled individuals are taxed on worldwide income, whereas KPMG in Chinanondomiciled individuals are generally taxed on Chinese-sourced Tax Partnerincome only. T: +8621 2212 3412 E: dawn.foo@kpmg.com.cnIn China, the scope of taxation for individuals is generallydetermined by the source of income, a person’s residencystatus, and the length of the person’s residence in China.Key messagesExtended business travelers are likely to be taxed on employment income relating to their Chinese workdays.38 / THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS© 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swissentity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • Income tax Tax rates Net taxable income is taxed at graduated rates ranging fromLiability for income tax 5 percent to 45 percent. The maximum tax rate is currentlyA person’s liability to Chinese tax is determined by the 45 percent on monthly taxable income over 100,000 Chineseperson’s domicile status. For Chinese tax purposes, a person renminbi (RMB).can be a domiciled individual, a nonresident nondomiciledindividual, or a resident nondomiciled individual. Social securityA domiciled individual is defined as an individual who, by Liability for social securityreason of the individual’s permanent registered address, Social security taxes may apply to nondomiciled individualsfamily, and/or economic interests, habitually resides in China. from July 1, 2011.An individual with a Chinese passport, or a hukou (householdregistration), is likely to be deemed as domiciled in China. Compliance obligationsA nondomiciled individual is taxed in accordance with the Employee compliance obligationsindividual’s length of residence in China. Such a person Domiciled individuals and resident nondomiciled individualswould be deemed to be a resident of China for that year if with an annual income exceeding RMB120,000 mustthe person has not been physically away from China for more file an annual individual income tax return by March 31.than 30 continuous days or more than 90 cumulative days in a Other circumstances where an individual needs to file returnscalendar year. within seven days of the month following the receipt of income are:A nondomiciled individual who has been a resident of Chinafor five years or less is taxed on income sourced in China only. • Individuals receiving wages from two or more employersA nondomiciled individual who has been a resident of China in Chinafor five full consecutive years is taxed on the individual’s • Individuals receiving income from sources outside Chinaworldwide income. (this applies only to domiciled individuals and residentA nonresident nondomiciled individual may be subject to tax nondomiciled individuals)on income sourced in China if the individual is unable to meet Employer reporting and withholding requirementsthe conditions required for exemption. The payer of any amount that is income to an individual hasDefinition of source an obligation to withhold the individual’s income tax andEmployment income is generally treated as Chinese-sourced remit the amount to the tax authorities. Hence, employerscompensation where the individual performs the services have an obligation to withhold the tax on the income paid towhile physically located in China. its employees, file individual income tax withholding returns, and remit the amount to the tax authorities within seven daysCertain nonresident nondomiciled individuals may be exempt of the month following the payment of amount.from tax.Tax trigger points OtherUnder domestic legislation, a nonresident nondomiciled Work permit/visa requirementsindividual is exempt from the requirements to file and pay tax Visas are required for entry into China with the exception ofin China if the individual meets one or more of the following short-term visits by residents of some countries. The type ofconditions: visa required will depend on the purpose of the individual’s entry into China.• The individual is in China for less than 90 days in a calendar year (this time period is frequently extended if there is a Double taxation treaties double tax treaty between China and the country in which China has an extensive tax treaty network. In addition to the individual is a tax resident) China’s domestic arrangements that provide relief from international double taxation, China has entered into double• The individual is paid by an employer outside China taxation treaties with many countries to prevent double• The individual’s costs are not borne by a permanent taxation and to allow cooperation between China and establishment or place of business of the employer in overseas tax authorities in enforcing their respective tax laws. China. The exemption will not apply, however, if the person Permanent establishment implications holds a position in the Chinese entity There is the potential that a permanent establishment couldTypes of taxable income be created as a result of extended business travel, but thisUnless a person is taxed on worldwide income, the types would be dependent on the type of services performed andof income on which assignees are generally taxed are the level of authority the employee has.employment income, Chinese-sourced income, and gainsfrom taxable Chinese assets (such as real estate). THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS / 39 © 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • Indirect taxes Local data privacy requirementsValue-added tax (VAT) of 17 percent is charged on the supply China does not currently have an extensive set of dataof goods and the provision of repairs and processing services privacy laws.in China, as well as on the importation of goods into China. Exchange controlBusiness tax may apply on the supply of labor services. China has strict exchange control rules. The RMB is not aTransfer pricing freely exchangeable currency. There are strict rules withinChina has a transfer pricing regime. A transfer pricing China applying to the conversion of RMB to other currenciesimplication could arise to the extent that the employee is being and vice versa.paid by an entity in one jurisdiction but performing services forthe benefit of the entity in another jurisdiction, in other words, Nondeductible costs for assigneesa cross-border benefit is being provided. This would also be Nondeductible costs for assignees may include contributionsdependent on the nature and complexity of the services by an employer to non-Chinese pension funds, benefits-performed. in-kind incurred in China that are not supported by official receipts, and accrued but unpaid costs.40 / THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS© 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swissentity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • ColombiaIntroduction Contact Juan Pablo MurciaIn Colombia, a foreign individual is generally liable for tax on KPMG in Colombiaincome and property sourced or situated in Colombia, before the Tax Lead Partnerfifth year of residence in the country. For foreign taxpayers who T: +57 1 618 8000 E: jpmurcia@kpmg.comare resident for fiscal matters, tax is levied on net income andapplied at progressive rates. For foreign nonresident taxpayerswhose home country has not signed the New York Conventionfor the Protection of Migrant Workers, income tax is levied on netincome at a flat rate of 33 percent. Net income is calculated bysubtracting allowable deductions from total assessable income.Key messagesExtended business travelers are likely to be taxed on employment income earned during their time working in Colombia. THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS / 41 © 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • Income tax Colombian nationals, who are considered nonresident for fiscal matters, and foreign taxpayers, before their fifth yearLiability for income tax of residence in Colombia, are generally liable for tax inA person’s liability to Colombian tax is determined by the Colombia only on income derived directly or indirectly from asource of income and the situation of the person’s property. Colombian source.The tax rates are dependent on whether a person is aresident for fiscal matters of Colombia or a nonresident. Definition of source Employment income is generally treated as Colombian-Resident sourced compensation where the individual performs theColombian law sets out that a person is considered resident services while physically located in Colombia.for fiscal matters in Colombia if the individual remains in thecountry, whether or not the stay is continuous, for a period of Tax trigger pointsmore than six months during a fiscal year (i.e., January 1 to There is no threshold/minimum number of days thatDecember 31) or if, within the fiscal year, the six months of exempts the employee from the requirements to filecontinuous stay are completed. and pay tax in Colombia.A resident also includes a Colombian national whose family or To the extent that the individual qualifies for relief in termsbusiness remains in the country even though the Colombian of the dependent personal services article of the applicablenational resides in a foreign country. double tax treaty, there may be no tax liability.Nonresident For 2011, residents are not taxable on the first 27,393,880A person who does not meet the criteria of a resident is Colombian pesos (COP) of taxable income.considered to be nonresident for fiscal matters. Types of taxable incomeA person who spends less than six months in Colombia All remuneration, fees, and allowances paid under anduring a fiscal year is therefore nonresident for fiscal matters. employment contract or as an independent worker are treated as taxable income to the extent they are receivedGenerally, a Colombian national who is resident for fiscal in return for services provided in Colombia. For this reason,matters in the country is liable for tax in Colombia on all payments received in cash or in kind by an employee areworldwide income. taxable, regardless of where the compensation is paid. Taxable income Issues to take into account Colombian national Rents and occasional gains from a national Wages paid in Colombia for work performed nonresident for fiscal source are taxable. In the case of residents, outside the country are not considered to be matters taxable income also includes rents and income of national source. Therefore, nonresidents occasional gains from a foreign source. would not be taxed on this income, nor would this income be subject to withholding tax. Foreign nationals Foreign expatriates working in Colombia are Where an individual is paid overseas for services on assignment in only liable for tax on income received from a performed in Colombia, the amount of income that Colombia Colombian source during the first four years is taxable in Colombia is calculated based on the of residency in the country. From the fifth year number of days the expatriate provides the service of residency, the expatriate is liable for tax on in Colombia. worldwide income. If an activity is carried out in Colombia under a labor contract for a minimum period of six months, the authorities may apply the progressive rates of withholding tax. Otherwise, any income will be subject to withholding tax at 33 percent. Regardless of where payment is made for services provided in Colombia, the income will be taxable.Source: KPMG in Colombia, March 201142 / THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS© 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swissentity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • Tax rates When an employee earns a salary between 4 and 15 timesThe net income of a person resident in Colombia is liable the minimum legal monthly salary (SMLM), the employeefor tax at progressive rates from 0 percent to 33 percent. must contribute an additional 1 percent to the pension fund.Nonresidents are liable for income tax at a flat rate of Likewise, employees earning 16 SMLMs or more must make33 percent. This is currently the maximum tax rate for residents additional contributions as follows:and is applied on income earned over COP103,041,200 forthe 2011 tax year. Additional Total contribution SMLM percentage percentageSocial security 16–17 0.2 17.2Social security liability 17–18 0.2 17.4Employer and employeeAny person employed in Colombia must make contributions 18–19 0.2 17.6to the social security system. The system consists of a 19–20 0.2 17.8general contribution scheme and a special contribution 20 or more 0.2 18.0scheme. Social security contributions are calculated based onan employee’s earnings. These payments should be assumed by the employee.A voluntary regime is also available to self-employed and Colombia has entered into social security totalizationunemployed individuals. Participants in this regime are agreements with 20 other Iberoamerican Organization countriessubject to a special quota. in order to prevent double taxation and allow cooperation when enforcing their respective tax laws. Paid by Type of Employer Employee Total Compliance obligations insurance percent percent percent Employee compliance obligations The filing date for tax returns is generally between August Pension plan 12.0 4.0 16.0 and September, after the end of the tax year (December 31). Medical plan 8.5 4.0 12.5 The tax authorities publish a schedule each year setting out the filing dates. The filing date for an individual is based on Family welfare 9.0 0.0 9.0 the last two digits of the individual’s tax identification number fund (NIT). Foreign nationals are required to obtain an NIT to be Total percent 29.5 8.0 37.5 used in all their tax affairs.Source: KPMG in Colombia, June 2010 In general, individuals who have received income and/or ownThe social security system provides benefits to the property after December 31 in any tax year must submit a tax return if the income/value of their property is above a certainparticipant or the participant’s dependants for events such amount. Failure to do so will result in a monthly penalty,as occupational accidents, sickness, retirement, pension, payable in arrears, equal to 5 percent of the outstanding tax,and death. capped at 100 percent of the amount payable.The employer must make the following social security The taxpayers who fulfill all the following conditions arecontributions for 2010: exempt from the requirement to submit a tax return for 2010:• Pension plan: 12 percent x monthly payroll • Employees whose gross equity does not exceed COP110, 498,000 for the year 2010 or the equivalent in U.S. dollars• Medical plan: 8.5 percent x monthly payroll (approximately USD58,800)• Family welfare fund: 9 percent x monthly payroll • Employees who are not required to account for sales taxIt is important to consider whether the employee is on a nonsalaried activitycontributing to a pension fund or health plan in the employee’s • Employees whose earnings are less than COP100,013,000 forown country that covers the contingencies the employee the year 2010 or the equivalent in U.S. dollars (approximatelycould suffer during the employee’s stay in Colombia, in which USD53,250)case, participation in the pension scheme in Colombia isvoluntary. If the employee has a labor agreement with aColombian company, however, participation in the health planis obligatory. THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS / 43 © 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • • Independent workers whose earnings were received net Those contributions that are withdrawn before a minimum of withholding tax, providing the worker’s gross equity term of five years will be included, however, as income in the does not exceed COP110,498,000 for the year 2010 or year of withdrawal, with the exception of withdrawals made the equivalent in U.S. dollars (approximately USD58,800) to acquire real estate. and that the individual’s earnings do not exceed Any tax withheld will be taken into account in the calculation COP81,032,000 for the year 2010 or the equivalent in of the final tax liability. U.S. dollars (approximately USD43,200) In addition, a deduction from salary is available for interest paid• Nonresident foreign nationals whose income is derived on loans taken out for the home. This, therefore, reduces the from dividends, partnership profits, interest, commissions, income tax and withholding tax bases. It is also important fees, royalties, rents, compensation for personal services to take into account that 25 percent of labor payments are or technical assistance, benefits, or royalties from exempt from income tax, up to a monthly maximum of copyrights or artistic or scientific property that have been COP6,032,000 (approximately USD3,211) for the year 2011 and subjected to withholding tax at 33 percent. COP5,893,000 (approximately USD3,137) for the year 2011.Regardless of the above exemptions, an income taxreturn must be filed for 2010 if an individual has exceeded Otherthe following: Work permit/visa requirements A visa must be obtained before the individual can enter• Credit card purchases in excess of COP68,754,000 Colombia. The type of visa required will depend on the (approximately USD36,600) purpose of the individual’s entry into Colombia.• Purchases in excess of COP68,754,000 (approximately Double taxation treaties USD36,600) In addition to Colombia’s domestic tax regulation, which provides relief for double taxation by giving a tax credit for• Accumulated bank savings, deposits, or financial taxes paid abroad for foreign source income within the limits investments in excess of COP110,498,000 (approximately stated by the law, Colombia has entered into tax treaties to USD58,800) prevent double taxation with Spain and the countries of theAny outstanding tax must be paid at the time of filing the Andean community (Peru, Bolivia, and Ecuador). A treaty toreturn. Failure to pay tax when due will result in a penalty, avoid double taxation with Chile, Mexico, and Switzerland areand interest will accrue daily on any unpaid taxes at a rate about to come into force, and Colombia is negotiating treatiesof approximately 23.42 percent per annum (until March 31, with Canada, Europe, Korea, and Turkey, among others.2011). On April 1, the government will announce the Permanent establishment implicationsapplicable rate for the next quarter. Although the institution of the permanent establishmentEmployer reporting and withholding requirements (PE) is not provided by internal regulation, it will be applicableEmployers are obliged to withhold tax from expatriates’ by virtue of a double taxation treaty as in the case withearnings every month as follows: Spain, which states several events trigger a PE, such as the incorporation of a branch. In addition, unless specific relief is• If the expatriate is a nonresident, 33 percent of total provided for in an income tax treaty between Colombia and monthly compensation should be withheld the home country, Colombia will tax domestic income.• If the expatriate is a resident and is carrying out an Indirect taxes activity in Colombia under a work contract for more The standard rate of value-added tax (VAT) is 16 percent. than six months, the expatriate will be liable for tax at VAT is due on the sale of moveable goods and the provision of the progressive rates from 0 percent to 33 percent in services within Colombian territory, except those expressly accordance with the table determined by law. excluded. The importation of moveable goods is alsoIncome that is contributed to a voluntary pension fund in subject to VAT, except where expressly excluded. VAT is notColombia or to a savings account destined to acquire real applicable, however, to the sale of fixed assets.estate (AFC) is considered to be nontaxable income and isexcluded from the withholding tax base, providing the totalof these contributions and the obligatory contributions do notexceed 30 percent of income.44 / THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS© 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swissentity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • Generally, services are assumed to be provided where the • The activities in the establishment, office, bureau, shop,head office is situated, except in the following circumstances: or stand must not include a franchise, concessions, royalties, or any kind of exploitation of intangible assets.• Telecommunication services are assumed to be provided where the beneficiary’s head office is located. • They must not be users of customs.• Building services are assumed to be provided where the • Agreements for the sale of goods or for the provision building is located. of services should not exceed COP81,032,000 for the previous year nor COP82,936,000 for the current year.• Services of a cultural and artistic nature, loading, unloading, trans-shipment, and storage services are • Amounts deposited in banks or financial investments assumed to be provided in the place where the service during the previous year should not exceed is materially carried out. COP110,498,000 and COP113,094,000 for the current year.• Where services are executed abroad but the users or The common regime is relevant to companies and individuals consignees are located in Colombia, the services are who do not fulfill the requirements for the simplified regime. assumed to be provided in Colombia. Consequently, As an exception, overseas companies providing services the services are subject to VAT (i.e., licenses and that are subject to VAT in Colombia are not required to authorizations for the use and exploitation of incorporeal register for VAT. In these situations, 100 percent of the VAT or intangible assets; professional consulting, advisory, applicable to the specific activity should be withheld by the and audit services; rental of corporate movable assets; Colombian party. translation, correction, or text composition services; insurance, reinsurance, and coinsurance services; Transfer pricing services carried out in respect of moveable corporate Colombia has a transfer pricing regime based upon the OECD transfer pricing guidelines. A transfer pricing issue assets; satellite connection or access services; and may arise where an employee is being paid by an entity in satellite television service received in Colombia). one jurisdiction but performing services for the benefit of anVAT is also applicable to the circulation, sale, and operation entity in another jurisdiction, in other words, a cross-borderof games of chance (i.e., gambling) with the exception of benefit is being provided. The issue would also depend onlottery games. the nature and complexity of the services being performed.Some transactions are deemed to constitute a sale, such as Decree 4349 of 2004 provides specific guidelines on thegifts of property and private use of business assets. transfer pricing rules in Colombia. In some situations, it may be possible to negotiate advance pricing agreements withThere are two VAT regimes in Colombia, a common regime the local tax authority.and a simplified regime. Individuals and businesses thatmake VAT taxable transactions must register in the correct Management fees are deductible in Colombia, andregime in accordance with the requirements stated below: withholding tax is applicable to the extent the services were performed in Colombia.The simplified regime is relevant to individuals who aremerchants or service providers as long as they comply with Exchange controlthe following requirements for tax year 2011: The flow of currency into and out of Colombia may be subject to the required use of authorized exchange markets.• Gross income for the previous year must be less than COP98,220,000. Nondeductible costs for assignees Nondeductible costs for assignees include contributions• They must not have more than one establishment, office, made by an employer to non-Colombian pension funds. bureau, shop, or stand in which the activity is carried out. THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS / 45 © 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • Costa RicaIntroduction Contact Sergio GarciaA person’s liability to Costa Rican income tax is determined by the KPMG in Costa Ricaterritoriality principle, in opposition to the method of taxation based Partneron residence status. However, residents and nonresidents receive T: +506 2201 4100different tax treatment. Furthermore, the Costa Rican income tax E: sgarcia1@kpmg.comlegislation also differentiates in the tax treatment given to individualsworking independently, conversely, to those working under a laborrelationship. Whereas residents working independently are subjectto a progressive tax schedule with the highest bracket being25 percent of net income, which is computed by deductingdeductible expenses from total taxable income, resident individualsworking under a labor relationship are subject to a progressivetax schedule for which the highest tax rate is 15 percent.In both situations, deductibility of personal expenses is limited toimmaterial fixed amounts for the spouse and for each dependentchild. On the other hand, nonresidents providing independentprofessional services within the country are subject to a 15 percentwithholding tax on gross income and nonresidents providingdependent services within the country are subject to a 10 percentwithholding tax on gross income.Key messagesExtended business travelers are likely to be taxed on employment income relating to their Costa Rican work days.46 / THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS© 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swissentity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • Also, formal tax obligations differ between the country. This tax should be withheld by the payor at the moment of paying the income to the expatriate. When thethese categories. Resident individuals employer is a foreign entity, then it is the expatriate’sworking independently should file income tax responsibility to pay taxes due before the Costa Ricanreturns annually. Resident individuals working government. For such purposes, the expatriate should file the form named “Recibo Oficial de Pago” and make theunder a labor relationship and nonresidents corresponding filing and payment of taxes due, before anyproviding services in the country, whether it is authorized bank agency of the National Banking System.independently or not, are subject to a monthly Expatriates residing in Costa Rica for more than six monthswithholding tax system, where the payor on a continuous basis will be considered residents foracts as withholding agent and consequently, tax purposes. Similar treatment would apply to those expatriates who are transferred on assignment for a periodis responsible before the tax authorities for exceeding such term, but in this situation, the residentthe correct compliance of the tax obligations status would apply as of day one of assignment. In theseof the individual or entity beneficiary of the cases, the expatriates will be subject to salary tax which is the income tax applicable to domiciled individuals obtainingincome. The withholding tax agent is joint income from the provision of personal services renderedand severally responsible together with the under a labor relationship. This tax applies a progressivecorresponding taxpayer for taxes due before the tax rate schedule.tax authorities. Definition of source Employment income is generally treated as Costa Rican–Income tax sourced income when it derives from the provision of services rendered while the individual is physically locatedLiability for income tax in Costa Rica, irrespective of the location where the salary isThe Costa Rican tax system is based on the territoriality being paid.principle whereby all income derived within CostaRican territory and from Costa Rican sources is subject Compensation related to services provided outsideto income tax. Certain exceptions apply. The amount Costa Rica will receive a different tax treatment dependingtaxable in Costa Rica does not change based on residency on the tasks being performed abroad. Herein we includestatus. The method of taxation does however change for the different possible situations and their corresponding taxexpatriates residing in Costa Rica for six months or longer. treatment.Residence for tax purposes is triggered by a continuous a. Income received by residents working temporarily abroadphysical presence in the country for six months during the for the benefit of the Costa Rican entity. The income istax period. Pursuant to article 5 of the Regulations to considered connected to the economic structure of thethe Income Tax Law, the tax authorities are empowered country, and consequently, is treated as Costa Ricanto treat as residents for tax purposes, individuals who have source income subject to tax in the country.not yet satisfied the six-month period of permanence in b. Income received by residents working temporarilythe country, provided certain conditions are met. These abroad for the benefit of foreign entities. In this situation,refer to the following: (a) the tax authorities may consider the income obtained by the individual is considered foreignas residents for tax purposes those individuals who even source income not subject to tax in the country.though they have resided in the country for less than sixmonths have been in a labor relationship with Costa Rican c. Nonresidents working abroad are not subject to tax inemployers and (b) the tax authorities have granted the Costa Rica.residence condition to individuals who just arrived to the The above-mentioned criteria are not applied for socialcountry but are transferred on assignments that would security purposes, where the rules differ. Within this scope,exceed the six-month period; therefore, these individuals individuals are liable to pay social security contributionsare considered as residents for tax purposes as of day one when working within Costa Rica to the benefit of a local orof permanence in the country. foreign employer or when working abroad to the benefit ofThen, according to the above-mentioned, the tax rules that a local employer. It is important to call attention to this latterwould apply to an expatriate on assignment in Costa Rica situation, to the extent that the employee is on a local payroll,would differ depending on the length of the assignment. the social security authorities will charge social securityIf the assignment would not exceed the six-month period of contributions regardless of the fact that the employee workspermanence and the expatriate would not be working under in Costa Rica or abroad, or regardless of the fact that his/hera labor relationship with a Costa Rican employer, then the work is performed abroad for the benefit of the local entity orexpatriate would be subject to a 10 percent withholding tax for the benefit of a foreign entity.rate on gross income received for services provided within THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS / 47 © 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • Tax trigger pointsTechnically, there is no threshold/minimum number of days Social security Liability for social securitythat exempts the employee from the requirements to file and There is a comprehensive social security system inpay taxes in Costa Rica, including both income tax and social Costa Rica. Employees must contribute to all segmentssecurity contributions. of social security. The segments include a workers’ bank,Types of taxable income social security, a national training institute, a social welfareFor extended business travelers, the types of income that institute, and welfare for the poor. The social security ratesare generally taxed are employment income and other are uncapped and are applied to gross compensation.Costa Rican–sourced income. However, Costa Rica has a The employee’s contribution rate is 9.17 percent and thestatutory 13th month benefit that is not subject to salary tax employer’s contribution rate is 26.17 percent.or social security contributions. In addition, the employer must make contributions to aTax rates professional risk insurance scheme. The risk insurance ratesResidents’ employment taxable income is taxed at can vary widely depending upon the nature of the risk.progressive tax rates ranging from 0 percent to 15 percent. Costa Rica has entered into formal social security totalizationFor 2011, the tax schedule in force is: agreements with 20 other countries of the Iberoamerican Income Tax rates Organization to prevent double taxation and allow cooperation between Costa Rica and overseas social security authorities Up to ¢ 651,000 (US $ 1,287) 1 0% (exempt) in enforcing their respective laws. Ratifications by treaty From ¢ 651,000 to ¢ 977,000 10% partners are still pending, and a minimum number of counties (US $ 1,932) must ratify for the multilateral agreement to come into force Over ¢ 977,000 15% (I) 1 US $ = ¢ 505.65 (Source: Costa Rican Central Bank, April 12, 2011. Compliance obligations http://www.bccr.fi.cr/flat/bccr_flat.htm) Employee compliance obligations Individuals whose entire income is subject to salaryDeductibility of personal expenses is limited to annual withholding tax are not required to file an income tax return.expense per child ¢ 14,760 and for the spouse ¢ 21,840. Otherwise, income tax returns are due by December 15This tax is reported on an annual basis. Even though the following the tax year-end, which is September 30.tax liability is determined at the end of the tax year, the lawestablishes that taxpayers must perform three advance Employer reporting and withholding requirementsincome tax payments prior to the final due date. These are Residents receiving employment income are subject tocarried out on a quarterly basis and the amount is determined withholding tax. The employer should do the correspondingbased on either the amount of income tax liability paid in the withholdings at the moment it pays the correspondingprevious year or the average of the previous three years – salary to the employee.whichever is higher. Nonresidents receiving Costa Rican source income areNonresidents working under a labor relationship are subject also subject to withholding tax. The withholding tax agentto a flat tax rate of 10 percent on gross Costa Rican–sourced is the payor of such income and it should withhold theincome. corresponding remittances abroad tax at the moment of paying or crediting Costa Rican source income to the benefitSelf-employed nonresidents working in Costa Rica are subject of the nonresident beneficiary.to a 15 percent tax rate on gross Costa Rican–sourced incomereceived. The tax liability should be paid to the Tax Administration within the first 15 days of the following month to that of the Income Tax rates date of payment and should be paid together with the filing of Form D-103 (withholding tax return) for both residents Up to ¢ 2,890,000 (US $ 5,715) 2 0% (exempt) and nonresidents. From ¢ 2,890,000 to ¢ 4,316,000 10% (US $ 8,536) Other From ¢ 4,316,000 to ¢ 7,199,000 15% Work permit/visa requirements (US $ 14,237) A visa must be applied for before the individual enters Costa Rica. The type of visa required will depend on the From ¢ 7,199,000 to ¢ 14,427,000 20% purpose of the individual’s entry into Costa Rica. For example, (US $ 28,531) an individual may be considered a business visitor provided Over ¢ 14,427,000 25% his or her activities are limited to attending business (2) 1 US $ = ¢ 505.65 (Source: Costa Rican Central Bank, April 12, meetings, making sales calls to potential clients on behalf of 2011. http://www.bccr.fi.cr/flat/bccr_flat.htm) a non-Costa Rican entity, and attending seminars.48 / THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS© 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swissentity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • A consular visa used by a tourist visitor is generally valid Taxable services include:for 90 days and may be extended for up to an additional • Services provided by restaurants90 days. Certain nationalities may be granted shorter visas.The length of time may vary depending on the nationality • Barsof the foreigner. The different treatments can be reviewed • Night, social, or recreational centersat the official web site: http://www.migracion.go.cr/visas/Directrices_ingreso/Directrices%visas-Noviember2009.pdf. • Hotels, motels, pensions, and similar establishmentsA business visitor, someone who is visiting Costa Rica for • Repair shops of any kind of merchandise including motora period equal to twice the consular visa used as a tourist, vehiclesmay obtain a business visa. All business visitors have to • Parking facilitiescomply with the Costa Rican laws and the payment of thecorresponding taxes. • Telephone, cable, or telex servicesDouble taxation treaties Article 1 of the VAT Law also includes:Costa Rica has signed income tax treaties with Romania • Photocopying and photographic developing services(1991), Germany (1993), and Spain (2004). The treaty withSpain came in force last January 1, 2011. The income tax • Certain storage servicestreaty with Germany is being negotiated for the third time, • Laundry and ironing servicesand the treaty signed with Romania is not expected tocome in force. There has been an exchange-of-information • Public shows except sports, theater, and children’s moviesagreement in force with the United States since 1990. • Advertising servicesCosta Rica signed an exchange-of-information agreementwith Argentina in 2009, and currently, it is in the process of • Cable and satellite television servicesbeing approved by the Congress, to become enforceable. • Services rendered by customs brokersAlso, Costa Rica is negotiating 16 exchange-of-informationagreements with other countries and expects to have them duly • International moving servicessign by mid-2011, in order to comply with the term granted by • Services rendered by real estate brokersthe OECD to eliminate Costa Rica from its gray list. • Pagers and similar servicesPermanent establishment implicationsThere is the potential that a permanent establishment could • Washing, cleaning, and maintenance services for vehiclesbe created as a result of extended business travel, but this • Services rendered by printing houses and lithographerswould depend on the type of services performed and thelevel of authority the employee has. • Insurance premiums (except for those insurances referred to work risks, crops, houses of social interest, and personalIndirect taxes insurances)The standard VAT rate is 13 percent. All other services are not subject to VAT since the law doesIn accordance with the Sales Tax Law (the VAT Law), VAT is not expressly mention them.levied on the sale of all merchandise within the country and/or the import of merchandise into the country. The export of goods and the sale of exempt goods allow the taxpayer a credit for the input VAT paid. The legislation in forceAccording to Article 1 of the Executive Regulation to the establishes restrictions to the input VAT that can be credited.VAT Law, the term “merchandise” must be understood asany material, product, article, manufacture, and, in general, Costa Rican entitiesall movable goods produced or acquired for their processing Under the “value-added taxation” system established by theor trade. According to this article, the term “merchandise” VAT Law, taxpayers are those:does not include intangible property such as stock orsecurities. Immovable property is also excluded from the • Individuals or entities engaged in exporting goods.term “merchandise. ” These are considered declarants for purposes of the VAT Law. They must register as such in order to obtain aOnly those goods specifically listed in the VAT Law as exempt credit on taxes paid on inputs.are exempted from VAT. • Individuals or entities that produce or sell goods or servicesUnlike goods, services are not subject to VAT except when subject to VAT.expressly taxed by law. Article 1 of the VAT Law includes a listof services that are subject to the general sales tax. THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS / 49 © 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • In such cases, the final tax liability is calculated by subtracting A transfer pricing implication could arise to the extent thattotal VAT paid on imports or local purchases that are the employee is being paid by an entity in one jurisdiction butincorporated to the taxable good or service provided, from performing services for the benefit of another entity in anothertotal VAT collected from taxable sales during a given period. jurisdiction, in other words, when a cross-border benefit isPursuant to article 5 of the VAT Law, these individuals or being provided. This may apply depending on the nature andentities are known as “VAT taxpayers” and have an obligation complexity of the services performed.to register as such before the tax authorities. Registration is Local data privacy requirementsa simple process and is accomplished by filing a registration Costa Rica does not provide for the statutory protection ofform before the Unique Taxpayers Registry of the Tax privacy. Some protections are available under Article 24 of theAuthorities. It can usually be accomplished in a single day, Constitutional Act.if filed together with the requirements requested for suchpurposes. Exchange control Costa Rica does not restrict the flow of Costa Rican or foreignNon-Costa Rican entities currency into or out of the country. Only some anti–moneyThe Costa Rican VAT Law does not distinguish between laundering rules are in place to keep track of capitals andCosta Rican and non-Costa Rican entities. Non-Costa Rican prove their legal source.entities that fall under the description indicated above are Nondeductible costs for assigneesrequired to register as VAT taxpayers. Nondeductible costs for assignees may include a portion orTransfer pricing all of contributions by an employer to non-Costa RicanCosta Rica does not have legal rules governing transfer pension funds.pricing issues. However, the tax authorities are applyingtransfer pricing rules based on the general principle ofsubstance over form. During the last five years, the TaxAdministration has become more aggressive in applyingtransfer pricing rules to intercompany transactions oftaxpayers and in requesting due compliance of market priceconditions in intercompany transactions.50 / THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS© 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swissentity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • CroatiaIntroduction Contact Paul SucharAn individual’s liability to Croatian personal income tax (PIT) KPMG in Croatiais determined by the individual’s tax residence status and the Tax Partnersource of income derived by the individual. PIT is levied at T: +385 1 53 90 032 E: psuchar@kpmg.comprogressive rates on an individual’s taxable income for the year.Key messagesExtended business travelers are likely to be subject to PIT on employment income relating to their Croatian workdays(unless the individual qualifies for relief under the Dependent Personal Services article of an applicable double tax treaty). THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS / 51 © 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • Income tax case, the foreigner would need to at least pay health insurance contributions, where the amount of contributions is assessedLiability for income tax directly by the tax authorities. The taxable base is the averageAn individual can be a tax resident or a tax nonresident. Croatian national monthly salary (a prescribed, fixed amount,All resident taxpayers are taxable in Croatia on their for the whole year) multiplied by 35 percent and then by theworldwide income, while nonresidents are taxable on health insurance contribution rate of 15 percent.income from Croatian sources only. A resident taxpayer is anindividual who has in Croatia: Compliance obligations• Residence (if an individual owns/rents accommodation Employee compliance obligations without interruption for at least 183 days over Individuals receiving income directly from abroad should two consecutive calendar years; staying permanently in report such income to the tax authorities within eight days of the accommodation, however, is not necessary) receipt of the income via submission of a monthly ID form.• Habitual abode (if the circumstances suggest that an An annual income summary form, the IP form (summarizing individual permanently resides in that place or region the previous years’ ID forms), must be submitted by for a period of at least 183 days over two consecutive January 31 of the following year. An annual PIT return, if one calendar years). must be submitted, is due February 28 of the following year. Residents are obliged to submit an annual PIT return forA resident taxpayer is also an individual who does not have the income received from abroad only if during the year PITa residence or habitual abode in Croatia, but is employed advances were not paid or were paid in an amount lowerwith the government service and receives a salary based than the amount prescribed by the PIT legislation, whereas,on this appointment. nonresidents may opt not to submit an annual PIT return.A nonresident taxpayer is an individual who has neither a An annual PIT return can be submitted only if monthly IDresidence nor habitual abode in Croatia but earns income forms and the annual IP form have been submitted.from Croatian sources that are subject to Croatian PIT. Extensions are granted only in exceptional circumstances.Extended business travelers are likely to be considered Employer reporting and withholding requirementsnonresidents of Croatia for tax purposes unless they enter There are no compliance obligations for foreign employers forCroatia with the intention to remain in Croatia for more than business travelers coming to Croatia.183 days over a period of two consecutive years. If a business traveler travels abroad from Croatia and remainsTax trigger points subject to PIT in Croatia, the employer is required to withholdTechnically, there is no threshold/minimum number of days obligatory employee social security contributions and to paythat exempts an employee from the requirements to file and employer social security contributions at rates specificallypay PIT in Croatia. To the extent that the individual qualifies for prescribed for business travelers. The employer is alsorelief in terms of the dependent personal services article of required to ensure appropriate PIT withholding.an applicable double tax treaty, there will be no PIT liability.Types of taxable income OtherFor extended business travelers, the types of income Work permit/visa requirementsthat are generally subject to PIT are employment income An individual cannot start working in Croatia without having(encompassing benefits-in-kind) and other types of income both a work permit and a temporary residence permit.that they might earn in Croatia. Depending on the type of work that will be performed in Croatia, the individual may instead need to apply for aTax rates business permit and a temporary residence permit.As of July 1, 2010, the PIT legislation was amended andtaxable income of both residents and nonresidents is taxed at Certain categories of individuals coming to work in Croatiaprogressive rates of 12 percent, 25 percent, and 40 percent. could qualify to work for a limited number of days inCity surtax may also be applicable, and it is calculated on the Croatia without a work permit (up to 90 days for procurementamount of PIT payable, applying the relevant city surtax rate. specialists, key personnel, management board members,The highest city surtax rate is in Zagreb, at 18 percent. supervisory board members, etc.). Such individuals should obtain, in any case, a confirmation that they may work inSocial security Croatia without a work permit. If the 90-day limit is exceeded, generally, both a work permit/business permit and aLiability for social securityIf a business traveler comes from a country with which Croatia temporary resident permit should be obtained.has concluded a totalization agreement and the relevant Double taxation treatiesexemption forms are obtained to confirm the payment of Croatia has currently entered into double taxation treatiesobligatory insurance abroad, no Croatian obligatory social with more than 49 countries.security contributions are required. Otherwise, depending on the52 / THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS© 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swissentity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • Permanent establishment implications Nondeductible costs for assigneesA permanent establishment could be created as a result of Nonresidents can deduct only from gross income the basicextended business travel if the travel lasts for more than personal allowance (currently 1,800 Croatia Kuna (HRK) per3 months in any 12-month period, unless the traveler is month) and any obligatory health insurance contributionssubject to Croatian PIT. paid by the individual. Any other costs or expenses are nondeductible.Indirect taxesThe standard value-added tax (VAT) rate is 23 percent and Residents can deduct from gross income the basic personalapplies to most products and services. allowance (currently HRK1,800 per month), as well as additional personal allowances for dependent family members.A reduced VAT rate of 10 percent applies to: Additional deductions are available for all taxpayers for the• Tourist accommodation services and related agency fees following:• Newspapers and magazines issued on a daily and • Donations of up to 2 percent of their previous year’s periodical basis, with the exception of newspapers income as evidenced in the previous year’s annual PIT and magazines that consist mainly or entirely of return advertisements or whose main purpose is advertising. • As of July 1, 2010, payments made by employers toA VAT rate of 0 percent applies to bread, milk, educational Croatian voluntary pension funds (pillar III pensionliterature (specified), certain (specified) medical supplies, insurance) on behalf of employees up to a maximumscientific magazines, and film projection services, as well amount of HRK500 per month per employee.as to exports. If both spouses are tax residents and pay PIT, it is possibleTransfer pricing to share additional allowances for children and otherCroatia has a transfer pricing regime that applies to any dependents of the immediate family.transaction between a Croatian company and a foreign-related company, inclusive of any charges made to the Croatian domestic tax law indicates that foreign earnedCroatian company for business travelers. As of July 1, 2010, income, which is subject to PIT abroad, is also subject to PITthe transfer pricing provisions were extended to apply to in Croatia, but a tax credit for PIT paid abroad may be appliedtransactions undertaken between two domestic related to reduce PIT otherwise payable in Croatia; the amount of PITentities if one of them has a preferential tax position (e.g., credited may not exceed, however, the amount of Croatianentitlement to a reduced corporate profit tax rate, exemption PIT payable on that foreign income.from corporate profit tax, or tax losses available for utilization).Local data privacy requirementsCroatia has data privacy laws.Exchange controlThere are no limitations for foreign and domestic currencybrought into Croatia (for either residents or nonresidents).However, amounts in excess of EUR10,000 need to bereported to the Croatian Customs Authorities. The CroatianCustoms Authorities must report amounts in excess ofEUR10,000 to the Office for the Prevention of MoneyLaundering. THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS / 53 © 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • Czech RepublicIntroduction Contact Jana BartyzalovaPersonal income tax is imposed on the income of individuals. KPMG in the Czech RepublicThose who have a permanent residence in the territory of the Tax PartnerCzech Republic or who usually reside in the Czech Republic T: +420 222 123 437 E: janabartyzalova@kpmg.czare liable to pay tax on their worldwide income unless adouble taxation treaty stipulates otherwise. The aggregateincome is taxed at a flat rate of 15 percent. Employmentincome is taxed based on the “super gross” salary,discussed below.Key messagesExtended business travelers are likely to be taxed on employment income relating to their Czech workdays.Nonresidents are liable to pay tax on income generated from sources in the Czech Republic.54 / THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS© 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swissentity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • Income tax the effective tax rate is 20.1 percent until the cap for social security contributions is reached (see the section “Cap forLiability for income tax social security” that follows).A person’s liability to Czech income tax is determined by theindividual’s tax residence status. A person can be a resident,nonresident, or split resident for part of the year for Czech tax Social securitypurposes. Liability for social security Treaty countriesAn individual will be considered Czech resident for tax purposes if: Extended business travelers employed by an employer• The individual’s permanent residence (permanent abode) located in an EEA member state or Switzerland can remain, is in the Czech Republic in most cases, subject to their home country social security scheme. This exemption is based on the EEA/Swiss rules• The individual usually resides in the Czech Republic. with respect to posting and/or simultaneous employment.Individuals who usually reside in the Czech Republic are Other extended business travelers, in some cases, may stayunderstood to be persons who stay in the Czech Republic for in their home countries’ social security systems and obtainat least 183 days in a given calendar year, either continuously an exemption from paying Czech social security based onor intermittently. the provisions of social security totalization treaties signedThe general rule is that a person who is a tax resident of between their home countries and the Czech Republic.the Czech Republic is liable to declare and pay tax in the If no continued home country social security coverage andCzech Republic on the individual’s worldwide income, no subsequent exemption from social security contributionsthat is, employment income, income from self-employment, are available, an extended business traveler will be subject torental income, investment income and capital gains, and Czech social security.other taxable income from whatever source. Nontreaty countriesIndividuals who are Czech nonresidents for tax purposes are An employee who works in the Czech Republic forsubject to tax only on income from Czech sources. an employer with a registered office outside theTax trigger points Czech Republic is exempt from the social security scheme,The taxpayer must file an annual income tax return for provided that the employer’s registered office is in aall resident years. The taxpayer must also file an annual country that has not concluded a totalization agreement onincome tax return for the year in which the assignee leaves social security with the Czech Republic and provided thatthe Czech Republic, provided that in the year concerned, the employee is not considered an economic employee of athe taxpayer performed activities in the Czech Republic and is Czech entity.not protected by a double tax treaty. The tax return is to be filed On the other hand, if the individual is considered an economicwithin the statutory deadline(s) for filing. employee of a Czech entity, the employee is exempt fromIn the years following the year of expatriation, the assignee Czech social security for the first 270 days of work in thedoes not generally have any filing requirements provided that Czech Republic provided that the employee is subject to anthe assignee is treated as tax nonresident and has no Czech obligatory pension insurance scheme in the country of theirsource income. employer. Otherwise, the employee is subject to Czech social insurance from the first day of the employee’s work in theIf, however, the assignee receives Czech-sourced income Czech Republic.related to the individual’s prior work in the Czech Republic,the assignee may be liable to declare and pay tax in the Social security rateCzech Republic on a proportionate part of the income. The employer’s social security rate is 34 percent, consisting of 25 percent for the social insurance scheme and 9 percentTypes of taxable income for the health insurance scheme.For extended business travelers, the types of incomethat are generally taxed are employment income, The employee’s social security rate is 11 percent, consisting ofCzech-sourced income, and gains from taxable Czech 6.5 percent for the social insurance scheme and 4.5 percentassets (such as real estate). for the health insurance scheme.Tax rates Cap for social securityThe aggregate income is taxed at a flat rate of 15 percent. For social security payments, both the employee´s andIn the case of employment income, the rate is applied to a employer´s portions, the maximum assessment base is”super gross” salary. A ”super gross” salary is calculated set (1, 781,280 for 2011 Czech Republic Koruny (CZK)).as gross salary increased by 34 percent of the employer part Once the cap is reached, no more health and socialof the Czech obligatory social security and health insurance insurance contributions are due from either the employeecontributions (even in the case when the individual remains or employer during this year.insured abroad). As a consequence of this calculation, THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS / 55 © 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • Compliance obligations Permanent establishment implications There is the potential that a permanent establishmentEmployee compliance obligations could be created as a result of longer-term activities ofTax returns must be submitted by April 1 of the following year, extended business travelers, but this would be dependentor July 1 if the return is prepared and submitted by a certified on the type of services performed, the length of stay in thetax adviser. In the latter case, a power of attorney on behalf Czech Republic, the structure under which the extendedof the tax adviser must be lodged with the tax authority business travelers work in the Czech Republic, and the levelby April 1 in order to obtain the automatic extension of the of authority the employees have.deadline to July 1. Indirect taxesEmployer reporting and withholding requirements There are two types of indirect taxes: value-added tax (VAT),Withholdings from employment income are covered under charged on most supplies of goods and services, and excisethe Pay-As-You-Go system. The income of an individual paid duties, charged on supplies of specific goods such as fuels,by a Czech entity based on a local contract with a Czech beer, wine, spirits, and tobacco.entity or working in the Czech Republic under the economicemployer structure is subject to monthly wage tax Transfer pricingwithholdings. The withholdings are made by the employer or A transfer pricing implication could arise to the extent thateconomic employer through payroll deductions. the employee is being paid by an entity in one jurisdiction but performing services for the benefit of the entity in anotherIn other cases, there are no withholding requirements, jurisdiction, in other words, a cross-border benefit is beingand the tax is reflected fully through the personal income tax provided. This would also be dependent on the nature andreturn. complexity of the services performed.Other If the companies are regarded as related through equity/Work permit/visa requirements capital or as otherwise related persons, there may be aVisa requirements for short visits have been gradually transfer pricing issue as market prices should be used.removed. Most foreign nationals are no longer required to Local data privacy requirementsobtain a visa for the first 90 days, but travelers from certain The Czech Republic has data privacy laws.countries must still apply for a visa to enter the Czech Republic. Exchange controlEU nationals There are no extraordinary exchange controls placed onEU nationals are no longer required to obtain both a work individuals that restrict the transfer of money into or out ofpermit and a residence visa to work in the Czech Republic, the Czech Republic.regardless of whether they are employed by a local or foreigncompany. Nondeductible costs for assignees Generally, some benefits provided by the employer areNon-EU nationals regarded as nondeductible on the employer side, such asIf non-EU nationals intend to work in the Czech Republic, school fees or medical care provided in kind.they generally must obtain a work permit and a residencevisa, regardless of whether they are employed by a local orforeign company.Double taxation treatiesIn addition to Czech domestic arrangements that providerelief from international double taxation, the Czech Republichas also entered into double taxation treaties with morethan70 countries to prevent double taxation and allowcooperation between the Czech Republic and overseas taxauthorities in enforcing their respective tax laws.56 / THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS© 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swissentity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • DenmarkIntroduction Contact Pia KonnerupA person’s liability to Danish tax is primarily determined by KPMG in Denmarkresidence status or source of income. The Danish income Tax Partnertax system is a progressive tax system based on the person’s T: +45 3818 3303 E: piakonnerup@kpmg.dkworldwide income. Taxable income is technically divided intopersonal income, capital income, and share income. In addition,there are other special categories that are all taxed at differentrates. Deductions are allowed against taxable income accordingto specific domestic rules.Key messagesExtended business travelers are liable for Danish tax on income derived from employment relating to Danish workdays,meaning workdays where the taxpayer is physically present and performs work in Denmark for a Danish employer or aforeign employer’s permanent establishment in Denmark. There are also special rules that apply to international hiringout of labor and the potential “economic employer” concept. THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS / 57 © 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • Income tax Social securityLiability for income tax Liability for social securityAn individual’s liability for Danish tax is determined by As a general rule, a person is not liable for Danish social securityresidence status. contributions if the person is not liable for tax in Denmark. As a rule, a person liable for tax in Denmark must pay theA person can be either a tax-liable resident or a tax-liable Danish labor market contribution (Arbejdsmarkedsbidragnonresident. A tax-liable resident is generally a person who (AM)) of 8 percent of gross salary, including certain benefits-settles and establishes residency/accommodations/home in-kind. Contributions to employer-managed pension schemesin Denmark on a single or family basis. A stay in Denmark are also subject to 8 percent AM contribution, which isfor at least six consecutive months will also trigger tax-liable withheld by the pension provider. There is no cap on the laborresident status. Short stays abroad for leisure or holidays market contribution. It is not possible to be exempted fromwill not be considered as interruption of the six-month paying AM contribution even though a person is covered byperiod. A nonresident of Denmark normally has no residency the social security rules of the person’s home country,in Denmark or spends less than six consecutive months in as AM contribution is treated as income tax for theDenmark. A resident is liable for tax on worldwide income purposes of double tax treaty and domestic tax relief.unless the taxation of the income in question is attributed Healthcare is generally free in Denmark, but limitationsto another country under a double tax treaty. Nonresidents apply to medicine and dental treatment. Further, the personare liable for tax on income derived from certain sources in must pay mandatory Danish labor market supplementaryDenmark. pension (ATP) of 90 Danish krone (DKK) per month.Extended business travelers will, as a general rule, be The employer contribution is DKK180 per month.considered nonresidents for tax purposes provided thatthey are not residents of Denmark or stay for less than Compliance obligationssix consecutive months in Denmark. Employment income Employee compliance obligationsis generally treated as Danish-sourced employment As a general rule, the income tax year for a person is theincome if the person actually performs the services in calendar year. The tax return for a person who is liable for taxDenmark for a Danish employer or a foreign employer’s in Denmark is, as a general rule, due by May 1 following thepermanent establishment. tax year-end. However, in certain cases, such as when the tax return includes foreign income, the tax return is due by July 1Tax trigger points following the tax year-end.As a general rule, there is no threshold/minimum numberof days exempting a person from the requirements to file Employer reporting and withholding requirementsand pay tax in Denmark. Where a person qualifies for relief Employer reporting and withholding requirements dependunder the dependent personal services article of a tax treaty, on whether the employer is Danish or foreign, includingthere will be no tax liability provided that the person does whether a foreign employer has a permanent establishmentnot receive income derived from employment for work in Denmark. A Danish employer or a foreign employer withperformed in Denmark or income attributable to a permanent a permanent establishment in Denmark has an obligation toestablishment in Denmark. International hiring out of labor withhold taxes (A-taxes) from the employment income andtriggers taxation from day one. to withhold the labor market contribution.Types of taxable incomeThe types of taxable income subject to tax in Denmark for Other issuesextended business travelers are, in general, salary income Work permit/visa requirementsand other income derived from employment, including According to the EU rules on free movement of persons andbenefits, income from Danish sources, fees, etc. services, EU citizens and EEA/Swiss nationals may stay in Denmark for up to three months, and for up to six months ifTax rates they are looking for employment. Persons who want to stayThe tax ceiling for taxable employment income is in Denmark for a longer period must apply for a registration55.38 percent in 2011. Taxable employment income is taxed at certificate. Citizens from outside the EU/EEA or Switzerlandprogressive tax rates ranging from approximately 42.3 percent must apply for a work permit. Citizens of some countriesto 55.38 percent. These rates are inclusive of mandatory labor must also apply for a visa before coming to Denmark.market contribution; further information follows.58 / THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS© 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swissentity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • Double taxation treaties Local data privacy requirementsIn addition to Danish domestic rules providing relief from Denmark has data privacy laws.international double taxation, Denmark has double tax Exchange controltreaties with more than 80 countries. Denmark does not restrict the flow of Danish or foreignPermanent establishment implications currency in or out of the country, but there are certainThere is a potential risk that extensive business travel would reporting obligations in order to prevent money launderingcreate a permanent establishment. This would depend, and the financing of terrorism. New legislation requireshowever, on a case-by-case analysis, the type of service financial institutions and other cash dealers, includingperformed, the level of authority the person has, etc. attorneys performing certain transactions, to report any suspicion of transactions related to money laundering andIndirect taxes financing of terrorism; there is no minimum amount in thisValue added tax (VAT) of 25 percent is levied on taxable regard. It could be, for example, complex or unusually largesupplies. VAT registration may be required in some transactions or transaction patterns.circumstances. Nondeductible costs for assigneesTransfer pricing There are also special rules covering limited or extendedAccording to Danish transfer pricing regulations, deductions for short-term and long-term assignees, alsodocumentation demonstrating that transactions between depending on treaty residency status.related parties follow the arm’s-length principle must beprepared. A transfer pricing event could arise to the extentthat an employee is paid by a party in one jurisdiction butperforms services for the benefit of a related party in anotherjurisdiction without the first party receiving a price equivalentto the value of services performed. This however, should beassessed case by case based on the nature, scope, andcomplexity of the related transactions carried out. THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS / 59 © 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • Dominican RepublicIntroduction Contact José N. CardonaAn expatriate’s liability for Dominican Republican tax is KPMG in the Dominican Republicgenerally determined by the territoriality principle during Tax Partnerthe first three years of residency. Income tax is levied at T: +80 95 66 9161 E: jcardona@kpmg.comprogressive rates on an individual’s taxable income for the year,which is calculated by subtracting allowable deductions fromthe total assessable income.Key messagesExtended business travelers are presumed to have established a permanent establishment or domicile in theDominican Republic if they spend the equivalent of 6 or more months within a 12-month period working in the country.If a permanent establishment or domicile is established, income earned is presumed to be from a Dominican source andshould be declared and taxed in the Dominican Republic.60 / THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS© 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swissentity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • Income tax The cost of the labor risks insurance (workers’ compensation) shall be covered 100 percent by employers. The contributiveLiability for income tax plan contains the following:The Dominican Republic tax system is based on theterritoriality principle, whereby all income derived within a) Old age, disability, and survival insuranceDominican sources is subject to income tax. Certain Contributions are based on 9.97 percent of the taxable salaryexceptions apply. as follows:A resident of the Dominican Republic generally refers to an Distributionindividual who remains in the country for more than 182 days Employee 2.87 percentin a fiscal year (continuously or not). Foreigners becomesubject to taxation in the Dominican Republic on financial Employer 7 percent .10and investment income from sources outside theDominican Republic after the third taxable year in which they b) Family health insuranceare deemed to be a resident. The family health insurance portion of the contributive plan isDefinition of source based on a simple distribution financial scheme based on aEmployment income is generally treated as Dominican total contribution equal to 10.13 percent of taxable salary asRepublic–sourced compensation without considering follows:where the individual performs the work. The same applies Distributionto the rendering of services to Dominican enterprises andindividuals. Employee 3.04 percent Employer 7 percent .09Types of taxable incomeFor extended business travelers, the types of income that Source: KPMG in the Dominican Republic, June 2010are generally taxed are employment income and DominicanRepublic–sourced income that arises from capital, goods, c) Labor risks insuranceor rights located, placed, or economically used in the The contributions to the labor risks insurance will varyDominican Republic, as established in the Dominican Tax depending upon the category of the risk. The categories are:Code (DTC) article 272 literal (a). Category Percentage of the contributable salaryTax rates I 1.10 percentFor 2010, net taxable income is taxed at graduatedrates ranging from 0 to 25 percent. The maximum tax II 1.15 percentrate is currently 25 percent on income earned over III 1.20 percent773,173 Dominican pesos (DOP) (USD20,620) in the case of IV 1.30 percentboth residents and nonresidents. Source: KPMG in the Dominican Republic, June 2010Social securityLiability for social security It is important to note that, according to article 307 those ,The Dominican Republic has a comprehensive social security employees who have a sole source of income derived fromscheme to which both individuals and employers contribute. employment are not required to complete an income taxEmployee and employer contribution rates depend upon the return. However, if an income tax form is filed for the first timebenefit covered and are often capped at a maximum rate of in a given year, then the taxpayer is required to file a tax form20 times the minimum wage. every year.Compliance obligations OtherEmployee compliance obligations Work permit/visa requirementsIndividuals are taxed on a calendar year basis. Tax returns A visa must be applied for before the individual entersare due by March 31 following the tax year-end, which is the Dominican Republic. The type of visa required willDecember 31. depend on the purpose of the individual’s entry into the Dominican Republic. United States citizens need a validEmployer reporting and withholding requirements passport and a tourist card (valid for a maximum of 60 days)The Dominican social security system provides, as an to enter Dominican Republic territory, and in this case, no visaobligation to employers, the contribution of 70 percent of is required.the cost of the contributive plan to fund old age, disability,and survival insurance and the family health insurance,while employees shall contribute the remaining 30 percent. THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS / 61 © 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • Double taxation treaties Transfer pricingIn addition to the Dominican Republic’s domestic The Dominican Republic has a transfer pricing regimearrangements that provide relief from international double that was implemented in 2007 based upon arm’s-lengthtaxation, the Dominican Republic has entered into a principles. A transfer pricing implication could arise todouble taxation treaty with Canada to prevent double taxation the extent that the employee is being paid by an entity inand allow cooperation between the two countries. one jurisdiction but performing services for the benefit of the entity in another jurisdiction, in other words, a cross-borderPermanent establishment implications benefit is being provided. This would also be dependent onThere is the potential that a permanent establishment could the nature and complexity of the services performed.be created as a result of extended business travel, but thiswould depend on the type of services performed and the Local data privacy requirementslevel of authority the employee has. The Dominican Republic does not have comprehensive data privacy laws. Various protections, however, are afforded theIndirect taxes individual pursuant to the 2009 constitution and various otherThe standard value-added tax (VAT) rate is 16 percent, laws, decrees, and resolutions.which is applied to the supply of goods and services withinthe Dominican Republic and upon the import of goods. Exchange controlMonthly filings are required. Registration is required and The Dominican Republic does not restrict the flow ofis performed simultaneously with the registration of the Dominican Republican or foreign currency into or out of theapplicable taxpayer. A selective consumption tax (based on country.value) is applicable to alcoholic beverages, beer, and tobacco Nondeductible costs for assigneesproducts. Percentages may vary. In addition, custom duties Nondeductible costs for assignees include contributions byapply to certain imported goods and luxury items not covered an employer to non-Dominican Republican pension funds.by DR-CAFTA (Dominican Republic – Central America FreeTrade Agreement with the United States).62 / THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS© 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swissentity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • EgyptIntroduction Contact Maged ElmenyawiIndividuals are residents of Egypt for tax purposes if they meet KPMG in Egyptany of the following conditions: Tax Partner T: +20 (2) 3536 2211• Egypt is their place of habitual abode E: melmenyawi@kpmg.com• ndividuals are resident in Egypt for a period more than I 183 days, whether continuously or non-continuously, in a 12-month period• Egyptians who perform their services overseas and receive their income from an Egyptian payroll (public or private)Key messagesThere is no threshold/minimum number of days that exempts the employee from the requirements to file and paytax in Egypt. To the extent that the individual qualifies for relief in terms of the dependent personal services article ofan applicable double tax treaty, there will be no tax liability. The treaty exemption will not apply if the Egyptian entityis the individual’s economic employer. THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS / 63 © 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • Introduction (continued) Income taxBased on the previously stated conditions, Liability for income tax A person’s liability for Egyptian tax is determined byresident employees will be taxed on their residence status.total compensation derived as a result of an A person can be a resident or a nonresident for Egyptian taxemployment relationship, whether paid from purposes. A resident of Egypt is an individual who meetsEgypt or from outside Egypt. Additionally, they will the residency rules set out above. If the residency rules are not met, the employee will not be resident for tax purposesbe taxed at the normal tax rates as follows: in Egypt and will be taxed at 10 percent on total Egyptian- sourced income without any deductions.•  ll taxpayers are entitled to 5,000 Egyptian A pounds (EGP) zero-rated tax. Tax trigger points There is no threshold/minimum number of days that exempts• Ten percent is applicable to taxable income the employee from the requirements to file and pay tax in between EGP5,001 and 20,000. Egypt. To the extent that the individual qualifies for relief in terms of the dependent personal services article of an• Fifteen percent is applicable to taxable income applicable double tax treaty, there will be no tax liability. between EGP20,001 and EGP40,000. The treaty exemption will not apply if the Egyptian entity is the individual’s economic employer.• Twenty percent is applicable to taxable income Types of taxable income in excess of EGP40,000. Total compensation, including allowances as well as all fringe benefits, will be subject to tax in Egypt. Foreign-sourcedNonresident employees will be subject to tax on income that is not related to the employment relationship isEgyptian-sourced income at the 10 percent tax not subject to tax in Egypt.rate without any deductions. Tax rates • All taxpayers are entitled to EGP5,000 zero-rated tax.• ncome is considered Egyptian source in the I • Ten percent is applicable to taxable income between following cases: EGP5,001 and EGP20,000. –  ncome for services performed within Egypt, I • Fifteen percent is applicable to taxable income between EGP20,001 and EGP40,000. including income from salaries and wages. • Twenty percent is applicable to taxable income in excess of –  ncome paid by an Egyptian-resident I EGP40,000. employer, even if the service is performed outside Egypt. Social security Liability for social security –  ncome generated from an Egyptian I Social Insurance Law 79 of 1975 covers Egyptian employees permanent establishment. as well as foreign employees whose countries have treaties with Egypt for reciprocal social insurance treatment. –  ncome from other business activities I Employers are required to withhold the employees’ social performed inside Egypt. insurance contributions from their salaries and to remit them together with the employer’s contributions to the SocialIt is the employer’s responsibility to withhold Insurance Organization on a monthly basis. The salariesand remit the tax to the tax authority on a and related benefits or emoluments are divided, formonthly basis within 15 days following the social insurance purposes, into a basic salary and variable elements. The maximum insured sum of the basic salarymonth of payment. is at present EGP850 per month (approximately USD144), and the maximum insured sum of the variable elementsIncome tax is levied at progressive rates on an is at present EGP900 per month (approximately USD153).individual’s taxable income for the year, which is Variable elements include the remainder of the basic salarycalculated by subtracting allowable deductions if it is in excess of EGP850 per month as well as overtime payments, bonuses, representation allowances, andfrom the total assessable income. similar emoluments.64 / THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS© 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swissentity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • Expatriates are not required to pay social insurance. Instead, Indirect taxesemployers are required to pay 3 percent of the expatriate’s General sales tax (GST) is applied at 10 percent.salary to cover work injuries. Expatriates are required to GST registration is required.pay social insurance only if required under the terms of a Transfer pricingtotalization agreement concluded between Egypt and the Egypt has a transfer pricing regime.employee’s home country. • The tax authority can adjust transactions between relatedCompliance obligations parties if they involve conditions that would not be includedEmployee compliance obligations in transactions between nonrelated parties.It is the employer’s responsibility to file a quarterly tax • This also will apply in the case of transactions whosereturn within one month following the end of each quarter. purpose is to shift the tax burden to tax-exempt entities.Employees are required to file tax returns only if they haveincome other than employment income in Egypt or the • The transfer pricing guideline was issued by the Ministry ofemployer has no legal presence or permanent establishment Finance at the end of 2010.in Egypt. A transfer pricing implication could arise to the extent thatEmployer reporting and withholding requirements the employee is being paid by an entity in one jurisdiction butIt is the employer’s responsibility to withhold and remit the performing services for the benefit of the entity in anothertax to the tax authority within 15 days following the month of jurisdiction, in other words, a cross-border benefit is beingpayment. Employees are required to report their income to provided. This would also be dependent on the nature andthe tax authority and remit the tax due on their income only complexity of the services performed.if they have income other than employment income in Local data privacy requirementsEgypt or the employer has no legal presence or permanent Egypt has data privacy laws.establishment in Egypt. Exchange controlOther There are no exchange control restrictions in Egypt.Work permit/visa requirements All transactions should be made through one of the country’sA visa must be applied for before the individual enters Egypt. accredited banks.The type of visa required will depend on the purpose of the Nondeductible costs for assigneesindividual’s entry into Egypt. Additionally, employees are Nondeductible costs for assignees include contributionsrequired to obtain work permits in order to start working in by an employer to non-Egyptian pension funds andEgypt per the requirements of the labor law. hypothetical tax.Double taxation treatiesEgypt has entered into double taxation treaties with morethan 45 countries.Permanent establishment implicationsThere is the potential that a permanent establishment couldbe created as a result of extended business travel, but thiswould be dependent on the level of authority the employeehas and other factors. THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS / 65 © 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • Fiji Introduction Contact Lisa Apted Residents are taxed on worldwide income, whereas nonresidents KPMG in Fiji and temporary residents are generally taxed on Fiji-sourced Tax Partner income only. T: +679 3301 155 E: lapted@kpmg.com.fj A person’s liability for Fiji tax is determined by residence status for taxation purposes and the source of income derived by the individual.Key messagesBusiness travelers are likely to be taxed on Fiji-sourced employment income subject to the relief provisions of theapplicable double tax treaty. 66 / THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS © 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • Income tax Compliance obligationsLiability for income tax Tax returns are due on March 31. If the tax return is lodgedA person’s liability for Fiji tax is determined by residence under the Tax Agents Lodgement Program, then an extensionstatus. A person can be a resident or a nonresident for of time, up to a maximum of six months, is generally granted.Fiji tax purposes. A resident of Fiji generally refers to an Employee compliance obligationsindividual who enters Fiji with the intention of remaining for Tax returns are due by March 31 following the tax year-end,more than six months (or who actually spends more than which is December 31. Where a tax agent is used, an extensionsix months in Fiji during an income year). A nonresident of of time is generally granted. Tax returns are required to beFiji is generally someone who spends less than six months filed by nonresidents who derive any Fiji-sourced incomein Fiji. The general rule is that a person who is a resident of (other than Fiji dividends, interest income, or royalties,Fiji is assessable on worldwide income. Nonresidents are which are subject to final withholding tax).generally assessable on income derived from sources in Fiji. Employer compliance and withholding requirementsDefinition of source Withholdings from employment income are covered underEmployment income is generally treated as Fiji-sourced the Pay-As-You-Earn (PAYE) system. If an individual is taxablecompensation where the individual performs the services on employment income, the employer has a PAYE withholdingwhile physically located in Fiji. requirement.Tax trigger pointsTechnically, there is no threshold/minimum number of days Otherthat exempts the employee from the requirements to file Work permit/visa requirementsand pay tax in Fiji. To the extent that the individual qualifies for Fourteen-day business visas are available. A visa must berelief in terms of the dependent personal services article of applied for before the individual enters Fiji. The type of visathe applicable double tax treaty, there will be no tax liability. required will depend on the purpose of the individual’s entryThe treaty exemption will not apply if the Fiji entity is the into Fiji. A 14-day business visa is generally granted uponindividual’s economic employer. entering Fiji to carry out very short-term consultancy type work. A short-term work permit (ranging from three toTypes of taxable income six months) and long-term work permit (ranging fromFor business travelers, the types of income that are generally one to three years) also are available subject to complying withtaxed are employment income, Fiji-sourced income, and certain requirements.gains from taxable Fiji assets (such as real estate). Double taxation treatiesTax rates In addition to Fiji’s domestic arrangements that provideNet taxable income is taxed at graduated rates ranging from relief from international double taxation, Fiji has entered25 percent to 31 percent. Nonresidents are subject to tax into double taxation treaties with eight countries,at graduated rates ranging from 20 percent to 31 percent. including Australia, Japan, Korea, the United Kingdom,The maximum tax rate is currently 31 percent on income and Singapore, to prevent double taxation and allowearned over 15,600 Fiji dollars (FJD) in the case of residents cooperation between Fiji and overseas tax authorities inand FJD20,000 for nonresidents. enforcing their respective tax laws.Social security Permanent establishment implicationsLiability for social security There is the potential that a permanent establishment couldSuperannuation is a mechanism requiring individuals to save be created as a result of extended business travel, but thismoney for retirement. It prescribes that employers make would be dependent on the type of services performed anda contribution of 8 percent of earnings into the Fiji National the level of authority the employee has.Provident Fund (FNPF) with a similar contribution by theemployee. Nonresidents are not obliged to contribute tothe FNPF; however, if they wish to contribute, then they mustapply to the FNPF to become a member within three monthsof commencing employment in Fiji. THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS / 67 © 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • Indirect taxes Exchange controlValue-added tax (VAT) is applicable at 15 percent on Exchange control approval is required for the repatriation oftaxable supplies. funds out of Fiji. However, if the funds are deposited in the employee’s external bank account, exchange control approvalTransfer pricing is not required.The Fiji tax authorities are developing a transfer pricingregime. A transfer pricing implication could arise to the extent Nondeductible costs for assigneesthat the employee is being paid by an entity in one jurisdiction Nondeductible costs for assignees include contributions bybut performing services for the benefit of the entity in an employer to nonapproved pension/superannuation funds.another jurisdiction, in other words, a cross-border benefit is Capital gains taxbeing provided. This would also be dependent on the nature Fiji is going to introduce a capital gains tax. Legislationand complexity of the services performed. has been drafted, and the government is currently holdingLocal data privacy requirements discussions with the stakeholders.Fiji does not have data privacy laws.68 / THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS© 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swissentity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • FinlandIntroduction Contact Antti EerolaA person’s liability to Finnish tax is determined by residence KPMG in Finlandstatus for tax purposes and the source of income derived by Tax Partnerthe individual. Income tax is levied at progressive rates on an T: +358 20760 3391 E: antti.eerola@kpmg.fiindividual’s taxable income for the year, which is calculated bysubtracting allowable deductions from the total assessableincome. Nonresidents pay a flat rate of tax at the source.Key messagesDepending on tax treaty provisions, payroll setup, and the length of stay, extended business travelers may becometaxable on employment income relating to their Finnish workdays. THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS / 69 © 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • Income tax For nonresidents, a flat 35 percent tax rate is used. There isLiability for income tax also a flat basic deduction applicable for nonresidents if thisA person’s liability for Finnish tax is determined by residence is mentioned in the tax card.status. A person can be a resident or a nonresident forFinnish tax purposes. An individual is treated as a resident Social securityif the individual has a permanent home or habitual abode Liability for social securityin Finland or otherwise has stayed in the country for a According to the general rule, all social security premiumscontinuous period of at least six months. It should be noted must be paid when an individual is working in Finland,that the stay in Finland might be regarded as continuous in regardless of the length of the working period.spite of a temporary absence from the country. Exemption from social security contributions can be grantedA nonresident for tax purposes in Finland is generally for individuals seconded to Finland under the EU/EEA Socialsomeone who spends less than six months in Finland Security Regulation or an applicable totalization agreement.and does not have a permanent home in Finland. Employees coming from countries other than EU/EEA orThe general rule is that a person who is a resident of Finland countries with which Finland has a totalization agreement areis assessable on worldwide income. Nonresidents are generally fully subject to social security payments in Finland.generally assessable on income derived directly or indirectly An exemption from obligatory pension insurance may applyfrom sources in Finland. Extended business travelers under certain circumstances. Exemption may be granted forare likely to be considered nonresident of Finland for tax up to a maximum of five years.purposes unless they enter Finland with the intention toremain in Finland for more than six months. Compliance obligations Employee compliance obligationsEmployment income is generally treated as Finnish-sourced Tax returns are normally due May 10 or May 17 following the taxcompensation where the individual performs the services for year (which is also the calendar year). The date will be printed ona Finnish employer while physically located in Finland. the precompleted tax return form. If a taxpayer has not receivedTax trigger points a precompleted tax return form, the taxpayer has to file a taxTechnically, there is no threshold/minimum number of days return by May 17 .that exempts the employee from the requirements to file and Employer reporting and withholding requirementspay tax in Finland. To the extent that the individual qualifies If salary or fringe benefits are paid by the Finnish entityfor relief under the dependent personal services article of (company or PE), the local employer has withholding andan applicable double tax treaty, there will be no tax liability. reporting obligations. Withholding is based on a tax card.The economic employer approach is not adapted or legislated Taxation for residents is based on the progressivein Finland, but it should be noted that there is a risk that the tax card. There is a tax at source card issued forapproach may still be used. The tax authority has not provided nonresidents. Tax cards can be obtained from the tax office.any written guidelines in this respect. A non-Finnish entity (foreign employer) generally only has aTypes of taxable income reporting obligation to file an annual notification report if theNormally during short-term assignments (lasting less than assignee remains in Finland for over six months.six months in total), only employment income for workprimarily performed for a Finnish employer or only in Finland(with remuneration paid in cash or in the form of fringe benefits) Otherwill be taxed in Finland. Work permit/visa requirements Employees outside the EU/EEA generally need a work permitThe employment income related to a short-term assignment in order to work in Finland. A specific permit is applicable formay be tax exempt on the basis of the relevant tax treaty. experts, managers, and sportsmen, for example. An entryIn some cases, the housing and other travel costs to and from visa is needed for those who are not EU/EEA nationals or notFinland can be compensated without tax liability, such as part of the visa waiver program. The visa needs to be appliedassignments lasting for a period of less than two years where for prior to entry into Finland.the assignee maintains valid employment in the home country. Certain local registrations are also needed after entry intoIn this case, a daily tax-exempt allowance may also be paid. Finland for those that are nationals of the EU/EEA.Tax ratesFinland levies progressive tax rates up to 46.25–51.5 percent(depending on the municipality) for residents. In addition,the local communities of the Evangelical-Lutheran andOrthodox Churches levy church tax. Church tax is imposed atflat rates between 1 and 2 percent.70 / THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS© 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swissentity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • Double taxation treaties Local data privacy requirementsIn addition to Finland’s domestic arrangements that provide Finland has data privacy laws.relief from international double taxation, Finland has entered Exchange controlinto double taxation treaties with more than 50 countries Exchange control has been practically abolished in Finland.to prevent double taxation and allow cooperation between Only the most significant foreign transactions of financialFinland and overseas tax authorities in enforcing their institutions are subject to authorization.respective tax laws. Certain reporting requirements apply to payments to or fromPermanent establishment implications a foreign country. If such a payment is effected through anThere is the potential that a permanent establishment could authorized bank, the bank will supply the required informationbe created as a result of extended business travel, but this to the Bank of Finland. If some other method of payment iswould be dependent on the type of services performed and used, the resident party making the foreign transaction mustthe level of authority the employee has. provide the Bank of Finland with details of information aboutIndirect taxes the transaction.Value-added tax (VAT) is applicable at between 9 and 23 percent Nondeductible costs for assigneesfor taxable supplies. Nondeductible costs for assignees include, for example,VAT registration may be required in some circumstances. clothing, children’s school fees, meals, and other costs considered as normal living costs. In some cases,Transfer pricing assignees’ living costs that are higher than normal livingThe Finnish transfer pricing regime is broadly based on the costs may be deductible.OECD guidelines.A transfer pricing implication could arise to the extent thatthe employee is being paid by an entity in one jurisdiction butperforming services for the benefit of the entity in anotherjurisdiction, in other words, a cross-border benefit is beingprovided. The Finnish transfer pricing regulations require thatthe entity benefiting from the services performed also bearsthe costs of the employee performing the services. THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS / 71 © 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • FranceIntroduction Contact Didier HoffIncome tax in France is assessed on a family/household basis. FIDAL Direction Internationale*Income tax liability is determined by applying progressive tax Partnerrates to the net taxable income of the household in conjunction T: +33 1 55681540 E: dhoff@fidalinternational.comwith a quotient based on family size. The determination of nettaxable income depends on the residency status of the personand the person’s household, and is generally achieved by takinggross taxable income less certain allowable deductions (includingmandatory social security contributions).Key messagesExtended business travelers may be subject to French tax on their salary earned for French workdays.* Fidal is an independent legal entity that is separate from KPMG International and KPMG member firms.72 / THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS© 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swissentity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • Income tax Types of taxable incomeLiability for income tax As nonresidents, extended business travelers will usually beIndividuals’ liability for French income tax will depend on subject to French tax on salary and benefits-in-kind earned intheir French tax residence status. French tax residents are relation to their French workdays, as well as income from anysubject to tax on their worldwide income, whereas French French-sourced investments or capital gains.tax nonresidents are subject to tax on their French-sourced Tax ratesincome only. A person is deemed a resident of France by The net taxable salary income of nonresidents is taxedfulfilling any of the following criteria. initially via withholding at the source at progressive rates of• The individual maintains a permanent household in France. 0, 12, and 20 percent. Ordinary progressive tax rates up to 41 percent may also apply where taxable income reaches• The individual’s main place of abode is in France. certain thresholds. Any additional liability would be assessed• Most of the individual business activities are performed via an annual income tax return. Where the beneficiary is a in France. nonresident, a specific withholding on the French-sourced portion of gains of stock options and restricted stock units• The center of the individual’s economic interests is in has been introduced as of April 1, 2011. France.Most extended business travelers will be considered Social securitynonresidents for French tax purposes and subject to tax on Liability for social securitytheir French-sourced income only if they remain residents in The French social security system is a complex architecturetheir home country. The salary earned in relation to workdays of various statutory and nonstatutory schemes, which mayspent physically in France will usually be considered French- differ for each employer and industry type. The rate ofsourced and therefore subject to French income tax, unless it employee contributions can be as much as 23 percent andis exempt under the provisions of a double tax agreement 45 percent for employers. Some contributions are capped;(income tax treaty with another country). others are not.Some business travelers may become French tax residents Extended business travelers employed by an entity located inif their family moves to France with them and they do not an EEA member state or Switzerland, in most cases, can bemaintain a home outside France. Such employees will be exempt from French contributions and remain subject to theirsubject to French tax on their worldwide income. Employees home country social security scheme.who arrive in France and become French tax residents for the Business travelers arriving from a country outside the EEAfirst time (or have been nonresident for at least five years) or Switzerland that does not have an agreement with Francemay have access to tax concessions designed to decrease on social security will generally be subject to French socialthe tax burden on temporary resident workers. security contributions.Income tax is generally payable in the year after theincome is earned, with payments potentially due in Compliance obligationsFebruary, May, and September. However, where an Employee compliance obligationsindividual is a French tax nonresident, income tax must be French tax returns for resident taxpayers must be filed bywithheld at the source on their French-sourced income and the legal deadline of March 1 following the year of income.remitted to the authorities. However, in the past few years, the French tax authorities have extended this deadline to the end of May. TaxpayersTax trigger points who are residents of European countries and MediterraneanThere is no minimum threshold number of days worked countries (including North Africa) file by June 30, and all otherin France before taxation may be applied. However, the nonresidents file by July 15.provisions of an international tax treaty may provide for anexemption from tax in France on salary income, provided Employer reporting and withholding requirementsthe employee respects the threshold number of days spent Where remuneration is paid to a nonresident taxpayer foroutside of France during the relevant period as required by services rendered in France, the employer is required to filethe particular treaty. Currently, the French tax authorities do monthly returns and withhold nonresident tax. Additional taxnot actively enforce an economic employer approach to the may be due via the tax return.reading of treaties. Thus, if there is no recharge of salary costs Where no exemption is applicable, employers are required toto the French entity, it may currently be possible to apply the withhold employee social security contributions on a monthlytreaty exemption. This position should be closely monitored, basis and remit them, along with employer contributions,as commentary on the subject is expected in the future. to the relevant authority for each scheme. THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS / 73 © 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • Foreign employers who do not have a fixed place of business Indirect taxesin France are required to register with the authorities and France has value-added tax (VAT). will be subject to the same rules and regulations as for Transfer pricingFrench-based employers. France has a transfer pricing regime. A transfer pricing implication could arise to the extent that the employee isOther being paid by an entity in one jurisdiction but performingWork permit/visa requirements services for the benefit of the entity in another jurisdiction,A visa must generally be applied for before the individual in other words, a cross-border benefit is being provided.enters France. The type of visa required will depend on the This would also be dependent on the nature and complexitypurpose of the individual’s entry into France. of the services performed.Double taxation treaties Local data privacy requirementsFrance has entered into a number of double taxation France has data privacy laws.treaties with other countries to prevent double taxationand allow cooperation between France and overseas tax Exchange controlauthorities in enforcing their respective tax laws. As a France does not restrict the flow of currency into and outgeneral principle, the provisions of double tax treaties will of France. There is, however, a requirement for French taxoverride domestic rules. residents to report their foreign bank accounts.Permanent establishment implications Nondeductible costs for assigneesThere is the potential that a permanent establishment could Nondeductible costs for assignees include contributionsbe created as a result of extended business travel, but this to nonmandatory social security regimes and to foreignwould be dependent on the type of services performed and pension plans.the level of authority the employee has.74 / THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS© 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swissentity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • GermanyIntroduction Contact Frank SeidelA person’s liability to German individual income tax is KPMG in Germanydetermined by residence status for taxation purposes and Partnerthe source of income derived by the individual. Income tax is T: +49 30 2068-4585 E: fseidel@kpmg.comlevied at progressive rates on an individual’s taxable incomefor the calendar year. It is calculated by subtracting allowabledeductions from the total assessable income.Key messagesIt is essential that transfer pricing rules be observed, which means that appropriate cost sharing between the homeand the host country should be agreed and properly documented.Extended business travelers are likely to be taxed on employment income relating to their German workdays.In this respect, withholding obligations may arise for the host company. It should be noted that the tax withholding fornonresident employees follows special rules, which differ from those for resident employees. It is important thatthe home and host country establish a reporting system that allows them to exchange all the relevant informationin a timely manner.Individuals working in Germany are subject to German social security regulations unless exempted under theapplicable EEC Regulation, a totalization agreement, or domestic laws. The home and the host company shouldcarefully review whether there is a social security withholding obligation for inbound business travelers or, ifan exemption applies, whether a certificate of coverage has been obtained.Germany applies a strict regime of immigration laws for non-EU citizens.A review of the immigration status of your business travelers well in advance of the business trip orassignment is strongly recommended. THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS / 75 © 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • Income tax Social securityLiability for income tax Liability for social securityA person’s liability to German individual income tax is Employees working in Germany are generally subject todetermined by residence status. A person can be a resident German social security payments. Extended businessor a nonresident for German tax purposes. A resident travelers from other EU or EEC member states or Switzerlandof Germany generally refers to an individual who has a will typically be exempted from contributing to the Germandomicile in Germany or spends more than six consecutive social security system under the applicable EEC regulation.months in Germany (habitual place of abode). A domicile is Extended business travelers from other countries may bea home or dwelling owned by or rented to the taxpayer who exempted under a totalization agreement or under Germany’shas full control over the property. Domicile is determined by domestic laws.fact, not by the intention of the taxpayer. Contributions to pension insurance and unemploymentA nonresident of Germany is generally someone who insurance, as well as health insurance and long-term nursingspends less than six consecutive months in Germany. care insurance, are capped for both the employer and theThe general rule is that a person who is a resident of employee.Germany is assessable on the individual’s worldwide income.Nonresidents are generally assessable on income derived Compliance obligationsfrom German sources. Extended business travelers are likely Employee compliance obligationsto be considered nonresidents of Germany for tax purposes Tax returns are due by May 31 following the tax year-end,unless they stay in Germany for more than six months in a which is December 31. Where a tax agent is used, there is anrow (brief interruptions such as home trips over the weekend automatic extension until December 31. Nonresidents whoor vacations are disregarded). derive German-sourced employment income and no otherDefinition of source income from German sources are required to file an incomeEmployment income is generally treated as German-sourced tax return only if the employment income was not subjectcompensation where the individual performs the services to German wage tax withholdings. If the host company iswhile physically present in Germany. Additionally, specific obliged to withhold German wage tax on a nonresident’srules apply for salary received as a board member, wages, the nonresident taxpayer generally cannot file amanaging director, or other authorized representative German income tax return. As a consequence, the German(Prokurist) of a German company. Double tax treaty wage tax withholding needs to be accurate and precise.provisions may prevent Germany from taxing employment Employer reporting and withholding requirementsincome if certain conditions are met. If an individual is taxable on employment income, the GermanTax trigger points employer has a withholding requirement. A company thatTechnically, there is no threshold/minimum number of days economically bears an individual’s wages is also deemed tothat exempts the employee from the requirements to file and be a German employer even if no employment contract existspay tax in Germany. To the extent that the individual qualifies between the German company and the individual. (This is thefor relief in terms of the dependent personal services economic employer concept.)article of an applicable double tax treaty, there will be no tax A permanent establishment of a foreign employer inliability. In some cases, treaty relief can be obtained only by Germany is also obliged to withhold German wage tax. It issubmitting a formal application to the German tax authorities. important to note that a permanent establishment as definedThe treaty exemption will not apply if the German entity is by German domestic law is sufficient to trigger a withholdingthe individual’s economic employer or if the salary is paid obligation. It does not necessarily have to qualify as aby a direct branch of a foreign employer who has created a permanent establishment under an applicable tax treaty.permanent establishment for treaty purposes in Germany.Types of taxable income OtherFor extended business travelers, the types of income that are Work permit/visa requirementsgenerally taxed are employment income and German-sourced Where a visa is required, it must be applied for before theincome and gains from taxable German assets (such as real individual enters Germany. The type of visa required willestate located in Germany); fringe benefits (broadly non-cash depend on the individual’s country of origin and the purposeemployment income also fall into this category). of the individual’s entry into Germany. Simplified rules exist for business travelers from EU member states and certainTax rates other countries in the Western world.Taxable income is taxed at graduated income tax rates rangingfrom 14 percent to 45 percent. In addition to income tax, There is a certain risk that an agreement between thea solidarity surcharge amounting to 5.5 percent of the assessed home and host company might be classified as a staff loanincome tax is charged. If the taxpayer is a member of a church agreement if certain conditions are met, which can potentiallythat is recognized for tax purposes, church tax at 8 or 9 percent of lead to a violation of German labor and civil laws.the income tax is levied. Nonresident employees are also subjectto income tax at graduated rates as well as a solidarity surcharge.Nonresidents are not subject to church tax.76 / THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS© 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swissentity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • Double taxation treaties in other words, a cross-border benefit is being provided.In addition to Germany’s domestic arrangements that provide This would also be dependent on the nature and complexity ofrelief from international double taxation, Germany has entered the services performed. There is a legal requirement to haveinto double tax treaties with approximately 80 countries to comprehensive documentation on cross-border activitiesprevent double taxation and allow cooperation between (cost and benefit analysis) at hand for a future tax audit.Germany and other tax authorities in enforcing their respective Local data privacy requirementstax laws. Germany has data privacy laws.Permanent establishment implications Exchange controlThere is the potential that a permanent establishment could Germany does not restrict the flow of German or foreignbe created as a result of extended business travel, but this currency into or out of the country. Certain reportingwould be dependent on the type of services performed, obligations are imposed, however, to control tax evasion andthe duration, and the level of authority the employee has. money laundering.The definition of a permanent establishment under Nondeductible costs for assigneesGermany’s domestic laws differs from the definition of a The deduction of assignee-related costs may be limitedpermanent establishment for treaty purposes. A permanent where the salary level of an inbound assignee significantlyestablishment, as defined by German domestic law, exceeds the cost of a local individual in the same role.is sufficient to trigger a wage tax withholding obligation. Hence, proper documentation should be kept available.Indirect taxesValue-added tax (VAT) is applicable at 19 percent for taxablesupplies.Transfer pricingGermany has a tough transfer pricing regime. A transferpricing implication could arise to the extent that the employeeis being paid by an entity in one jurisdiction but performingservices for the benefit of the entity in another jurisdiction, THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS / 77 © 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • GreeceIntroduction Contact Georgia StamatelouPersons residing in Greece are liable for income tax on their worldwide KPMG in Greeceincome, whether remitted to Greece or not. Where tax has already been Partnerpaid outside Greece on non-Greek-sourced income, the tax may be T: +30 210 606 2123deducted up to the amount of tax payable in Greece on the same income. E: gstamatelou@kpmg.grNonresidents are taxed only on Greek-sourced income.The determination of residency status in Greece is based on numerousfactors related to the individual and the individual’s connections withGreece. Greek tax law does not provide a definition for “resident”;however, pursuant to guidance issued by the Greek Ministry of Finance,residence (for Greek tax purposes) is defined by the Greek Civil Code.The Greek Civil Code states that the residence of an individual isdetermined as the place of the individual’s principal and permanentestablishment and that a person cannot simultaneously have more thanone residence (except for commercial/business purposes). Where aperson lives in more than one place, residence is considered to be theindividual’s principal residence. The material factors to be considered arethe maintenance of a home, a place of work, professional activities, etc.In addition, one must consider the person’s intentions, i.e., as what placethe individual intends to treat as a permanent place of establishment.However, such intention is determined on the basis of the individual’sactions (i.e., on the above material factors).It should be noted that the Greek tax residency rules are currently underrevision as analyzed in the following pages.78 / THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS© 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swissentity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • Income tax An individual whose usual residence is in Greece and isLiability for income tax subject to taxation for global income in a country that hasGreek tax law currently does not provide for a “number of not signed a double tax treaty with Greece, and such countrydays rule” when it comes to residency issues. The 183-day is not on the list of noncooperating countries, is subject torule is being introduced on the basis of a draft law, which is taxation in Greece for the first three years. Therefore, such anunder ratification by the Greek parliament. The rules governing individual who is subject to taxation in Greece for incomethe individual’s income taxation will be determined by arising in Greece should submit an income tax return.reference to the individual’s tax residency status Only the tax that has been paid in a country with which(i.e., Greek tax resident or non-Greek tax resident). Greece has signed a double tax treaty will be credited inTax trigger points Greece. This provision does not take into consideration thatThe taxability of employment income of non-Greek residents many Greek residents work in countries with which Greeceis determined by reference to the applicable double tax treaty has not signed a double tax treaty (e.g., FYROM, Serbia, etc.).for the avoidance of double taxation (if any). If the individual wishes to transfer residence to anotherOn the assumption that the individual is registered as a country, the individual is obliged to provide evidence,non-Greek tax resident and in case of future tax audit, such evidence to be determined subsequently through athe Greek tax authorities might require tax residency Ministerial Decision.certificates for the individual in order to evidence/support A Greek tax resident cannot be considered to have changedthat the individual is tax resident (and therefore subject tax residence and become a tax resident of a countryto tax on the individual’s worldwide income) in another included in the list of noncooperating countries issued by thejurisdiction/state. An individual who is not in a position Ministry of Finance. Furthermore, a Greek tax resident whoto provide the requisite documents will automatically be transfers residence or usual residence to a country withclassified as a Greek tax resident by the tax authorities, a preferential tax regime but retains substantial financialwho will seek to assess tax on the individual’s worldwide interests in Greece is considered to be subject to tax inincome plus penalties (if applicable) for inaccurate filings Greece for global income for a period of five years after(when due). the change in residence. This period commences fromNew tax residence provisions the filing of the declaration for the change of the residence.According to a new tax bill submitted to the Greek Parliament Such zzprovisions may be subject to a Constitutional challenge.on February 21, 2011, the definition of tax residence is Types of taxable incomeintroduced on the basis of OECD Guidelines. The concept of Taxable income is classified into six categories (real estate,usual (permanent) residence is determined for tax purposes investment, employment, agricultural, business, andin Greece if someone resides in Greece for more than professional). Although income from each source is separately183 days in total within the same calendar year. The usual computed, individuals are subject to tax on the aggregate ofresidence is assumed to exist, unless the taxpayer proves income from all categories.the opposite; however, the type of evidence required is notdescribed in the tax bill. Married persons are subject to tax separately on their own income but are required to file a joint tax return.Tax ratesThe income tax scale and corresponding tax rates for all individuals for 2011 are as follows (amounts in euros): Income bracket Tax rate Tax per bracket Aggregate income Aggregate tax First 12,000 Exempt 0 12,000 0 Next 4,000 18 percent 720 16,000 720 Next 6,000 24 percent 1,440 22,000 2,160 Next 4,000 26 percent 1,040 26,000 3,200 Next 6,000 32 percent 1,920 32,000 5,120 Next 8,000 36 percent 2,880 40,000 8,000 Next 20,000 38 percent 7,600 60,000 15,600 Next 40,000 40 percent 16,000 100,000 31,600 Exceeding 100,000 45 percentSource: KPMG in Greece, June 2010 THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS / 79 © 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • For foreign tax resident individuals, with the exception of OtherEU residents earning 90 percent of their income in Greece, Work permit/visa requirementsthe progressive income tax rates commence at 5 percent, Citizens of EU member states, of the states of the Europeannot 0 percent, and they have a lower amount of tax deductions. Economic Area (i.e., Iceland, Liechtenstein, and Norway), and Swiss citizens must apply for the appropriate type ofSocial security certificate of registration of EU citizens (i.e., for the provisionLiability for social security of dependent employment services, for the provision ofAccording to Greek law, all employers must register their non-salaried services, etc.) if they wish to work in Greece oremployees with the relevant Greek social security fund on decide to take up residence in Greece. A visit of up to threecommencement of employment in Greece. In addition to the months does not require a permit.basic social security funds, employed persons must also becovered by a supplementary insurance fund. The main funds Citizens of countries outside the EU must apply for work visasapplicable to employed persons are the Social Insurance Fund before arriving in Greece if they wish to work in Greece and(IKA) and the Employees’ Supplementary Insurance Fund apply for a resident permit immediately upon arrival.(TEAM). All employers are required to register their employee Because the application procedure for work visas is lengthy,with IKA in the area where their operations are located. the procedure should be commenced well in advance of theTheir registration with and contributions to TEAM are dealt planned date of arrival.with by the IKA offices. Some non-EU citizens may require visas to enter the countryCompliance obligations even for vacations or short business trips.Employee compliance obligations Double taxation treatiesPersonal income tax returns must be filed between March 1 Greece has entered into double taxation treaties with moreand May 31 of the year following the end of the relevant tax than 40 countries to prevent double taxation and allowyear. The tax year for individuals is the calendar year. cooperation between Greece and other tax authorities in enforcing their respective tax laws.Pensioners, salaried individuals, non-Greek residents whoearn Greek-sourced income, and Greek residents who earn Permanent establishment implicationsforeign-sourced income file tax returns in May. Individuals Entities established in Greece are resident in Greece for taxwho declare income from agricultural activities file tax returns purposes and are taxable on their worldwide income.in April. Individuals who declare income from commercial A foreign entity is subject to Greek corporate tax on incomeactivities (self-employment), on the condition that they keep arising in Greece if it has, or is deemed to have, a permanentaccounting books or earn income as freelance professionals, establishment in Greece.file tax returns in April. Foreign enterprises are generally regarded as having aIndividuals earning income from commercial activities, permanent establishment in Greece if they:freelancers, as well as those whose income tax return is • Maintain one or more branches, agencies, offices,filed by an authorized accountant are required to file their warehouses, plants, laboratories, or other facilities inrespective returns via the Internet. Greece for the purpose of exploiting natural resourcesThe filing date depends on the last digit of an individual’s • Are engaged in manufacturing activities or the processingGreek tax number (AFM). of agricultural productsEmployer reporting and withholding requirements • Transact business or offer services through aUnder Greek tax law, employment income is taxable in the representative in Greece who is authorized to negotiatehands of the employee in the year in which the employee and conclude contracts on behalf of the foreign enterpriseis entitled to claim such income, whereas income taxwithholding should be effected by the employer. Employers • Render services of a technical or scientific nature inare under an obligation to withhold Greek income tax on the Greece, even without a representativeremuneration paid to employees in Greece on a monthly • Keep inventories of merchandise for their own account outbasis (in Greece, salary is payable 14 times per year). of which they fill ordersAmounts of payroll tax withheld on a monthly basis should beremitted by the employer to the tax authorities on a bimonthly • Participate in a personal or limited liability companybasis (an exception applies for employers who employ more (partnership or EPE)than 500 people in Greece, in which case the tax withheldmust be remitted monthly).80 / THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS© 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swissentity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • These criteria are superseded by the provisions of the Local data privacy requirementsdouble taxation treaties concluded by Greece with other Services performed within Greece shall comply with thecountries, which include a narrower definition of a permanent provisions of the Greek and EU legislation regarding theestablishment. protection of personal data. Greece has incorporated European directives regarding the protection of personal data.Indirect taxesIndirect taxation provides more than 50 percent of the state’s Exchange controltax revenue. There are no foreign exchange control restrictions. However, all monetary transfers abroad must be effectedA value-added-tax (VAT) was introduced in Greece in 1987 through commercial banks in Greece. When approvingand is the most important indirect tax. The basic VAT rate such transfers, commercial banks are obliged to ensureapplicable to all goods and services is 23 percent, except for that the payment has been subject to or are exempt fromsome goods where a reduced rate applies. withholding tax.Transfer pricing Payments and other transfers relating to current transactionsThe main anti-transfer pricing provision of Greek tax law between residents and nonresidents must also be madeis article 39 of Law 2238/1994, which implements the through commercial banks operating in Greece, which mayarm’s-length principle. In particular, the recently enacted ask for certain supporting documentation (related to thelaw 3842/2010 provides that where domestic enterprises authenticity of the transaction) prior to making payments.or a domestic and a foreign enterprise enter into transactionsthat take place under financial terms different from those Nondeductible costs for assigneesthat would have been agreed had the agreement been Non-Greek residents are not allowed any deductions fromconcluded with another (unrelated) party under similar market their income, unless they are citizens of the European Unioncircumstances (that is, the arm’s-length price), the difference earning more than 90 percent of their global income in Greece.is deemed as profit of the enterprise receiving less or paying If this condition applies, EU citizens are entitled to the tax-more than the arm’s-length price. free bracket and most of the tax credits. European Union citizens who wish to claim these deductions should provideIf a transfer pricing case is established, the tax authorities the Greek tax authorities with a certificate issued by thedisallow the amounts exceeding the arm’s-length charges tax authority of the country where they are declared asfor corporate income tax purposes (or adjust the revenue residents, stating the amount of their worldwide income andaccordingly) and assess a penalty amounting to 20 percent of the amount of Greek-sourced income.the respective difference identified for balance sheets closingfrom December 31, 2010 onwards.Law 3728/2008 introduced documentation requirementsfor transfer pricing purposes and the amendment in theprovisions of Law 2238/1994 also provides that the thresholdof the value of the transactions on the basis of which anexemption from the documentation obligation is provided isreduced from EUR 200,000 to EUR 100,000. THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS / 81 © 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • Hong KongIntroduction Contact Barbara ForrestThere is no general income tax in Hong Kong. For income to KPMG in Hong Kongbe subject to tax, it must fall under one of the specific taxation Principalheadings, namely, salaries tax, profits tax, or property tax. T: +852 2978 8941 E: barbara.forrest@kpmg.comHong Kong adopts a territorial basis of taxation. A person’sresidence status is not determinative.Key messagesVisitors1 who do not exceed 60 days of presence in Hong Kong in a year of assessment will be exempt from salariestax. Extended business travelers who exceed 60 days of presence in a year of assessment may be assessed onemployment income derived from services rendered in Hong Kong plus the attributable leave only, provided that theyhold non-Hong Kong-located employment.Residence status is not determinative when considering a person’s liability for salaries tax.1 This exemption is applicable to employees only. It does not apply to individuals who hold an office in a Hong Kong–resident company.82 / THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS© 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swissentity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • Income tax whether derived from the employer or others. In addition,Liability for income tax certain benefits (such as accommodation benefits,Taxation in Hong Kong is territorial. The residence status holiday journey benefits, and amounts paid in connectionof an employee is not determinative when considering the with the education of an employee’s child) are specificallyindividual’s liability for salaries tax. Hong Kong salaries tax is taxable under the legislation.charged on income arising in or derived from Hong Kong from Tax ratesany office or employment of profit. To determine the extent The maximum effective tax rate is currently 15 percent.of salaries tax payable, it is first necessary to determinewhether the income is derived from a Hong Kong–located Social securityemployment or a non-Hong Kong–located employment. Liability for social securityIf an individual’s employment is fundamentally located in Hong Kong does not have a social security tax system.Hong Kong, all income from the employment will fall within However, all employees and self-employed persons overthe scope of salaries tax. If an individual’s employment is the age of 18 but below 65 normally residing and working infundamentally located outside of Hong Kong, the liability Hong Kong are required to join a Mandatory Provident Fundfor salaries tax will be limited to tax on income for services (MPF) scheme. Exemption from the MPF requirements canrendered in Hong Kong plus the attributable leave. The above be claimed where an individual is in Hong Kong for a limiteddoes not apply to income derived from an office (such as fees period (13 months or less) or is a member of an overseaspaid to company directors). retirement scheme.Definition of sourceThe source of employment income is determined by the Compliance obligationslocation of the employment. To determine the location of Tax returns are generally due within one month of the datean employment, the Inland Revenue Department (IRD) will of issue.consider all the relevant facts, with particular emphasis on: Employee compliance obligations• Where the contract was negotiated, entered into, and is Every taxpayer is required to notify the Commissioner of enforceable, whether in Hong Kong or outside Hong Kong Inland Revenue that the taxpayer is chargeable for tax no later than four months after the end of the year of assessment in• Where the employer is resident, whether in Hong Kong or which the taxpayer is chargeable. In general, individual tax outside Hong Kong returns are issued on the first working day of May following• Where the employee’s remuneration is paid to the the tax year-end, which is March 31. Extensions to the filing employee, whether in Hong Kong or outside Hong Kong. deadline are at the discretion of the IRD.The IRD will look further than the external or superficialfeatures of the employment to determine the location of the Otheremployment. Work permit/visa requirements A visa must be applied for before the individual entersTax trigger points Hong Kong. The type of visa required will depend on theA full exemption from salaries tax can be claimed where an purpose of the individual’s entry into Hong Kong.individual visits Hong Kong for not more than 60 days duringthe year of assessment (April 1 to March 31). This 60-day Double taxation treatiesexemption is available only for income from employment2 Hong Kong has entered into double taxation arrangementsand does not apply to directors’ fees. with Belgium,Luxembourg, the People’s Republic of China, Thailand, and Vietnam. Since 2010, Hong Kong has signedUntil recently, Hong Kong did not have an extensive double taxation agreements with Austria (May 25, 2010),network of comprehensive double taxation agreements. Brunei  (March 20, 2010), France (October 21, 2010),However, it is a stated government policy that agreements Hungary (May 12, 2010), Indonesia (March 23, 2010),will be entered into, and the government has recently done Ireland (June 22, 2010), Japan (November 9, 2010), Kuwaitso with several countries. If a double taxation agreement is in (May 13, 2010), Liechtenstein (August 12, 2010), theplace, an employee may be able to claim full exemption from Netherlands (March 22, 2010), New Zealand (December 1, 2010),salaries tax or tax credit relief under the relevant agreement. Switzerland (December 6, 2010), and the United KingdomTypes of taxable income (June 21, 2010). These agreements will come into effectFor salaries tax purposes, income from any office or following ratification by the relevant governments.employment includes any wages, salary, leave pay, fee, Negotiations are being held with several other countries.commission, bonus, gratuity, perquisite, or allowance,2 F  or aircrews/shipping crews, the test is slightly modified to consider both the current year of assessment and two consecutive years of assessment (one of which is the current year of assessment). THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS / 83 © 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • Permanent establishment implications DIPN 46 is generally consistent with the OECD Guidelines and international transfer pricing practices. DIPN 46 statesThe issue of whether a business is carried on in Hong Kong or that the IRD will apply the arm’s-length principle to determinewhether profits are considered to be sourced in Hong Kong is a the appropriate price in the context of controlled transactionsquestion of fact. Case law has established that very little actual entered into by taxpayers and related parties located in otheractivity needs to be performed in Hong Kong for an offshore tax jurisdictions (whether or not Hong Kong has a doubleentity to be regarded as carrying on business in Hong Kong. taxation agreement signed with those jurisdictions).Depending on the nature of the particular income concerned,the source of profits is usually ascertained by looking at the Local data privacy requirementsoperations that produce the profits in question and where those Hong Kong has data protection laws.operations take place. Exchange controlIndirect taxes There are currently no foreign exchange controls on fundThere is currently no value-added tax (VAT) or goods and transfers.services tax (GST) levied in Hong Kong. Nondeductible costs for assigneesTransfer pricing In general, a corporate deduction for expenses is allowed toIn December 2009, the IRD released Departmental the extent to which the expenses are incurred and relatedInterpretation and Practice Notes (DIPN) Number 46, to profits assessable in Hong Kong. A deduction is onlywhich sets out its interpretation and practice regarding transfer available for expenses that are related to revenue.pricing methodologies and related issues. DIPN 46 provides, forthe first time, a comprehensive transfer pricing framework inHong Kong.84 / THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS© 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swissentity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • HungaryIntroduction Contact Kornelia MitrikAn individual’s Hungarian income tax liability is determined by KPMG in Hungaryresidence status and by the source of the income. The taxes Senior Managerare levied using a flat rate. Residents are liable for tax on T: +36(1)8877410 E: kornelia.mitrik@kpmg.huworldwide income; nonresidents are taxed on Hungarian-sourced income. Tax credits are available on long-termsavings (such as pre-pension investments, long-term savingsaccounts, and payments to voluntary mutual funds).No special expatriate tax regime exists.Key messagesExtended business travelers are likely to be taxed on employment income relating to their Hungarian work, but treatyrules are examined closely. THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS / 85 © 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • Income tax Employees pay a 10 percent pension contribution (capped at 7,665,000 Hungarian forints (HUF) annual gross salary),Liability for income tax 6 percent health insurance contribution, and 1.5 percentAn individual’s tax liability in Hungary depends on residence contribution to the unemployment fund. These latterstatus. If an individual is resident, worldwide income must be contributions are uncapped.declared in the annual tax return. Social security is payable by individuals who are insuredNonresident individuals are taxed on their Hungarian- in their home country. If an extended business traveler issourced income. Residence rules are determined very insured in an EU member country or in a country with whichsimilarly to income tax treaty rules. Hungary has a totalization agreement, those rules apply.Most categories of income are aggregated, but certaincategories are taxed separately (such as dividends and Compliance obligationscapital gains). Employee compliance obligationsExtended business travelers are likely to be considered Tax returns are due by May 20 in the year following the taxresident if they spend more than 183 days in Hungary. If they year. No extension is available. In case of late filing, an excusespend less than six months, then the treaty rules are used to letter can be attached to avoid penalty on late filing.determine tax liability. If there is no local Hungarian employer but the individualEmployment income is derived from Hungarian sources if receives the remuneration from a foreign entity, the individualit is paid by a Hungarian entity, the work is performed for a is obliged to pay tax advances on a quarterly basis.Hungarian entity, or the Hungarian entity bears the costs of This generally applies to extended business travelers.the employment. Employer reporting and withholding requirementsTax trigger points If the employer pays any remuneration to an individual,There is no minimum number of days when determining taxes must be withheld and paid to the tax authority.tax liability. If an individual is nonresident in Hungary but Withholdings from employment income must be reported tothe employment costs are borne by a Hungarian entity the tax authority.(i.e., the Hungarian entity is the economic employer), If there is no local Hungarian employer but the individualthen even one day of work is taxable in Hungary. receives the remuneration from a foreign entity, then theTypes of taxable income individual is obliged to pay tax advances on a quarterly basis.For extended business travelers who are resident inHungary, worldwide income is subject to tax in Hungary, Otherbut foreign-source income that has been subject to tax Work permit/visa requirementsin a foreign country is exempted. If they are nonresident in Work permits and visas are required only for third-countryHungary, the types of income that are generally taxed are nationals (i.e., non-EU/EEA member country citizens). Visas andemployment income, Hungarian-sourced income, and gains work permits must be obtained before entering Hungary.from Hungarian assets (such as real estate). Fringe benefits Work residence permits must be obtained after arrival.provided by a Hungarian entity are taxed at the entity level EU/EEA citizens must obtain registration cards, which areunless they are subject to tax as income from employment. valid for five years.Tax rates Double taxation treatiesIncome is taxed at a flat rate. On annual gross salary, 16 percent Hungary has an extended double tax treaty network withtax is payable. As of January 1, 2010, the Hungarian State over 60 countries.has introduced the so-called “super gross” system wherebyaggregated income must be increased by a 27 percent Permanent establishment implicationscorrectional item, and the taxes are calculated on this increased A permanent establishment could be created as a result oftaxable base. extended business travel, but this would be dependent on the type of services performed and the level of authority theSocial security employee has.Liability for social security Indirect taxesEmployers pay a 27 percent social security contribution Value-added tax (VAT) applies at 25 percent on most of the(24 percent pension, 2 percent health insurance contribution, goods and services. Certain goods and services have aand 1 percent labor market contribution) on gross salary. preferential lower rate. Excise duty tax is levied on severalEmployers also pay a 1.5 percent contribution to the Training goods, such as tobacco and fuel.Fund. All contributions are uncapped.86 / THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS© 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swissentity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • Transfer pricing Legislation requires financial institutions and other cashHungary has a transfer pricing regime. A transfer pricing dealers to give notification of cash transactions overimplication could arise to the extent that the employee is HUF3,600,000; suspicious cash transactions; and certainbeing paid by an entity in one jurisdiction but performing international telegraphic or other electronic funds transfers.services for the benefit of the entity in Hungary, and certain All currency transfers made by any person into or out ofcosts in relation to the work are charged to Hungary. Hungary of HUF3,600,000 or more in value must be reported.Local data privacy requirements In the case of cash transactions over EUR1,000, the personHungary has data privacy laws. must be identified.Exchange control Nondeductible costs for assigneesHungary does not restrict the flow of any currency into or out No costs are deductible from employment income.of the country. Certain reporting obligations are imposed,however, to control tax evasion and money laundering. THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS / 87 © 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • IndiaIntroduction Contact Parizad SirwallaAn individual is taxed in India on the basis of the residential status KPMG in Indiaunder the Income Tax Act of 1961 (the Act). Residential status, Executive Directorper the Act, is determined, inter alia, on the basis of physical T: +91 223 090 2010 E: psirwalla@kpmg.compresence of the individual in India during the particular financialyear (April 1 to March 31).88 / THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS© 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swissentity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • Income tax Types of taxable income Individuals are taxable on income from one or more of theLiability for income tax following categories:Residential status under the ActAn individual can be a resident and ordinarily resident (ROR), • Salariesa resident but not ordinarily resident (NOR), or a nonresident • Income from house property(NR) for Indian tax purposes. • Profits and gains of a business or professionTaxability of incomeTaxation varies based on the residency status of the individual • Capital gainsin a financial year. • Income from other sources• ROR – liable for tax on worldwide income Income under each category is computed separately. The net• NOR – liable for tax on income sourced from India, result of all categories is aggregated to arrive at gross total received/deemed to be received in India, or from income income. Taxable income is determined by subtracting specified derived from a business controlled or set up in India deductions from the gross total income. The benefits/amenities provided by employers to their employees are taxed as• NR – liable for tax only on income sourced from India or perquisites in line with the income tax rules. received/deemed to be received in India Tax ratesForeign nationals may be exempt from tax in India if their Financial year 2010–2011:stay in India does not exceed 90 days, as prescribed in the Individuals are required to pay tax on their taxable income atAct, or the number of days prescribed (generally 183 days) graduated rates ranging from 10 percent to 30 percent.under various double taxation avoidance agreements (DTAA) The maximum marginal tax rate for the financial year 2010–2011into which India has entered with other countries, subject to (April 1, 2010 to March 31, 2011) is 30 percent on incomesatisfaction of all the other conditions. earned over 800,000 Indian rupees (INR). An extra tax, which isDefinition of source applicable in India, called an education cess, is levied at a rateSalary for services rendered in India is deemed to accrue of 3 percent on the income tax.in India and, hence, is taxable in India for all individuals, The maximum amount not liable to tax in case of an individualirrespective of the place of receipt, subject to benefit, if any, (below 65 years) is INR160,000; in the case of an individual agedunder the DTAA. Generally, services rendered are equated 65 years and above, the maximum amount not liable to tax iswith physical presence in India. Salary entitlements paid for INR240,000. However, in the case of resident women (belowleave periods before or after services rendered in India, in line 65 years), the maximum amount not liable to tax is INR190,000.with an individual’s employment contract, are also deemed tohave been earned for services rendered in India. Financial year 2011–2012: The maximum marginal tax rate proposed for the financialSalary received in India is taxable in India, irrespective of year 2011–2012 (April 1, 2011 to March 31, 2012) continuesresidential status of the individual and place of rendering to be 30 percent on income earned over and aboveservices, subject to benefit, if any, under the DTAA. INR8,00,000. An education cess (see above) of 3 percent onTax trigger points the income tax is levied.Remuneration for services rendered by a foreign national, It is proposed that the maximum amount not liable for tax inemployed by a foreign enterprise during the individual’s stay the case of an individual (below 60 years) will be INR180,000;in India, is exempt from tax in India if: in the case of an individual aged 60 years and above (below• The total period of the stay in India does not exceed 80 years), the maximum amount not liable for tax is proposed 90 days in a financial year to be INR250,000. Further, in the case of individual aged 80 years and above, the proposed maximum amount not• The foreign enterprise is not engaged in any trade or liable for tax is INR500,000. However, in the case of resident business in India women (below 60 years), the proposed maximum amount• The remuneration is not charged to an employer subject to not liable for tax remains the same at INR190,000. Indian income tax. Direct tax code (DTC)To the extent that the individual qualifies for relief in terms The current tax regime is likely to be replaced with newof the dependent personal services article of the applicable Direct Tax Code that will go into effect April 1, 2012.DTAA, there will be no tax liability. The DTAA exemption will notapply if the Indian entity is the individual’s economic employer.In addition, any salary or local benefits received in India are noteligible for relief. THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS / 89 © 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • Social security Compliance obligationsLiability for social security Employee compliance obligationsThe Ministry of Labour and Employment, in a notification Individuals are liable to discharge tax by way of advance taxdated October 1, 2008, amended the “Employees Provident if the tax liability (net of tax deducted at the source) exceedsFund Scheme, 1952, and the “Employees Pension ” INR10,000 in a particular financial year (per the due datesScheme, 1995,  collectively referred to as the Indian ” mentioned under the Act). Shortfall/delay in payment ofSocial Security Scheme. Accordingly, the scope of the advance tax will attract interest.Indian Social Security Scheme was extended to specifically Individual taxpayers must file their returns by July 31include a new concept of “international workers” (IW). following the financial year-end, which is March 31.IWS include expatriates working for an employer in India to Extensions of the filing deadline are not permitted. Where awhich the Provident Fund Act applies and Indian employees taxpayer files a return after the due date, interest is levied atworking in a country with which India has entered into a 1 percent per month (or part thereof) for each month of delaysocial security agreement (SSA). on the balance tax payable.IWs (other than excluded employees) are required to Foreign nationals may be required to register with thecontribute 12 percent of the specified salary to the Indian Foreigner’s Regional Registration Office (FRRO).social security scheme. Employers are also required to The tax deducted must be deposited with the centralcontribute 12 percent of their employees’ specified salary to government within seven days from the end of the monththe scheme. The  contribution must be deposited on a monthly of deducting the tax. A certificate must be issued to thebasis by the 15th of the subsequent month. Necessary forms employee for the tax deducted within two months from theand returns must be filed with the authorities by the prescribed end of the financial year. The employer also must submit adeadlines. return of tax deducted on a quarterly basis to the tax authority.IWs are exempt from contributing to Indian social security if:• They are contributing to the home country social security Other Work permit/visa requirements scheme A visa must be applied for before the individual enters India.• They fall into the category of detached worker for a period The type of visa required will depend on the purpose of the specified in the SSA. individual’s entry into India. Every foreign national arriving on a visa that is valid for more than 180 days in India mustA relief mechanism has been provided for “excluded ensure that the individual is registered with the FRRO of theemployees, which primarily refers to IW coming from a ” city in which the individual lives. An employment visa mustcountry with which India has entered into an SSA. be registered within 14 days of the individual’s first arrival onIndia currently has SSAs with Belgium, Germany, France, employment in India.Switzerland, Netherlands, Luxembourg, Hungary, Denmark, The Ministry of Home Affairs (MHA) has issued certainCzech Republic, South Korea, and Norway. India is in the “frequently asked questions” on work-related visas beingprocess of signing SSAs with other countries, including issued in India clarifying the purpose, duration, and variousthe United States, Australia, Sweden, the United Kingdom, scenarios under which business and/or employment visasand a few others. may be granted to foreign nationals.The SSAs with Belgium and Germany became effective on Further, the government of India has mandated that anSeptember 1, 2009 and October 1, 2009, respectively. employment visa may be granted to a foreign national only ifWithdrawal of social security contribution the individual’s salary is in excess of USD25,000 per annum.Prior to recent events, IWs were entitled to withdraw the However, the threshold salary limit is not applicable to ethnicaccumulated amount of social security contributions at the time cooks, language (other than English) teachers/translators, andof completion of their assignment in India. Recently, the Ministry staff working for a high commission/consulate in India.of Labour and Employment further amended the Indian social Double taxation treatiessecurity scheme whereby IWs can withdraw the social security In addition to India’s domestic arrangements that provideaccumulation only on retirement after attainment of 58 years of relief from international double taxation, India hasage or in certain exceptional circumstances, such as retirement entered into double taxation treaties with 102 countriesdue to permanent and total incapacity, under the situations (comprehensive and limited) to prevent double taxation andspecified in the relevant SSA, etc. allow cooperation between India and overseas tax authoritiesIWs deputed from a country with which India does not have an in enforcing their respective tax laws.SSA will not be eligible for any pension benefits.90 / THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS© 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swissentity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • Permanent establishment implications Local data privacy requirementsThere is the potential that a permanent establishment There are currently no data privacy laws in India.(PE) could be created as a result of extended business Exchange controltravel, but this would be dependent on the type of services Per the Exchange Control Regulations, a foreign citizenperformed and the level of authority the employee has. resident in India or an Indian citizen employed by a foreignA detailed analysis is recommended in order to determine the company having an office/branch/subsidiary/joint venture maypossible PE implications. open, hold, and maintain a foreign currency account with theWealth tax/indirect tax bank outside India and receive the whole salary payable toIndia does not impose an estate duty, but does impose the individual in that account provided that income tax is paidwealth tax on specified assets. In addition, customs duty is on the salary accrued in India.payable on certain specified goods brought into India, and A foreign citizen resident in India employed with an Indianother indirect taxes, such as value-added tax (VAT)/sales tax, company can open, hold, and maintain a foreign currencyexpenditure tax, and service tax, are payable on purchases of account with a bank outside India and can remit the wholegoods and services. salary received in India to such an account overseas providedTransfer pricing the income tax is paid on the entire salary in India.India has a transfer pricing regime. A transfer pricingimplication could arise to the extent that the employee isbeing paid by an entity in one jurisdiction but performingservices for the benefit of the entity in another jurisdiction,in other words, a cross-border benefit is being provided.This would also be dependent on the nature and complexityof the services performed. THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS / 91 © 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • IndonesiaIntroduction Contact Esther KwokIndonesia adopts the self-assessment method for individuals KPMG in Indonesiato calculate, settle, and report income tax. The extent of Tax Partner T: +62 (21) 570 4888the Indonesian tax liability is dependent on the individual’s E: esther.kwok@kpmg.co.idresidence status in Indonesia.Key messagesExtended business travelers are likely to be taxed on employment income relating to their period of stay in Indonesia.A permanent establishment may potentially be created as a result of visits of these business travelers. Corporationsshould be mindful of the visa used by their extended business travelers to Indonesia.92 / THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS© 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swissentity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • Income tax Social securityLiability for income tax Liability for social securityA person’s liability for Indonesian tax is determined by Extended business travelers already participating in a socialresidence status. Residents are taxed on their worldwide security scheme in their home country would not be requiredincome, including capital gains, regardless of where such to contribute to Indonesia’s national social security scheme,income arises or if funds are remitted into the country. known as JAMSOSTEK.Taxable income is determined after subtracting allowable JAMSOSTEK covers all employees and workers in publicdeductions and personal allowances. or private entities. The current pension contribution rateA person is considered resident in Indonesia if the person is is 5.7 percent of an employee’s gross salary (3.7 percentpresent in Indonesia for a total period of more than 183 days contributed by the employer and 2.0 percent contributed byin any 12-month period or if the person resides in Indonesia the employee). Extended business travelers who are alreadywith the intention of staying. covered by similar schemes in their home countries would not be required to contribute to JAMSOSTEK. The nationalNonresident individuals are individuals who are not resident social security scheme also requires employers to makein Indonesia for tax purposes. Nonresidents are assessed contributions towards work accident insurance, deathonly on income sourced in Indonesia, including Indonesian- insurance, and health insurance. The contribution rates aresourced capital gains. dependent on the employer’s industry.Definition of sourceEmployment income is generally treated as Indonesian- Compliance obligationssourced compensation where the individual performs the Employee compliance obligationsservices while physically present in Indonesia. The tax year is the calendar year. Indonesia operates a self-Tax trigger points assessment system whereby all individuals are requiredBased on domestic income tax law, companies need to be to complete a tax return and compute their tax liability byaware that individuals providing services on behalf of an March 31 in the following tax year. Annual tax payments areoffshore company may trigger a tax position if: due before this lodgment deadline.• They are present in Indonesia for more than 60 days in any In order to file a tax return, an individual must register to 12-month period obtain a tax identification number (NPWP). Employees without an NPWP are subject to 20 percent tax surcharge.• The cost is borne or reimbursed by the domestic entity. Individual entrepreneurs/professionals and individualsFor the individual, technically, there is no threshold/minimum who have tax payable because of their passive income arenumber of days that exempts the employee from the required to pay taxes and file monthly returns by the 15th andrequirements to file and pay tax in Indonesia. To the extent the 20th of the following month, respectively.that the individual qualifies for relief in terms of the dependentpersonal services article of the applicable double tax treaty, Nonresidents do not have an obligation to register for anthere will be no tax liability. The treaty exemption varies NPWP or file an individual tax return.depending on the test time and the applicable double tax treaty. Employer compliance obligationsTypes of taxable income The obligation to withhold and report tax on cashFor extended business travelers who qualify as being compensation paid in connection with employment rests withresident in Indonesia, the types of income that are generally the employer entity. Income tax withheld by employers musttaxed are their worldwide income, including employment be remitted on a monthly basis by the 10th day of the followingincome and personal investment income. month and reported by the 20th day of the following month.Tax ratesNet taxable income for residents is taxed at graduated rates. OtherThe current rates range from 5 percent up to a maximum of Work permit/visa requirements30 percent for income earned over 500 million Indonesian Business travelers traveling to Indonesia for the purpose ofrupiah (IDR). business meetings can obtain a visa on arrival for a period of either 6 or 30 days. This “business meeting” visa cannot beNonresidents are subject to a final withholding tax of used for working in Indonesia. For the purposes of working,20 percent on gross income. individuals are required to apply for a work visa, sponsored by an Indonesian entity, before entering Indonesia. THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS / 93 © 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • Double taxation treaties Exchange controlIn addition to Indonesia’s domestic arrangements that Indonesia has no foreign exchange controls and funds mayprovide relief from international double taxation, Indonesia be freely transferred to and from abroad. Transfers exceedinghas entered into double taxation treaties with more than USD 10,000, however, must be reported to the Bank of57 countries to prevent double taxation and allow cooperation Indonesia. All major currencies are freely convertible intobetween Indonesia and overseas tax authorities in enforcing IDR, and deposit accounts can be maintained in foreigntheir respective tax laws. When applying for relief, a currencies.certificate of domicile should be presented. Purchase of foreign currency against IDR in excess ofPermanent establishment implications USD 100,000 or equivalent in a month through banksA permanent establishment may be created through the may only be granted if there is evidence of the underlyingprovision of services in any form by an individual for more transaction. The required supporting documents include:than 60 days in a 12-month period. However, the potential • Valid documents on the underlying transactionsshould be reviewed on a case-by-case basis and with areference to the permanent establishment article of the •  he customer’s identity card and copy of the tax Tapplicable double tax treaty for the time test. identification number (for reside ts) nIndirect taxes • Statement signed by the authorized person with adequateThe value-added tax (VAT) rate generally applied to taxable stamp duty, which guarantees the validity of documentgoods and services is 10 percent. Sales tax on luxury goods number 1 and confirms that it will only be used to purchasemay be as high as 200 percent. There are also regional taxes the allowable amount of foreign currency.imposed by the local government on various facilities. For purchase of foreign currency below USD100,000, theVAT registration may be required in some circumstances for bank has to obtain a statement from the customer witha corporation or an entity. VAT registration by nonresidents, adequate stamp duty that the customer will not purchasehowever, is not permitted. foreign currency in excess of USD100,000 in a month.Transfer pricing Nondeductible costs for assigneesThe newly revised Income Tax Law 36/2008 introduces a Where benefits-in-kind are not taxable to employees, they arepotential adjustment to the employment cost where the nondeductible for the employer for corporate tax purposes.Indonesian employer treats the employment cost as a fee or Benefits-in-kind, however, are taxable to employees workingother expenses paid to an offshore related-party company. for employers who are:Local data privacy requirements • Only subject to final taxThere are general privacy obligations under the Law of • Are taxed on a deemed profit basisGeneral Provision and Tax Procedures. These can be waivedfor the purposes of criminal investigation or by request/ •  re representative offices (and have not been required to Apermission from the Minister of Finance. report their corporate income).94 / THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS© 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swissentity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • IrelandIntroduction Contact John BradleyAn individual’s liability for Irish income tax depends on: KPMG in Ireland Partner• Whether the individual is resident in Ireland T: +353 (1) 410 1798 E: john.bradley@kpmg.ie• Whether the individual is ordinarily resident in Ireland• Whether the individual is domiciled in IrelandAn individual’s liability for Irish tax will also depend on thesource of income derived by the individual.Irish income tax is levied at progressive rates on an individual’staxable income for the year and is calculated by subtractingallowable deductions/credits from the total assessable income.Key messagesThe number of days spent in Ireland by an extended business traveler will determine whether or not the individualwill be taxable on employment income relating to Irish workdays, subject to the terms of the relevant double taxationagreement (if applicable). THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS / 95 © 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • Income tax Individuals resident in Ireland are subject to tax at 20 percent on the first 36,400 euros (EUR) of income and are subject to taxLiability for income tax at the rate of 41 percent on income above this level. An incomeAn individual’s liability for Irish income tax is dependent on levy at graduated rates of 2 percent, 4 percent, and 6 percentwhether the individual is resident, ordinarily resident, and/or on gross income may also apply depending on the level ofdomiciled in Ireland. income earned by the individual.An individual will be considered resident in Ireland if the A Universal Social Charge is payable at rates of 2 percentindividual is present in Ireland: on income up to EUR 10,036; 4 percent on income up to• For 183 days or more EUR 16,016; and 7 percent on income above this level.• For 280 days or more in the tax year (i.e., the calendar year) Social securityA day is counted if an individual is present in Ireland for any Liability for social securitypart of the day. An individual must be present in Ireland for Social security is payable in Ireland at a rate of 4 percent.at least 30 days in any year to be considered resident inIreland for that year. An individual who is employed in Ireland is liable for paying social security on employment income and on anyAn individual will be ordinarily resident in Ireland if the nonemployment income that is taxable in Ireland.individual is resident in Ireland for three consecutive tax years. If the individual is seconded to work in Ireland from a countryDomicile is a legal concept based on the notion of an with which Ireland has concluded a totalization agreementindividual’s permanent home. An extended business traveler or from another EEA country and is in possession of a validin Ireland will be considered nondomiciled in Ireland when certificate of coverage or A1 certificate, the individual will notthe individual retains a domicile of choice in the individual’s be liable for paying Irish social security contributions for up tohome country. the first five years of the individual’s secondment to Ireland.An individual who is resident and domiciled in Ireland or(from 2010) an individual who is resident, but not ordinarily Compliance obligationsresident, in Ireland is liable for Irish income tax on the Employee compliance obligationsindividual’s worldwide income. Tax returns are due for filing by October 31 following the tax year-end, which is December 31. Individuals may use theAn individual who is resident but not domiciled in Ireland will extended deadline of November 16 if they file the tax returnbe liable for Irish income tax on the individual’s Irish-sourced online using the Revenue online facility.income, including income relating to an Irish employment orwork duties performed in Ireland. The individual will be taxable Tax returns must be filed by nonresidents who derive anyon any foreign income to the extent that the income is remitted Irish-sourced income (other than Irish dividend income orto Ireland. interest income, which are subject to final withholding tax).A nonresident, nondomiciled individual will be liable for Irish Employer reporting and withholding requirementsincome tax on Irish-sourced income only, including income Withholdings from employment income are covered underrelated to Irish employment duties. the Pay-As-You-Earn (PAYE) system. If an individual is taxable on employment income, the employer has a PAYETax trigger points withholding requirement.If an individual spends 183 days or more in Ireland in the taxyear, the individual is liable for paying income tax on any Irish- Where an employee performs duties in Ireland on behalfsourced income and also on any employment income related of a nonresident employer, an obligation is imposed onto Irish duties. the nonresident employer to handle PAYE withholdings on compensation paid to employees carrying out employmentRelief may be available under the relevant double taxation duties in Ireland.agreement (DTA) if the individual travels to Ireland from acountry with which Ireland has concluded a DTA. Where an employee works for an entity based in Ireland (a relevant person), is employed by a nonresident employer,Types of taxable income and PAYE is not applied by the employer, the relevantFor extended business travelers, the types of income that person will be held accountable for the PAYE withholdingsare generally taxed in Ireland are employment income due. Where the compensation covers the performancerelated to Irish employment duties, Irish-sourced income, of duties both in Ireland and in the home country, PAYEand gains from Irish specified assets (such as Irish land withholdings need only be applied to the compensationand buildings). that relates to the duties carried out in Ireland.Tax rates If an individual spends less than 60 workdays in Ireland in theTaxable income is taxed in Ireland at graduated rates ranging year (and a number of other conditions are met), it is possiblefrom 20 percent to 41 percent depending on the level of that the individual will be exempt from PAYE withholdings onincome earned by the individual. employment income.96 / THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS© 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swissentity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • If an individual is present in Ireland for more than 60 days Indirect taxesbut less than 183 days (and a number of other conditions are Value-added tax (VAT) is applicable at a rate of 21 percentmet), it is possible that the individual will be exempt from on the supply of taxable goods or services above certainPAYE withholdings on employment income. In order for this thresholds. VAT registration may be required in certainto apply, foreign withholding tax must be withheld in the circumstances.home country of the employee. Transfer pricingThe above 60-/183-day exemptions apply to individuals Ireland introduced a transfer pricing regime on January 1, 2011.coming to Ireland from a country with which Ireland has a Local data privacy requirementsdouble taxation agreement. Ireland has data privacy laws.Other Exchange controlWork permit/visa requirements Ireland does not restrict the flow of Irish or foreign currencyIndividuals from certain countries must apply for a visa before into or out of the country. Certain reporting obligationsentering Ireland. are imposed, however, to control tax evasion and money laundering.Broadly speaking, non-EU/EEA individuals must apply for awork permit before commencing employment in Ireland. Financial institutions are obliged to take certain special measures to prevent money laundering. One of theseDouble taxation treaties measures is the requirement that financial institutionsIn addition to Ireland’s domestic arrangements that establish the identity of customers and report anyprovide relief from international double taxation, Ireland suspicion of money laundering directly to the police.has entered into double taxation treaties with 54 countriesand is presently in the process of negotiating a number of Nondeductible costs for assigneesadditional treaties. There are provisions in place to allow for a deduction from employment income taxable in Ireland for contributionsThe aim of the double taxation treaties is to prevent double made by an individual to a pension scheme in another EUtaxation and allow cooperation between Ireland and overseas member state or country with which Ireland has a double taxtax authorities in enforcing their respective tax laws. agreement, provided a number of conditions are met.Permanent establishment implicationsThere is the potential that a permanent establishment couldbe created as a result of extended business travel, but thiswill be dependent on the types of services performed andthe level of authority the employee has. THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS / 97 © 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • ItalyIntroduction Contact Antonio DeiddaA person’s liability for Italian tax is determined by residence KPMG in Italystatus and source of income. Partner T: +39 02 676441Income tax is levied at progressive rates on an individual’s E: adeidda@kstudioassociato.ittaxable income for the year; this is calculated by subtractingallowable deductions from the total assessable income.Extended business travelers are likely to be taxed onemployment income relating to their Italian labor contracts.98 / THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS© 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swissentity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • Income tax contributions from employees and employers, calculated as a percentage of gross remuneration. These contributionsLiability for income tax represent a relatively high surcharge on labor costs andA person’s liability for Italian tax is determined by residence are therefore of paramount importance in determiningstatus. A person can be a resident or a nonresident for Italian operational business costs. The employer’s part of thetax purposes. social security contributions ranges from 29 to 32 percentAn individual will be considered an Italian resident for tax of the gross salary, whereas the employees contributepurposes, subject to tax treaty provisions, if one of the approximately 10 percent. There are similar percentages forfollowing conditions is met: executives, although contributions can be made through different types of specialized funds. It is compulsory in Italy• The individual is registered in the Register of the Resident to pay a national insurance contribution to INAIL (National Population for the greater part of the tax year. Institute for Accidents at Work) to cover all professional• The individual stays for the greater part of the tax year in risks. This insurance covers employees against accidents the territory of the State. and occupational diseases, and its cost ranges from 0.4 to 3 percent of the gross salary.• The individual’s center of business or economic interests are in Italy for the greater part of the tax year. Compliance obligationsFulfillment of just one of the three conditions for the greater Employee compliance obligationspart of the tax year, even with interruptions, qualifies the Income tax is generally due by June 16 of the subsequentindividual as an Italian tax resident. year, although the Italian Revenue can accept late paymentsThe general rule is that a resident of Italy is assessable on with interest. The Italian income tax return must be filedworldwide income. Nonresidents are generally assessable electronically by September 30. The deadline can be extendedon income derived directly or indirectly from sources in Italy. by the Italian government through a special legislativeExtended business travelers are likely to be considered provision each year.nonresidents of Italy if the above three conditions are not met Employer reporting and withholding requirementsfor 183 days or more. Salaries and other employment remuneration paid by ItalianEmployment income is generally treated as compensation companies, businesses, and professionals are subject tofrom an Italian source if the individual provides the services an advance withholding tax, which may be credited againstwhile physically located in Italy. the recipient’s income tax liability. The tax is withheld at the ordinary income tax rates on a pro rata basis according toTax trigger points the period for which the payment is being made.Technically, there is no threshold/number of days belowwhich an employee is exempted from filing and paying tax in As a general rule, when a company pays employmentItaly. To the extent that the individual qualifies for relief under income to its employee, a monthly withholding taxthe dependent personal services article of a double tax obligation arises. However, foreign companies that do nottreaty, there will be no tax liability. The treaty exemption will have a permanent establishment in Italy are not required tonot apply if an Italian entity is the economic employer. act as a withholding tax agent for the salaries paid to their employees seconded to Italy.Types of taxable incomeFor extended business travelers, the types of income that are In cases where an Italian company is asked to makegenerally taxed are employment income, Italian-source income, benefits-in-kind available to seconded employeesand gains from taxable Italian assets (such as real estate) and (e.g., local housing, company car, schools, taxes), Italianfringe benefits (broadly noncash employment income). withholding tax obligations will arise.Tax rates OtherNet taxable income is taxed at progressive rates ranging from Work permit/visa requirements23 to 43 percent. The tax rates do not include regional tax or A visa must be applied for before the individual enters Italy.municipal tax. The regional tax rate depends on the region in The type of visa required will depend on the purpose of thewhich the individual is domiciled. Generally, this tax will be individual’s entry into Italy.charged at progressive rates of between 0.9 and 1.7 percent.As an additional municipal tax of up to 0.9 percent is added to Entrance requirements, immigration procedures,these percentages, the total income tax depends on the Italian and working activities are regulated by the Schengenmunicipality in which the individual is domiciled. Agreements, which have created an area in which people can move freely between the Schengen countries without borderSocial security controls. EU citizens possessing a standard passport canLiability for social security travel to Italy and do not need an entry visa.A state-run system of social security operates in Italy,covering illness, maternity, unemployment, retirement,disability, and family allowances. This system is financed by THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS / 99 © 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • Double taxation treaties Exchange controlIn addition to its domestic arrangements providing relief from Italy does not restrict the flow of Italian or foreign currencyinternational double taxation, Italy has entered into double into or out of the country, although there are certaintaxation treaties with more than 40 countries to prevent reporting obligations to control tax evasion and moneydouble taxation and allow cooperation between Italy and laundering.overseas tax authorities in enforcing their respective tax laws. Regardless of the obligation to file an income tax return, allPermanent establishment implications Italian tax resident individuals must comply with exchangeA permanent establishment could potentially be created control regulations in Italy and consider whether they also haveas a result of extended business travel, but this would be to declare their foreign investments/transfers to and from Italy.dependent on the type of services performed and the level Exchange control reporting (through section RW of theof authority the employee has. individual’s tax return) is required if such individuals transferIndirect taxes more than EUR10,000 worth of assets (e.g., cash, shares,There is a goods and services tax (value-added tax or VAT) chattels) to or from Italy or between foreign countriesof 20 percent on taxable supplies. VAT registration may be (or the equivalent amount in foreign currency). Italian taxrequired in some circumstances. resident individuals may be exempt from this requirement if the payments are made through an authorized brokerTransfer pricing resident in Italy, as that entity will comply with theItaly has a transfer pricing regime. A transfer pricing implication reporting obligation on the individual’s behalf.could arise to the extent that an employee is being paid byan entity in one jurisdiction but is performing services for the Italian tax resident individuals are also required to reportbenefit of the entity in another jurisdiction, in other words, any foreign investments (e.g., real estate, yachts) helda cross-border benefit is being provided. This would also be outside Italy if they are worth more than EUR10,000 (or thedependent on the nature and complexity of the services equivalent amount in foreign currency).performed. There are severe penalties for failure to complete the RWItaly’s transfer pricing regulations are based on the arm’s-length form, if required.principle, whereby the conditions applied in an intra-group Nondeductible costs for assigneestransaction should be consistent with those that would be Nondeductible costs for assignees include contributions byapplied between unrelated entities in comparable transactions. an employer to non-EU pension funds.The tax authorities may apply this rule automatically if taxableincome is thereby increased; conversely, a reduction of taxable Additional tax on managers and directors in theincome is possible only under double tax treaties. financial sector Managers and directors in the financial sector are affected byLocal data privacy requirements a 10 percent additional tax if their variable compensation isItaly has data protection laws. more than three times higher than their fixed salary. Italian tax rules consider the fixed salary to be the basic remuneration regularly received by an expatriate, as agreed in the employment contract, before any tax and/or social security contributions.100 / THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS© 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swissentity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • entity with which the independent member firms of the KPMG network are affiliated. 23943NSSJamaicaIntroduction Contact Elizabeth-Ann JonesA person’s liability for Jamaican income tax is determined by KPMG in Jamaicaresidence status for taxation purposes and the source of income Tax Partner T: +1 876 922 6640derived by the individual. Residents are assessed for income tax E: eajones@kpmg.com.jmat progressive rates above a certain limit on an individual’s taxableincome for the year, which is calculated by subtracting allowabledeductions from the total assessable income. Nonresidents areassessed for income tax at a flat rate. The government indicated thatthe income tax rates for resident individuals would return to a flatrate of 25 percent by the start of the new fiscal year on April 1, 2011.Key messagesExtended business travelers are likely to be taxed on employment income relating to their Jamaican workdays.Extended business travelers who are present on the island for over 90 days may be taxed, however, on the incomeearned in relation to work performed in a location other than Jamaica. THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS / 101 © 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • Income tax Social securityLiability for income tax Liability for social securityA person’s liability for Jamaican income tax is determined Employers are required to deduct and account for contributionsby residence status and whether the individual earns to the National Insurance Scheme (NIS), National HousingJamaican-sourced income. A person can be a resident or a Trust (NHT), and Education Tax (Ed Tax) from the salaries ofnonresident for Jamaican tax purposes. employees.An individual is regarded as being resident in Jamaica in a Under the National Insurance Act, employers are requiredtax year if the individual meets any of the following criteria: to deduct amounts from the employee’s salary at a rate of• The individual remains in Jamaica for a period totaling at 2.5 percent on emoluments not exceeding JMD 500,000 least six months in the tax year, including multiple visits to per year, while also paying the employer’s contribution of Jamaica with the intention to reside permanently the equivalent amount. The government announced that the NIS wage ceiling increased to JMD 1,000,000 from• The individual has a place of abode in Jamaica and has August 2, 2010; however, the gazette giving effect to the come to Jamaica during the tax year increase has not yet been published.• The individual has visited the island for the preceding four consecutive years and stayed an average of three months Persons not required to make contributions under the in each year. National Insurance Act can apply for the status of voluntary contributors. This status must be granted by application to theA nonresident of Jamaica is generally someone who spends Minister of Labour and Social Security.less than six months in Jamaica. The general rule is that aperson who is a resident of Jamaica is assessable on the The NHT is applied at a rate of 2 percent for employees’individual’s worldwide income. Nonresidents and temporary contributions and 3 percent for employers’ contributions.residents are generally assessable on income derived directly These rates are applied to the gross taxable emoluments ofor indirectly from sources in Jamaica. Extended business employees as defined in the Income Tax Act.travelers are likely to be considered nonresidents of Jamaica The Ed Tax is applied on gross taxable emoluments, less NIS, atfor tax purposes unless they enter Jamaica with the intention a rate of 2 percent for employees and 3 percent for employers.to remain in Jamaica for more than six months.Definition of source Self-employed persons are also required to make paymentsEmployment income is generally treated as Jamaican- under the provisions of these Acts.sourced compensation when the individual is physically Employee and employer contribution rates are summarized inlocated in Jamaica for 90 days or more and the employment the following table:income relates to work performed on the island or elsewherein relation to the island. Paid by TotalTax trigger points Type of insurance Employer Employee percentUnder local law, an extended business traveler who is in percent percentJamaica for less than 90 days is exempt from income tax on National Insurance 2.5 2.5 5.0the traveler’s foreign-sourced employment income if it is not Scheme (NB onlyreceived in Jamaica. The person would not be required to file applies to income upan income tax return unless the Commissioner of Taxpayer to JMD 500,000(orAudit and Assessment requests that the individual do so. JMD 1,000,000 seeTypes of taxable income above) per year)For extended business travelers, the types of income that National Housing Trust 3.0 2.0 5.0are generally taxed are employment income and Jamaican- Education Tax 3.0 2.0 5.0sourced income. Source: KPMG in Jamaica, June 2010Tax ratesFor 2010 residents, the following progressive tax rates apply to Jamaica has entered into formal social security totalizationtaxable income above 441,168 Jamaican dollars (JMD): agreements with approximately 16 countries. One agreement covers 14 CARICOM (Caribbean Community and Common Taxable Income Tax rate Market) countries (although the agreement is not yet in force JMD 441,169–JMD 5,000,000 25 percent with three of those countries). The other agreements are with Canada and the United Kingdom. The agreements prevent JMD 5,000,001–JMD 10,000,000 27 percent .5 double taxation and allow cooperation between the Jamaican JMD 10,000,001 and above 35 percent and overseas tax authorities in enforcing their respective tax laws.Income below the floor amount is not taxable. Nonresidentsare subject to a 25 percent rate on total taxable income.Nonresident individuals do not benefit from the tax-freethreshold of JMD 441,169.102 / THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS© 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swissentity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • Compliance obligations Jamaica and overseas tax authorities in enforcing their respective tax laws.Employee compliance obligationsTax returns are due by March 15 following the tax year- Permanent establishment implicationsend, which is December 31. Extensions are granted at the There is the potential that a permanent establishment couldsole discretion of the Commissioner of Taxpayer Audit and be created as a result of extended business travel, but thisAssessment. A return may not be required if a taxpayer’s sole would depend on the type of services performed and thesource of income is wages that were subject to withholding. level of authority the employee has.Employer reporting and withholding requirements Indirect taxesWithholdings from employment income are covered under General consumption tax (GCT) is applicable at 17 percent .5the Pay-As-You-Earn (PAYE) system. If an individual is taxable on taxable supplies. GCT registration may be required inon employment income, the payer has a PAYE withholding some circumstances, especially when annual turnoverrequirement. exceeds JMD 3 million. Transfer pricingOther Jamaica does not have specific transfer pricing rules.Work permit/visa requirements Rather, specific anti-avoidance provisions carry out a similarJamaica does not have a specific business visa process. function, in that, where the consideration for a service renderedEntry requirements will vary by country of citizenship. by a connected party is substantially different from thatCitizens of the United States, United Kingdom, and Canada obtainable at market rates, the Commissioner of Taxpayer Auditmay be able to enter the country on certain sales and and Assessment may impute a consideration equivalent to themarketing business travel for up to 30 days with a valid market rate and assess the parties accordingly.passport. All other citizens and business travelers should Local data privacy requirementsconsult with the Jamaican embassies in their countries to Jamaica has limited data privacy laws, the most recentunderstand specific entry requirements. enactment being in relation to electronic transactions inForeign nationals must obtain a work permit to engage commercial arrangements.in gainful employment in Jamaica. Certain persons may Exchange controlqualify for exemption from the work permit requirement Jamaica does not restrict the flow of Jamaican or foreignif they will not be in the island for more than 14 days. currency into or out of the country.Such persons include directors of a Jamaican companyor of a company that controls a Jamaican company and Nondeductible costs for assigneespersons providing technical advice on the operations of a Nondeductible costs for assignees include contributions bybusiness in Jamaica. The qualified persons should apply an employer to nonapproved pension funds.to the Ministry of Labour and Social Security for therelevant work permit exemption approval.Double taxation treatiesIn addition to Jamaica’s domestic arrangements that providerelief from international double taxation, Jamaica has enteredinto double taxation treaties with more than 22 countriesto prevent double taxation and allow cooperation between THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS / 103 © 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • JapanIntroduction Contact Masami ImokawaPermanent residents are taxed on their worldwide income KPMG in Japanwhereas nonpermanent residents are taxed on their Japanese- Tax Partner T: +81 3 6229 8380sourced income, regardless of where it is paid, and their E: masami.imokawa@jp.kpmg.comforeign-sourced income paid in and/or remitted into Japan.Nonresidents are taxed on Japanese-sourced income only.Individual income taxes in Japan consist of a national income tax(NIT) and a local inhabitant tax (LIT). Tax treatment is dependentupon residency status.104 / THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS© 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swissentity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • Income tax Tax rates For residents, net taxable income is taxed at graduated ratesLiability for income tax ranging from 5 percent to 40 percent as national income tax,A person’s liability for Japanese tax is determined by plus 10 percent local inhabitant tax. Nonresidents areresidency status. There are two categories of individual subject to national income tax at a flat rate of 20 percent.taxpayers: resident and nonresident. A resident is an Nonresidents are not subject to local inhabitant tax.individual who has a domicile in Japan or has resided inJapan for a continuous period of one year or more. A residentis further classified as either a nonpermanent resident Social securityor a permanent resident. A nonpermanent resident is an Liability for social securityindividual who is not a Japanese national and has had a The social insurance program in Japan consists of healthdomicile in Japan for more than 1 year and less than 5 years insurance, nursing care insurance, pension insurance,in the last 10 years. employment insurance, and workers’ accident compensation insurance. Any individuals who meet the prescribed conditionsA nonpermanent resident is taxed on the individual’s are expected to participate in these systems as an insuredJapanese-sourced income, regardless of where it is paid, and person, regardless of nationality. Individuals who are paidforeign-sourced income paid in and/or remitted into Japan. from outside Japan are not required to participate in theseA permanent resident is a resident other than a nonpermanent systems. An exemption can apply where there is a totalizationresident. Therefore, an individual who is a Japanese national, agreement between Japan and the home country.who has a domicile in Japan, or has resided in Japan for morethan 5 years in the last 10 years is considered a permanent Compliance obligationsresident. A permanent resident is subject to income tax on Employee compliance obligationsworldwide income regardless of source. A nonresident is an Tax returns are due by March 15 following the tax year-end,individual other than resident. which is December 31. When a taxpayer leaves Japan, theA nonresident is taxed only on Japanese-sourced income, taxpayer must file a tax return before the departure date orwithout deductions or exemptions. If a nonresident is a by March 15 of the following year if a tax agent is appointedresident of a country with which Japan has concluded a tax before the departure date. Extensions of the filing deadlinetreaty, income may be either exempt or subject to a lower are not available.rate of tax. A nonresident is not subject to local inhabitant Employer reporting and withholding requirementstax. Extended business travelers are likely considered If compensation is paid through an onshore payroll, thenonresidents for Japanese tax purposes unless their employer is required to withhold income tax on the payments.assignment periods are one year or longer. If the employer of nonresidents has an office or place ofDefinition of source business in Japan and Japanese-sourced compensation is paidEmployment income is considered to arise at the location in to nonresidents outside Japan, the employer is required towhich employment services are rendered. Therefore, salary, withhold nonresident income tax on payments.wage, bonus, or similar remuneration paid to an employeefor services performed in Japan is considered Japanese- Othersourced income. Work permit/visa requirementsJapan also levies a 10 percent local inhabitant tax. A visa must be applied for before the individual enters Japan. The type of visa required will depend on the purposeTax trigger points of the individual’s entry into Japan.Technically, there is no threshold/minimum number ofdays that exempts the employee from the requirements Double taxation treatiesto file and pay tax in Japan. Generally, Japan’s double Japan has an extensive tax treaty network. In addition totax treaties are in line with the OECD Model Treaty with Japan’s domestic arrangements that provide relief fromrespect to the tax-exempt treatment of foreign employees international double taxation, Japan has entered into doubletemporarily working in Japan. Japan does not adopt, taxation treaties with more than 50 countries to preventhowever, the economic employer concept when considering double taxation and allow cooperation between Japan andthe application of a double tax treaty. overseas tax authorities in enforcing their respective tax laws.Types of taxable incomeFor extended business travelers, the types of income thatare generally taxed are Japanese-sourced employmentincome. THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS / 105 © 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • Permanent establishment implications Transfer pricingThe Japanese Corporation Tax Law provides three types Japan has a transfer pricing regime. Transfer pricingof permanent establishments: a fixed place of business implications could arise to the extent that the employee ispermanent establishment, a long-term construction project being paid by an entity in one jurisdiction but performingpermanent establishment, and an agency permanent services for the benefit of the entity in another jurisdiction,establishment. There is potential that a permanent in other words, a cross-border benefit is being provided.establishment of a foreign corporation could be created This would also be dependent on the nature and complexityas a result of extended business travel, but this would be of the services performed.dependent on the type of services performed and the level Local data privacy requirementsof authority the employee has for the foreign corporation. Japan has data privacy laws.Indirect taxes Nondeductible costs for assigneesConsumption tax is applicable at 5 percent on taxable Nondeductible costs for assignees include contributionssupplies. Consumption tax registration may be required in by an employee to non-Japanese pension funds with minorsome circumstances. exceptions.106 / THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS© 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swissentity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • LuxembourgIntroduction Contact Claude PonceletIndividuals domiciled in Luxembourg are subject to income KPMG in Luxembourgtax on their worldwide income unless exempt under the Tax Partner T: +352 22 51 51-5567provisions of a treaty. Under Luxembourg tax law, the concept E: claude.poncelet@kpmg.luof “domicile” is essentially equivalent to the term “residence”as used in most jurisdictions. In this article, the two terms areused interchangeably.Nonresidents (nondomiciliary) are subject to tax on certaincategories of income from Luxembourg sources.The official currency of Luxembourg is the euro (EUR).Key messagesExtended business travelers who are not residents of Luxembourg are likely to be taxed on employment incomerelating to their Luxembourg workdays. THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS / 107 © 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • Income tax Persons covered:Liability for income tax • Employees usually working abroad, assigned by a companyIndividual liability to Luxembourg tax is determined located outside of Luxembourg, to perform a professionalby residence status. A person can be a resident or a activity for a limited period of time as employees in anonresident. Luxembourg companyAn individual will be considered domiciled in Luxembourg for • Employees hired by a Luxembourg company to work intax purposes if either of the following circumstances is met, Luxembourg for a limited period of time.subject to tax treaty provisions: Tax regime:• The individual maintains a permanent home in On written request to the Luxembourg tax authorities, tax Luxembourg. When an individual’s family (spouse and exemption of the part of relocation expenses (repetitive and children) resides in Luxembourg, the individual may nonrepetitive) that exceed those that would have applied had be considered to have a home in Luxembourg, even if the employee remained in the employee’s home country. the individual is absent from Luxembourg for most of • Nonrepetitive expenses: removal expenses, housing the year. Special rules may apply, however, for married (furniture, etc.), special travel costs (e.g., birth, wedding, couples where one of the spouses lives abroad. death of a family member), etc.• The individual has an abode in Luxembourg. This • Repetitive expenses: housing costs (e.g., rent, utilities, circumstance is deemed met if the individual remains heating), yearly home travel, tax equalization, school fees in Luxembourg for more than six months in a given calendar year. This is not restricted to six months in the • Tax-free lump-sum indemnity for other repetitive calendar year. If an individual arrives on October 1 in year expenses (cost of living adjustment): fixed at 8 percent N and is still staying in the country on April 2 in year N+1, of the employee’s fixed monthly remuneration, capped the six-month stay will be deemed to have been met. at €1,500 per month. The lump-sum indemnity can be The individual will be deemed to have been resident in doubled (i.e., 16 percent capped at €3,000 per month) Luxembourg from October 1 in year N. where the employee shares housing with a spouse or partner who does not perform any professional activity.Tax trigger pointsTo consider the start and end dates of residency status, Application:there is no minimum number of days in Luxembourg. A specific tax regime applies to highly skilled workersThe determination is essentially based on facts and relocating to Luxembourg as of January 1, 2011 if differentcircumstances. The assignee is considered to be a conditions related to the employee, the LuxembourgLuxembourg tax resident as of the first day the individual employer, and the salaried employment in Luxembourgarrives in Luxembourg (according to Luxembourg domestic are fulfilled.tax rules). Duration of the specific tax regime:Types of taxable income The benefit of the specific tax provisions is granted for theFor extended business travelers, the types of income that duration of the employee’s assignment, capped at five years.are generally taxed are employment income, Luxembourg-sourced income, and gains from taxable Luxembourg Tax ratesassets (such as real estate, fringe benefits, broadly Net taxable income is taxed at graduated rates ranging fromnoncash employment). 0 percent to 40.56, 41.34 percent for the part of the taxable income exceeding €150,000 (€300,000 for couples jointlySpecific tax regime for highly skilled workers taxed), including a 4 to 6 percent unemployment contribution.On December 31, 2010, the Luxembourg Tax authorities Nonresidents are subject to minimum tax rate of 15 percent onpublished a circular (L.I.R n°95/2 of December 31, 2010) their income not subject to withholding tax.regarding the tax regime applicable to highly skilled workers(the Circular). Social security Liability for social securityAs from January 1, 2011, specific tax provisions apply In Luxembourg, registration with the social security authoritiesin Luxembourg to highly skilled workers relocating to is compulsory for all employees. An exemption from payingLuxembourg after December 31, 2010. These provisions Luxembourg social security contributions may be grantedattempt to exempt part of highly skilled workers’ under a social security treaty signed by Luxembourg. Theremuneration on their assignments in Luxembourg. benefits cover:Scope of the Circular: • Old-age pension, disabilities pension, survivors’ pensionThe aim of the Circular is to attract highly skilled workers withspecific skills and knowledge who represent a key advantage • Health and medical expensesfor companies located in Luxembourg. • Allowance in cash for children108 / THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS© 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swissentity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • The employee’s part of social security contributions rangesbetween 13 percent and 13.25 percent. The employer’s part Otherof social security contributions ranges between 12.68 percent Work permit/visa requirementsand 14.69 percent. Both are capped. For non-EU citizens, a visa must be applied for before the individual enters Luxembourg. The type of visa requiredEmployee’s part: will depend on the purpose of the individual’s entry into• Pension (1st pillar): 8 percent Luxembourg.• Sickness: 3.05 percent Double taxation treaties In addition to Luxembourg’s domestic arrangements that• Maximum annual contribution basis: €105,453.72 provide relief from international double taxation, Luxembourg (index 719.84) has entered into double taxation treaties with 62 countriesNontax-deductible contributions: to prevent double taxation and allow cooperation between Luxembourg and overseas tax authorities in enforcing their• Dependency insurance: 1.4 percent minus a deduction of respective tax laws. €439.39 per month on gross salary. No ceiling is applicable. Permanent establishment implications• Crisis contribution: 0.8 percent minus a deduction of There is the potential that a permanent establishment could €1,757 per month on gross salary. No ceiling is applicable. .56 be created as a result of extended business travel, but this would be dependent on the type of services performed andCompliance obligations the level of authority the employee has (such as the powerEmployee compliance obligations to sign contracts on behalf of the employer).Tax returns are due by March 31 following the tax year-end, Indirect taxeswhich is December 31. Filing of tax returns may be required by Value-added tax (VAT) is applicable to transactions andnonresidents who derive Luxembourg-sourced income under sales. The standard VAT rate applicable in Luxembourg iscertain conditions. 15 percent.Employer reporting and withholding requirements Transfer pricingThe Luxembourg employer has the legal obligation to withhold Luxembourg applies the OECD guidelines in terms ofthe correct amount of tax on salaries paid to employees. transfer pricing, hence, a transfer pricing implicationAdvance payments of tax, together with tax withheld at the could arise to the extent that the employee is being paidsource, are deductible from the final income tax liability. by an entity in one jurisdiction but performing servicesAny overpayment of tax is refunded. Tax withheld on wages for the benefit of the entity in another jurisdiction and noand pensions is adjusted annually when the tax is not calculated corresponding recharge is performed, in other words,by assessment. If an expatriate establishes residence in if a cross-border benefit is being provided. This wouldLuxembourg during the course of the year, the expatriate will also be dependent on the nature and complexity of thegenerally be required to provide the Luxembourg tax authorities services performed.with evidence of salary earned during the part of the year the Local data privacy requirementsexpatriate was not resident in Luxembourg. The computation Luxembourg has data privacy laws.of the expatriate’s salary for the entire year allows thedetermination of a possible refund of tax withheld in excess. Exchange control Luxembourg does not restrict the flow of European orThe amounts of the prepayments are based on the amount foreign currency into or out of the country.of income tax due for the previous year. The income taxwithheld monthly on employment income and pensionincome is computed according to tax tables set forth bythe government. THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS / 109 © 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • MacauIntroduction Contact Maria LeeAll Macau-sourced income is subject to tax. Macau has double KPMG in Macautax treaties with China and Portugal. The maximum tax rate is Tax Partner T: +853 2878 109212 percent, and a 25 percent reduction in Macau professional E: maria.lee@kpmg.comtax (MPT) liability is temporarily allowed.A person’s liability to MPT is determined by the source ofincome earned. Residents and nonresidents are generallytreated alike for MPT purposes.Key messagesBusiness travelers are taxed on remuneration for services rendered in Macau.110 / THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS© 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swissentity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • Income tax Compliance obligationsLiability for income tax Employee compliance obligationsMPT is levied on all personal income from employment and In certain circumstances, such as where the employees areprofessional practices arising in or derived from Macau, receiving remuneration from more than one employer in aregardless of the origin of payment, place of employment, year, employees are required to file their own tax returnsor residency of taxpayers. and settle their liabilities personally. In such a case, an individual is required to submit an MPT return no later thanDefinition of source February of the following year.For MPT purposes, income will generally be regarded as arisingin or derived from Macau if it is received in consideration of Employer reporting and withholding requirementsservices performed in Macau. An employer has an obligation to deduct MPT from the salary of its employees (local residents or employees with validTax trigger points work permits/visas) on a Pay-As-You-Earn (PAYE) basis.Technically, there is no threshold/minimum number of days The withheld tax should be remitted together with thethat exempts the employee from the requirements to file and quarterly returns to the Macau Finance Services Bureaupay tax in Macau. Macau has double tax treaties with mainland within 15 days before the end of each quarter (i.e., April 15,China and Portugal. To the extent that an individual qualifies July 15, October 15, and January 15). For other employees,for relief under the dependent personal services article of the withheld tax should be remitted within 15 days after thethe applicable double tax treaty, there will be no tax liability in payment of salary. In addition, employers are obliged to fileMacau. The treaty exemption will not apply, however, to the MPT returns for remuneration and tax withheld for allindividuals under certain circumstances, such as where employees with the Macau Finance Services Bureau beforethe remuneration is paid by an employer who is a resident the end of February in the following year.of Macau or borne by a permanent establishment that theemployer has in Macau. OtherTypes of taxable income Work permit/visa requirementsMPT is levied on all service income, including remuneration A nonresident is required to apply for a nonresidentfrom work, in cash or benefits-in-kind, fixed or variable, working permit in order to work in Macau.and regardless of the calculation method or the currency inwhich it is paid. For instructional, technical, quality control, or business supervisory service pursuant to an agreement between aTax rates foreign enterprise and a person or legal entity residing in MacauThe first 144,000 Macau patacas (MOP) of an individual’s for the provision of certain specific and nonrecurrent projectstaxable income is exempt from MPT. Progressive tax rates or services, a nonresident working permit is not required ifrange from 7 percent to 12 percent. Income earned over the nonresident stays continuously or intermittently in MacauMOP 424,000 is taxed at 12 percent. Following a special for work or service for a maximum of 45 days in every sixorder that has applied since 2004, taxpayers are granted a consecutive months.25 percent reduction in MPT liabilities. Double taxation treatiesSocial security Macau has entered into double taxation treaties with mainland China and Portugal to prevent double taxation.Liability for social securityEmployers are required to make monthly contributions Permanent establishment implicationsof MOP 30 for resident employees and MOP 200 for There is no permanent establishment concept in Macau,nonresident employees. This is remitted to the Macau although income earned by entities carrying out businessSocial Security Fund on a quarterly and monthly basis, activities in Macau is subject to Macau complementary tax.respectively. Accordingly, there is potential for an entity to be considered carrying on a business in Macau as a result of its employees’Social security tax of MOP45 per month is applicable in activities in Macau, depending on the nature and extent ofMacau for each employee who is a local resident working the services performed.in Macau. A recruitment levy of MOP200 per month isapplicable for each foreign employee with a valid workpermit/visa working in Macau. THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS / 111 © 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • Indirect taxes Local data privacy requirementsThere is currently no value-added tax (VAT) or goods and Macau has data privacy laws formulated to protectservices tax (GST) levied in Macau. personal data.Transfer pricing Exchange controlMacau does not have a transfer pricing regime. The Macau There are currently no exchange control regulations inFinance Services Bureau may review, however, related-party Macau.transactions to ensure that the transactions are conducted on Nondeductible costs for assigneesan arm’s-length basis and are commercially justifiable. Nondeductible costs for assignees include contributions by an employer to pension funds that are not approved by the Monetary Authority of Macau.112 / THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS© 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swissentity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • MalaysiaIntroduction Contact Pauline TamResidents and nonresidents in Malaysia are taxed on KPMG in Malaysiaemployment income accruing in or derived from Malaysia. Executive Director T: +603 7721 3388Residence status only affects the amount of tax paid. E: pohlintam@kpmg.com.myIncome tax in Malaysia is territorial in scope and based on thesource principle regardless of the tax residency of the individualin Malaysia. The source of employment income is the placewhere the employment is exercised.Key messagesExtended business travelers who are in Malaysia for more than 60 days are likely to be taxed on employmentincome attributable to their Malaysian assignments. THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS / 113 © 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • Income tax MYR 14.75 per month for the employee and from MYR 0.40 to MYR 51.65 per month for the employer. Foreign employeesLiability for income tax are generally not required to contribute to SOCSO as theirGenerally, an individual becomes a tax resident for a year of wages generally exceed MYR 3,000 per month. Employeesassessment if the aggregate number of days the individual of Malaysian nationality or of permanent residence statusstays in Malaysia during the basis year is 182 days or more. are required to contribute to the Employees ProvidentIncome derived from Malaysia by residents and nonresidents Fund (EPF). The employee’s and employer’s contributionsis subject to Malaysian tax, irrespective of where the to the EPF are 11 percent and 12 percent, respectively,employment contract is made or where the remuneration is of the employee’s wages. Foreign employees have thepaid. Employment income is regarded as Malaysian-derived option of becoming members of the EPF. The minimumincome if the employment activities are exercised in Malaysia. statutory contribution by the foreign employee andDefinition of source employer is 11 percent of the foreign employees’ wagesMalaysian-sourced income is defined as income accruing in and MYR 5, respectively.or derived from Malaysia. Employment income is generallytreated as Malaysian-sourced compensation where the Compliance obligationsindividual performs the services while physically located Employee compliance obligationsin Malaysia. The tax year, commonly called the year of assessment (YA),Tax trigger points runs from January 1 to December 31. Tax returns must beA nonresident individual who exercises employment in filed by April 30 of the following year. For individuals whoMalaysia for not more than 60 days is exempt from Malaysian derive business income, the filing deadline is June 30 of thetax. An individual whose employment period in Malaysia following year.exceeds 60 days would be taxable unless the individual Employer compliance obligationsis able to seek exemption from Malaysian tax under the An employer is required to notify the MIRB via Form CP22dependent personal services article of the relevant double of the commencement of employment of its employees intax treaty. Malaysia within one month of the date of commencement ofTypes of taxable income employment.For extended business travelers, the types of income that An employer must declare the total remuneration paid toare generally taxed are employment income and other employees for employment performed in Malaysia on FormsMalaysian-sourced income. E and EA. This is regardless of whether the employee’s salaryTax rates and/or allowance are paid in or outside Malaysia.A tax-resident individual would be subject to tax at graduated An employer is also required to notify the MIRB of therates ranging up to 26 percent after the deductions of cessation of employment of an employee who is liable forpersonal reliefs (such as relief for oneself, dependent spouse, tax. In the case of an expatriate employee, the notificationlife insurance premiums, and so on). The maximum tax rate is is required when the expatriate’s assignment in Malaysiacurrently 26 percent (with effect from year of assessment ends or the expatriate ceases employment in Malaysia.(YA 2010)) on chargeable income above 100,000 Malaysian The notification (via Form CP21) must be submitted to theringgit (MYR) for residents. MIRB not less than one month before the expected dateA non-tax-resident individual would be taxed at a flat rate of of departure or date of cessation of employment of the26 percent (with effect from year of assessment (YA) expatriate, whichever is earlier. The employer is required to2010). Non-tax-residents are not entitled to personal relief withhold any money in the employer’s possession owingdeductions. to the expatriate who has ceased or is about to cease employment until 90 days after the MIRB receives the FormSocial security CP21 or upon receipt of the tax clearance letter, whichever is earlier. The employer can then release the balance of moneyLiability for social security withheld from the employee after the settlement of theThe Social Security Organization (SOCSO) is a scheme outstanding taxes (if any) as shown in the tax clearance letter.to provide certain benefits to employees in cases ofemployment injury, including occupational diseases Employer reporting and withholding requirementsand invalidity and for certain other matters in relation to Tax withholdings from employment income are covered byemployment. Employees covered by this scheme are the monthly tax deductions (MTD) system. Under the MTDthose whose wages do not exceed MYR 3,000 per month. system, it is mandatory for an employer to deduct tax fromThe current rates of contribution vary from MYR 0.10 to an employee’s monthly cash remuneration (whether it is114 / THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS© 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swissentity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • paid in Malaysia or outside Malaysia) and perquisites of each Indirect taxesof the employees, based on the MTD schedule issued by Service tax is chargeable on the value of taxable servicesthe MIRB. The tax deducted during a calendar month must provided by a taxable person. The rate was increased frombe remitted to the MIRB not later than the 10th day of the 5 percent to 6 percent effective January 1, 2011. The taxfollowing calendar month via the Statement of Tax Deduction applies throughout Malaysia except for Langkawi, Labuan,by an Employer (Form CP39). Employees may submit certain Tioman, the Joint Development Area (JDA), and Free Zones.completed prescribed forms to elect for claim of deduction The government originally indicated that goods andand rebates in the relevant months or to include benefits-in- services tax (GST) would be implemented anytime fromkind (BIK) and value of living accommodation (VOLA) as part the middle of 2011. However, the government announcedof the monthly remuneration to be subject to MTD. Both on October 13, 2010 that the implementation of GST haselections are subject to the approval of the employer. been postponed. The GST will replace the current sales taxIt should also be noted that the MTD applicable to an and service tax regime.employee who is not resident or not known to be resident Transfer pricingshall be at the rate of 26 percent of the employee’s cash Malaysia has a transfer pricing regime. Transfer pricing andremuneration and perquisites. tax implications could arise where an employee is being paid by an entity in one jurisdiction but performing services for theOther benefit of the entity in another jurisdiction. This would alsoWork permit/visa requirements be dependent on the nature and complexity of the servicesAn individual entering Malaysia may or may not require a performed.visa, depending on the citizenship of the individual. The typeof work permit required will depend on the purpose of the Local data privacy requirementsindividual’s entry into Malaysia. Malaysia has data privacy laws.Double taxation treaties Exchange controlMalaysia has entered into double tax treaties with 73 countries. The present exchange control regime applies uniformly toThe treaties prevent double taxation and allow cooperation transactions with all countries except Israel, against whichbetween Malaysia and overseas tax authorities in enforcing special restrictive rules apply.their respective tax laws. Qualification for treaty relief is Nondeductible costs for assigneesnot automatic. An application must be made to the MIRB Employment costs are generally deductible by the employer,by providing proof that an individual is able to qualify for tax except for certain prohibited costs such as those in relationexemption under treaty relief. to overseas leave passage, entertainment allowance, andPermanent establishment implications employer’s contribution to pension/provident fund that isA permanent establishment could potentially be created not approved by the MIRB. Such costs are nondeductible.as a result of extended business travel, but this would be (However, 50 percent entertainment allowance is taxdependent on the type of services performed and the level of deductible.)authority the employee has. THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS / 115 © 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • Mexico Introduction Contact Nora Solano A person’s liability for Mexican tax is determined by residence KPMG in Mexico status for taxation purposes and the source of income derived Director T: +52 55 5246 8355 by the individual. E: solano.nora@kpmg.com.mxKey messagesExtended business travelers are likely to be taxed on employment income relating to their Mexican workdays. 116 / THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS © 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • Income tax Tax trigger points Technically, there is no threshold/minimum number of daysLiability for income tax that exempts the employee from the requirements to fileA person’s liability for Mexican tax is determined by residence and pay tax in Mexico since, as explained above, a person’sstatus. A person can be a resident or a nonresident for Mexican liability to Mexican tax is determined by residence status.tax purposes. Once it is determined that the individual is a nonresident forA resident is taxed on worldwide income. According to the Mexican tax purposes, however, the individual could be fullyMexican Tax Code, an individual should be considered resident exempt from Mexican taxation as long as:for Mexican tax purposes if the individual establishes a home • The salary is paid by a nonresident who does not have ain Mexico. When the individual also has a home in another permanent establishment (PE) in Mexico, or in the case thatcountry, the individual will be a tax resident in Mexico if the a PE does exist, when the service is not related to said PEindividual’s center of vital interests is in Mexico. It is consideredthat the individual’s center of vital interests is in Mexico in either • The employee is present in Mexico for less than 183 calendarof the following cases, among others: days, whether consecutive or not, in a period of 12 months• When more than 50 percent of the individual’s total income • The employer paying the salary does not have an received during the calendar year is derived from Mexican establishment within Mexican territory to which the sources service is related. The exemption will not be applicable if the employer has an establishment in Mexico, even if such• When the individual’s main center of professional activities is establishment does not constitute a PE for Mexican tax located in Mexico. purposesOn the other hand, the Mexican fiscal code states that in • The nonresident employee does not receive complementarythe absence of proof to the contrary, individuals of Mexican payments from nonresidents in consideration of servicesnationality are presumed to be residents of Mexico. rendered for which salary income was obtained.Additionally, individuals of Mexican nationality should retain Additionally, to the extent that the individual qualifies for relieftheir status as tax residents of Mexico when proving their tax in terms of the dependent personal services article of theresidency in a country with a preferential tax regime for the year applicable double tax treaty, there will be no tax liability.in which the notice of termination of tax residence is filed and The treaty exemption will not apply if the Mexican entity isfor the following three years. It is important to mention that this the individual’s economic employer and, as such, bears theprovision is not applicable in those instances where Mexico has cost of the individual’s compensation.executed an unlimited exchange of information agreement witha preferential tax regime country. Types of taxable income For extended business travelers, the types of income that areNonresidents are taxed only on Mexican-sourced income. generally taxed are employment income, Mexican-sourcedMexican tax legislation establishes that income derived income, and gains from sale or leasing of taxable Mexicanfrom an employment relationship should be considered as assets (such as real estate).Mexican-sourced income when the associated personalservices are rendered in Mexico. Tax rates For 2011 residents, taxable income is taxed at graduatedExtended business travelers are likely to be considered rates ranging from 1.92 percent to 30 percent. The maximumnonresident of Mexico for tax purposes unless they: marginal tax rate is reached on income earned over 32,736.84• Establish a home in Mexico and do not maintain a home in Mexican pesos (MXN). another location Nonresident income tax should be determined by applying• Establish a home in Mexico and maintain a home in another the following rates to the income received and derived from location but have their center of vital interest, as described Mexican-sourced income: above, in Mexico. Annual income Annual income Tax rate percentDefinition of source from MXN to MXNEmployment income is generally treated as Mexican-sourced 0 125,900 Exemptcompensation where the individual performs the serviceswhile physically located in Mexico. 125,901 1,000,000 15 1,000,001 and above 30 Source: KPMG in Mexico, March 2011 THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS / 117 © 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • When the income in question is received in a 12-month Employer reporting and withholding requirementsperiod and such period does not coincide with the calendar Mexican income taxes are paid on earned income, Pay Asyear, the above rates should be applied as a function of the You Earn (PAYE).12-month period. Individuals are required to remit tax payments on compensation as follows:Social securityLiability for social security • When compensation is paid by Mexico or from abroad, butForeigners who work for Mexican employers are subject to the cost of the individual’s compensation is charged backMexican social security contributions when an employment to a Mexican entity under a secondment agreement and,relationship is deemed to exist in Mexico. Such relationship is as such, reflected on the Mexican payroll, the tax obligationdeemed to exist in Mexico when the employee’s activities are will be satisfied via tax withholdings. Under this scenario,supervised, controlled, or governed by a Mexican employer. the Mexican employer will determine the individual’sThese are based on several components where the capped monthly tax liability and remit the corresponding taxes tosalary is 25 times the minimum wage of Mexico City (for 2011 the Mexican tax authorities.the minimum wage is MXN59.82 per day). • When compensation is paid from abroad, the cost of theThe aforementioned contributions are calculated based on individual’s compensation is not charged back to a Mexicanthe following percentages and subject to the capped salary: entity, and the compensation is not reflected on the Mexican payroll, the individual will be required to file personal Paid by tax returns through the Internet by wiring the tax amount due from the individual’s personal Mexican bank account. Type of Employer Employee insurance percent percent Total percent Monthly personal tax returns and withholdings are due Social by the 17th day of the month following that in which the security 9.93–24.43 2.73 12.66–27.16 compensation was paid. Nonresident tax returns should (IMSS)* be paid within 15 days following the receipt of the income, unless a Mexican entity is obligated to withhold the tax or Retirement one of the following alternative options is used, in which case 2.00 0.00 2.00 fund (SAR) the due date will be the 17th day of the month following that Housing fund in which the compensation was received. 5.00 0.00 5.00 (INFONAVIT) Income taxes associated with salary income received by Total percent 16.93–31.43 2.73 19.66–34.16 nonresident individuals can also be paid via one of theSource: KPMG in Mexico, March 2011 following payment alternatives:*  he above rates represent the effective rates for individuals with a capped salary. T The employer contribution will depend on each employer’s risk classification. • The foreign employer withholds the Mexican tax and remits to the tax authorities. It is important to mentionMexico has entered into formal duly signed social security that this would require the foreign entity to be formallytotalization agreements with two countries: Spain and registered in Mexico as a withholding agent.Canada. • The Mexican entity where the services are being renderedThere are no provisions for foreign employees working in collects and makes the tax payments.Mexico under a contract with a foreign employer and withno Mexican employer. In such cases, although the employee • A nominated and jointly liable Mexican representativecould be deemed to be subject to Mexican social security makes the payments.contributions, it may be argued that there would be no basis tocalculate such contributions (no salary borne in Mexico) and no Othervehicle to remit them (no Mexican employer). Thus, Mexican Work permit/visa requirementssocial security contributions would not be applicable under this Foreigners who are paid from abroad can enter into Mexicoapproach. with a Multiple Migratory Form (FMM); this is the necessary paperwork and is provided at the port of entry. Foreigners withCompliance obligations restricted and strictly restricted nationalities must apply for aEmployee compliance obligations visa in advance.Annual tax returns are due by April 30 following the tax year-end, which is December 31. Extensions are not permitted.Nonresidents are not obligated to file a Mexican annual taxreturn since the payments made are considered as final ordefinitive.118 / THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS© 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swissentity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • If the foreigner’s residence in Mexico will last for more The Mexican value-added tax law (LIVA) establishes thatthan six months, the individual has five days to request the VAT is due on the following activities carried out in Mexicanredemption of the FMM in return for a nonimmigrant card territory:(FM3). This should be done by submitting the following • Salesdocumentation at the local migratory office nearest tothe individual’s place of residence (depending on the • Rendering of independent servicesforeigner’s nationality, the requirements and information • Imports of good or servicesrequested may vary): • Leasing• Passport Mexican entities• Payment of fees All individuals and entities engaging in acts or activities• Completed form in Mexico consisting of alienation of assets, rendering of independent services, granting of temporary use or advantage• Five passport-sized photographs of assets, and import of goods or services must register for VAT• Original of the FMM purposes. This tax is paid on a cash flow basis.If the foreigner is paid by a Mexican entity or a mirror payroll Non-Mexican entitiesis established by a Mexican entity, the foreigner should apply Non-Mexican entities that have established a Mexican PE havefor an FM3 at the Instituto Nacional de Migración (INM) with the obligation to register with the Mexican tax authorities;a letter of invitation, written in Spanish, from a corporation, consequently, they are compelled to comply with all Mexicanassociation, or chamber of Mexican business that expresses tax obligations, including VAT obligations.the purpose of the visit, the estimated period of stay abroad, Non-Mexican entities that engage in sales or leasingand confirmed economic ability to bear all expenses in Mexico. activities in national territory subject to VAT will be subjectIt is important to mention that it is possible to start the process to withholding for the corresponding VAT amount by theof obtaining an FM3 at the Mexican consulate of the home Mexican taxpayer.country. In this case, a seal is placed on the passport. Once in Flat rate business taxMexico, the individual should ask for an FM3 at the INM. The flat rate business tax (IETU) is a new tax in force as ofAn FM3 is valid for a one-year period, and it may be extended January 1, 2008 that is paid on a cash flow basis and is imposedup to four additional years. An immigrant visa (FM2) is on Mexican tax residents or nonresidents with a PE in Mexicogranted after holding an FM3 for five years. who receive income from independent and professional services, sale of goods, and rental income. The tax rate forForeigners must obtain approval from the INM to engage in 2011is17 percent. .5different activities from the ones they have been expresslyauthorized. In addition, they must notify the INM of any The IETU is a type of alternative minimum tax. It must bechanges to their immigration status or situation. computed and compared to the income tax. In the event the IETU is higher than the income tax, a credit procedure hasDouble taxation treaties been established where only the excess IETU over theIn addition to Mexico’s domestic arrangements that provide income tax is paid.relief from international double taxation, Mexico has enteredinto double taxation treaties with approximately 39 countries A foreign entity, nonresident for Mexican tax purposes, thatto prevent double taxation and allow cooperation between provides and receives payments for its services will not beMexico and overseas tax authorities in enforcing their subject to IETU as long as such entity does not constitute arespective tax laws. PE in Mexico and/or the services rendered are not related to such PE.Permanent establishment implicationsThere is the potential that a permanent establishment (PE) On the other hand, the IETU law allows certain deductionscould be created as a result of extended business travel, but provided that they are related to the taxpayer’s businessthis would depend on the type of services performed and the activities or the management thereof. The IETU law, however,level of authority the employee has to bind the foreign entity does not allow salary deduction from the taxable income.in Mexico. Although the salaries paid are not a deductible item allowedIndirect taxes by the IETU law, such law also establishes a tax credit withValue-added tax respect to said salaries (the portion taxable to the employees)The standard rate of value-added tax (VAT) is 16 percent. that is applicable against the IETU due for the same year. Such credit, however, cannot be applicable in future tax years if any remaining balance exists. THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS / 119 © 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • Transfer pricing stated in Article 86 of the LISR, Mexican tax authorities mightMexican transfer pricing regulations rely on the arm’s-length deny the deduction of expenses for income tax purposesprinciple. The arm’s-length principle requires taxpayers originated as a result of intercompany transactions.undertaking operations with related parties, as well as with In addition, Article 76 of the Federal Fiscal Code allows the SATresidents in low-tax jurisdictions, except when proven that to assess penalties in cases in which it deems a company’sthe latter are not related parties of the Mexican taxpayer, to transfer pricing is not consistent with the arm’s-length standarddetermine their taxable revenue and authorized deductions under the Mexican transfer pricing regulations detailed inby considering the prices and/or compensation that would the LISR, as stated before. Said article also provides for ahave been agreed by or between independent parties in 50 percent reduction in the penalty imposed for underpaidcomparable transactions. taxes or for determining a loss in excess due to transferIn order to document the compliance of the arm’s-length pricing if the taxpayer keeps supporting transfer pricingprinciple by Mexican taxpayers, the Mexican income tax documentation.law (Ley del Impuesto Sobre la Renta or LISR) and the flat At the same time, Appendix 9 of the Multiple Informationrate business tax law (Ley del Impuesto Empresarial a Tasa Return must be filled by all companies conducting cross-Unica or LIETU) establish the transfer pricing documentation border intercompany transactions with their foreign relatedrequirements that must be complied with by said taxpayers. parties, with the exception of transactions covered by ArticleSpecifically, the LISR sets up the transfer pricing requirements 216 – BIS of the LISR.that must be met by Mexican taxpayers in Fractions XII,1 XIII, Companies filing the Dictamen Fiscal must file the transferand XV of Article 86, as well as Articles 215 and 216, and of pricing information in the appendices of the Dictamen Fiscal,the LIETU in Fraction III of Article 18. Among those transfer which is usually on June 30. In addition, the Informationpricing requirements, taxpayers must not only prepare Transfer Pricing Return for Cross-border Intercompanysupporting documentation regarding domestic and cross- Transactions must be filed with the Dictamen Fiscal.border intercompany transactions, but also file together withthe annual tax return some information regarding their cross- Companies not filing the Dictamen Fiscal Information Transferborder intercompany transactions, through an informative Pricing Return for Cross-border Intercompany Transactionsreturn. and the transfer pricing documentation must be ready by the time the income tax return is due, which is March 31.If the Servicio de Administración Tributaria (SAT) concludes thata company underpaid taxes in Mexico because it employed Local data privacy requirementstransfer prices that did not comply with the provisions of the On July 5, 2010, the Mexican Official Gazette publishedLISR, the taxpayer will be liable for the following: the Federal Law of Data Privacy Protection (Ley federal de Protección de Datos Personales en Posesión de los• Omitted taxes, restated for inflation Particulares). However, there is a one-year relief to name the• Interest person in charge of keeping personal data. As such, this law will be fully in place effective July 2011.• A penalty that may range between 55 percent and 75 percent of omitted income tax, or between 30 percent Exchange control and 40 percent of the excess of the tax loss originated due Mexico does not restrict the flow of Mexican or foreign to transfer pricing. currency into or out of the country.According to the Federal Fiscal Code, there is no specific Nondeductible costs for assigneespenalty for not preparing supporting transfer pricing Nondeductible costs for assignees may partially includedocumentation. However, in the case taxpayers do not contributions by an employee and employer to non-Mexicancomply with the transfer pricing documentation requirements pension funds.1 T  ransfer pricing documentation is required by Mexican legislation. However, taxpayers whose revenue during the previous fiscal year did not exceed MXN13 million (for the operative company) and MXN 3 million (for service providers) are not required to produce supporting documentation with regard to cross-border intercompany transactions. However, there is no exception to the requirement of complying with the arm’s-length principle.120 / THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS© 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swissentity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • MontenegroIntroduction Contact Vesna IvkovicMontenegrin law does not recognize the term ”extended KPMG in Montenegrobusiness traveler. A person’s liability to Montenegrin tax is ” Tax Partner T: +381 (11)20 50 545determined by tax residence status and the source of income E: vivkovic@kpmg.comderived by the individual.Key messagesExtended business travelers will be liable for tax primarily on their employment income related to work performedin Montenegro if they are present in Montenegro more than 183 days in a calendar year. THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS / 121 © 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • Income tax Compliance obligationsLiability for income tax Employee compliance obligationsA person’s liability for Montenegrin tax is determined by Individuals who are performing work in Montenegro for aresidence status or source of income. period longer than 183 days in a calendar year and whose employer is not resident in Montenegro are obliged toA Montenegrin tax resident is an individual who spends file a tax return and pay income tax by themselves uponmore than 183 days in a calendar year in Montenegro, receiving the income for work performed in Montenegro.if the individual has a residence in Montenegro, or if However, since the government of Montenegro has notthe individual’s center of business and vital interest is in yet prescribed a form of tax return for income receivedthe territory of Montenegro. Montenegrin tax residents from abroad, income tax is paid annually. Individuals whoare residents for the entire calendar year. become Montenegrin tax residents, therefore, have toMontenegrin-sourced income is income generated from report tax by filing an annual tax return. The annual taxbusiness activities performed in a fixed place of business return must be filed and tax must be paid by April 30 of thelocated in Montenegro, interest, and income from the rental current year for the previous calendar year.of immovable property located in Montenegro.A Montenegrin tax resident is assessable on worldwide Otherincome. The personal income tax paid in another country can Work permit/visa requirementsbe claimed as a tax credit. Generally, before to coming to Montenegro, a visa must be obtained. If an individual intends to stay in Montenegro lessTax trigger points than 90 days, a short-term visa is necessary. However, inThere is no trigger point for taxation in Montenegro. For all practice, this visa is not required for citizens of most Europeanbusiness trips/assignments that last for more than 183 days countries. On the other hand, if an individual intends to work inin a calendar year, foreigners become Montenegrin tax Montenegro for more than 90 days in a six-month period, theresidents, and income tax must be reported by filing an individual is required to obtain a work permit and temporaryannual tax return. residence permit prior to commencing any work. In addition,Types of taxable income the government of Montenegro has introduced quotas,Tax residents are assessable on Montenegrin-sourced limiting the number of work permits issued per year, but thisincome (employment income, self-employment income, limitation is not applied to certain categories of assigneesincome from property and property rights, income from (managers, specialists) assigned to Montenegro.capital) and their worldwide income, whereas nonresidents Double taxation treatiesare assessable only on income from Montenegrin sources. Montenegro has entered into double taxation treaties withTax rates 38 (mostly European) countries to prevent double taxationIn 2010, Montenegro applies a 9 percent flat tax rate on all and allow cooperation between Montenegro and taxtypes of income. authorities in other countries in enforcing their respective tax laws.Social security Permanent establishment implicationsLiability for social security There is the potential risk that an extended business travelerAccording to Montenegrin social security legislation, all may create a permanent establishment if the businessforeigners assigned to Montenegro are obliged to pay traveler has a fixed place of business in Montenegro formandatory social security contributions, unless such a period longer than 183 days, depending on the level ofpayments are secured in their home country or otherwise authority the employee has.prescribed by the social security convention betweenMontenegro and their home country.122 / THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS© 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swissentity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • Indirect taxes Exchange controlThe general value-added tax (VAT) rate for the taxable supply Montenegrin legislation does not restrict the flowof goods and services and the import of goods is 17 percent, of currencies into and out of the country. Individualswhereas the reduced tax rate is 7 percent. VAT registration is (both resident and nonresident) may freely bring in unlimitedrequired for individuals who independently perform business amounts of foreign currency, but any amount exceedingactivities. EUR2,000 must be reported to the Customs Authority. Due to anti–money laundry regulations, all financialTransfer pricing transactions exceeding EUR15,000 must be reported to theMontenegrin law has basic provisions regarding transfer authorities, as well as all cash transactions over EUR15,000.pricing, although Montenegrin tax authorities do not havedeveloped transfer pricing practices. Nondeductible costs for assignees As of 2010, personal deductions in the amount of EUR840Local data privacy requirements were abolished.Montenegro has data privacy laws. THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS / 123 © 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • NetherlandsIntroduction Contact Robert Van der JagtAn individual’s liability to Dutch personal income tax is KPMG in the Netherlandsdetermined by residency status for taxation purposes and the Tax Partner T: +31 20 656 13 56source of income derived by the individual. Personal income tax E: vanderjagt.robert@kpmg.nlis levied at graduated rates on an individual’s taxable income forthe calendar year, which is calculated by subtracting allowabledeductions from the total assessable income.Extended business travelers can be taxed on employmentincome relating to their Dutch workdays. Dutch personalincome tax can be triggered from the first day of arrival in theNetherlands since the Netherlands has adopted the economicemployer approach in interpreting the term employer in thedependent personal services paragraph in the tax treaties.124 / THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS© 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swissentity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • Income tax To the extent that the individual qualifies for relief in terms of the dependent personal services article of the applicableLiability for income tax double tax treaty, there will be no tax liability.An individual’s liability to Dutch personal income tax isdetermined by residence status. A person can be a resident Types of taxable incomeor a nonresident for Dutch tax purposes. Residency is For extended nonresident business travelers, onlydetermined by applying a closer connection test, in other employment income attributable to Dutch duties is generallywords, a taxpayer is considered as a resident if the center of subject to Dutch income tax.the taxpayer’s vital interest is in the Netherlands and if the Extraterritorial costs, i.e., incremental expenses effectivelyclosest social and economic ties the taxpayer has are with connected with the performance of employment duties in thethe Netherlands. Physical presence itself is not decisive. Netherlands, may be reimbursed tax-free.Business travelers will probably not be considered asresident for Dutch tax purposes. A Dutch expatriate concession, the ”30 percent-ruling, ” might be applicable depending on the circumstances of theThe general rule is that a person who is a resident of assignment.the Netherlands is assessable on worldwide income.Nonresidents are generally assessable on income derived Tax ratesdirectly or indirectly from Dutch sources. Taxable income is subject to graduated tax rates ranging from 33.5 percent to 52 percent for both residents andEmployment income is treated as Dutch-sourced income to nonresidents.the extent attributable to duties physically performed in theNetherlands. National Net taxable Income tax Total insuranceTax trigger points income (EUR) (percent) (percent) (percent)In most tax treaties, the dependent personal services articlestates that the employee will be taxed in the employee’s 0–18,628 1.85 31.15 33.00home country if the employee’s stay in the Netherlands 18,628–33,436 10.80 31.15 41.95does not exceed 183 days (in a calendar year or a 12-month 33,436–55,694 42.00 Nil 42.00period). Other conditions are that the salary is not paid byor on behalf of a Dutch employer during that period and 55,694–higher 52.00 Nil 52.00that the employment costs are not borne by the foreign Source: KPMG in The Netherlands, June 2011employer’s Dutch permanent establishment during the If the extended business traveler is not covered by Dutchperiod of assignment. Because the Netherlands has social security, for taxable income up to 33,436 euros (EUR),adopted the economic employer approach in interpreting the tax rates are 1.85 percent and 10.80 percent, dependingthe term employer, the employee could be taxable from the on the income level.employee’s first day of presence in the Netherlands.According to the Supreme Court’s ruling, for the application Social securityof the tax treaty, the employer is the company that: Liability for social security• Has the authority to instruct the assignee The Dutch social security system comprises the national insurance programs, the national healthcare insurance, and• Bears the risk and expense of the duties performed, the employee insurance programs. Extended nonresident including a specific and individually traceable recharge of business travelers generally are subject to Dutch social the employment expenses. security tax under domestic legislation, but may be exemptThere is, in principle, no threshold/minimum number of days under application of EU-rules or bilateral totalizationthat exempts the employee from the requirements to file and agreements. A certificate of coverage is then required.pay tax in the Netherlands. An exception is made for employeesof foreign companies who are assigned to the Netherlands Compliance obligationswithin an international group as part of an exchange program, Employee compliancefor career development, or on the grounds of specific expertise. Tax returns are due by April 1 following the tax year-end,They are exempt from Dutch income tax on their employment which is December 31. An extension is available in mostincome if they work in the Netherlands for a period of no longer cases where a tax agent is used. Tax returns must be filedthan 60 days in any 12-month period. The exemption does not by nonresidents who earn Dutch-sourced income and areapply if the Netherlands has the right of taxation based on therefore liable for paying Dutch income tax.the dependent personal services article of the tax treaty (for Employer reporting and withholdingexample, when the employee has stayed more than 183 days If an extended business traveler’s employment income isin the Netherlands or when the employee’s remuneration is subject to Dutch income tax, the employer has a withholdingattributable to a permanent establishment of the employer in the obligation.Netherlands). THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS / 125 © 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • Other Transfer pricing The Netherlands has a transfer pricing regime. A transferWork permit/visa requirements pricing issue could arise to the extent that the employeeA visa must be applied for before the individual enters the is being paid by an entity in one jurisdiction but performingNetherlands, unless the traveler is an EU citizen. The type of services for the benefit of the entity in another jurisdiction,visa required will depend on the purpose of the individual’s in other words, a cross-border benefit is being provided.entry into the Netherlands. This would also be dependent on the nature and complexityDouble taxation treaties of the services performed.The Netherlands has concluded tax treaties with more than Local data privacy requirements85 countries. The Netherlands has data privacy laws.Permanent establishment implications Exchange controlThere is the potential that a permanent establishment could The Netherlands does not restrict the flow of the euro orbe created as a result of extended business travel, but this other currency into or out of the country, although certainwould be dependent on the type of services performed and reporting obligations are imposed to control tax evasion andthe level of authority the employee has. When the foreign money laundering.employer has a permanent establishment in the Netherlands,the employee is subject to Dutch income tax if the Nondeductible costs for assigneesremuneration is attributable to the permanent establishment. Nondeductible costs for assignees include contributions byIn this respect, it is not relevant whether or not the costs are an employer to non-Dutch pension funds. There are severalactually borne by the permanent establishment. possibilities to obtain deductibility (such as a corresponding approval procedure), and contributions can be deductible for aIndirect taxes period of 60 months.The Netherlands has adopted the (pan-European) value-added tax (VAT) system. Goods and services will trigger aVAT tax rate of 0 percent, 6 percent, or 19 percent. Specialrules apply if services or goods are provided or shippedinternationally.126 / THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS© 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swissentity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • New ZealandIntroduction Contact Murray SareliusIndividuals are subject to income tax on their worldwide income KPMG in New Zealandwhile they are a tax-resident in New Zealand. Tax Partner T: +64 9 363 3458 E: mvsarelius@kpmg.co.nzKey messagesExtended business travelers are likely to be taxed on employment income relating to their New Zealand workdays,unless relief is obtained under New Zealand domestic legislation or an applicable double tax agreement.Income tax is imposed on income derived by individuals at marginal tax rates that are set each year.Residents are taxed on worldwide income. Transitional residents are taxed on their New Zealand–sourced incomeand any employment income derived overseas. Nonresidents are taxed on their New Zealand–sourced income only.Benefits-in-kind are subject to fringe benefits tax, which is imposed on the employer. THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS / 127 © 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • Income tax Accident compensation is another benefit under the welfare system, and this is funded primarily by employers andLiability for income tax employees. The employer levy is determined by its industryA person’s liability for New Zealand tax is determined by classification, while the employee levy is charged at a flat rate.residence status. A person can be a resident, a transitionalresident, or a nonresident for tax purposes. The rates for the employee levy are 2.04 percent on earnings up to110,018 New Zealand dollars (NZD) for theA resident of New Zealand generally refers to an individual 2011 and 2012 tax years.who is present in New Zealand for more than 183 days inany 12-month period or who has a permanent place of abode Superannuation contributionsin New Zealand. The general rule is that a person who is a There is no compulsory superannuation saving in New Zealand.resident of New Zealand is assessable on worldwide income. There is, however, a government-run voluntary workplace savings scheme called KiwiSaver, which is available to anyA transitional resident is a new tax resident of New Zealand resident employers, employers who carry on business from awho has been nonresident for 10 years prior to arriving in or fixed establishment in New Zealand, or nonresident employersreturning to New Zealand. who elect into the regime. Compulsory employer contributionsA nonresident of New Zealand is generally someone are currently fixed at 2 percent of gross income.who spends 183 days or less in any 12-month period inNew Zealand and does not have a permanent place of Compliance obligationsabode in New Zealand. Employee compliance obligationsNonresidents and transitional residents are generally An income tax return is required for each tax yearassessable on income derived directly or indirectly from (April 1 to March 31).sources in New Zealand. Transitional residents are also Tax returns must be filed by nonresidents who derive anytaxable on foreign-sourced employment income. New Zealand–sourced income (other than New ZealandExtended business travelers are likely to be considered dividend, interest income, or royalties, which are subject tononresidents of New Zealand for tax purposes depending on final withholding tax).their personal circumstances. Tax returns are due by July 7 following the tax year-end.Definition of source Tax agents can obtain an extension to the following March 31.Employment income is generally treated as New Zealand – Employer reporting and withholding requirementssourced compensation where the individual performs theservices while physically located in New Zealand. PAYE withholding from remuneration Withholdings from employment income are covered underTax trigger points the Pay-As-You-Earn (PAYE) system. If an individual isEmployment income derived in New Zealand may not be taxable on employment income, the employer has a PAYEtaxable if the employee is present in New Zealand for 92 days withholding requirement. This could include situations whereor less in a tax year, performing services for or on behalf of a an employer is nonresident and no exemptions or reliefperson who is not resident in New Zealand, and the income applies, such as the 92-day and 183-day exemptions.derived is taxed in the country in which the person is resident. Nonresident contractors tax on contract paymentsTypes of taxable income A nonresident employer may be considered a nonresidentFor extended business travelers who are nonresidents of contractor where any employee who is present in New ZealandNew Zealand and do not qualify for the above exemptions for more than 92 days in a tax year is performing services onor relief, the income that is generally taxed in New Zealand behalf of the nonresident employer for another entity in Newincludes remuneration for New Zealand – based employment Zealand, and payments are made by the New Zealand entity toand New Zealand–sourced income such as interest or the nonresident employer on those services.dividends from New Zealand companies. Such payments may be subject to a withholding tax knownFringe benefits, broadly noncash employment income, as nonresident contractors tax (NRCT), unless an exemptionare subject to fringe benefits tax, which is levied on the certificate is held by the nonresident entity.employer. An exemption certificate may be issued by the InlandSocial security Revenue Department (IRD) to remove this withholding obligation if the IRD is satisfied that, for the income sourcedLiability for social security in New Zealand, there is no income tax liability pursuant to aNew Zealand has a social security system funded through double tax treaty.income taxes. This scheme offers a number of benefits and isaimed at assisting people.128 / THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS© 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swissentity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • Other Indirect taxes Goods and services tax (GST) is applicable at 15 percent onWork permit/visa requirements taxable supplies. GST registration may be required in someDepending on the country of origin, an individual may need circumstances.to apply for a visa prior to entry into New Zealand. In addition,an individual may need to obtain a work visa or work permit Transfer pricingbefore being able to work in New Zealand. New Zealand has a transfer pricing regime. A transfer pricing implication could arise to the extent that the employee isDouble taxation treaties being paid by an entity in one jurisdiction but performingIn addition to New Zealand’s domestic arrangements that services for the benefit of the entity in another jurisdiction.provide relief from international double taxation, New Zealand This would also be dependent on the nature and complexityhas entered into double taxation treaties with 35 countries of the services performed.to prevent double taxation and allow cooperation betweenNew Zealand and overseas tax authorities in enforcing their Local data privacy requirementsrespective tax laws. New Zealand has data privacy laws.Double tax treaty relief Nondeductible costs for assigneesRelief from New Zealand taxation may also be available under A person is declined a deduction for an amount of expenditurea double tax agreement. Generally, New Zealand’s double tax or loss to the extent to which it is incurred in deriving incomeagreements provide relief from tax on employment income if from employment. Some expenditures can be reimbursedthe employee is present in New Zealand for 183 days or less, tax-free. Generally, it is necessary to demonstrate that theis employed by a nonresident entity, and the remuneration is expenditure being reimbursed was an additional expenditurenot borne by a permanent establishment in New Zealand. resulting from employment duties or is of the type that the IRD has prescribed as relocation expenses.Permanent establishment implicationsThere is the potential that a permanent establishment could becreated as a result of extended business travel, but this wouldbe dependent on the type of services performed, the functionsand level of authority of the employee, and the specific termsof any applicable double tax treaty. THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS / 129 © 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • NorwayIntroduction Contact Cathrine Bjerke DalheimA person’s Norwegian tax liability is determined by residence KPMG in Norwaystatus for taxation purposes and the source of the individual’s Tax Partner T: +47 40 63 90 55income. Income tax is levied at a progressive rate on the E: cathrine.dalheim@kpmg.noindividual’s taxable income for the calendar year, which iscalculated by subtracting the allowable deductions from thetotal assessable income.Extended business travelers are likely to be taxed onemployment income relating to their Norwegian workdays.130 / THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS© 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swissentity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • Income tax Social securityLiability for income tax Liability for social securityA person’s liability for Norwegian income tax is determined Employees performing work in Norway will be mandatoryby residence status. A person can be a resident or a members of the Norwegian social security scheme andnonresident for Norwegian tax purposes. For Norwegian tax thereby obliged to pay social security tax of 7 percent of .8purposes the term “resident” generally refers to an individual gross income. The employer is obliged to pay 14.1 percent.who enters Norway with the intention of remaining there The employer’s part of Norwegian social security contributionfor more than six months (or actually spends more than six is lower than 14.1 percent if the employee has performedmonths in Norway). work in certain geographical areas in Norway. The rates are applicable without any ceiling.A nonresident of Norway is generally someone who spendsless than 183 days in Norway in any 12-month period. If the An exemption from the Norwegian social security schemeindividual has one or more stays in Norway exceeding 270 days may be obtained if there is a totalization agreement betweenin any 36-month period, the individual will be regarded as Norway and the home country. This applies both for residentsresident for the income year for which the requirement as well as nonresidents.is fulfilled.The general rule is that a person who is a resident of Norway Compliance obligationsis assessable on the individual’s worldwide income. Employee compliance obligations The tax year is the same as the calendar year.Nonresidents are generally assessable on incomederived directly or indirectly from sources in Norway. Tax returns are due by April 30 following the tax year-end forExtended business travelers are likely to be considered both residents and nonresidents. A one-month extensionnonresident of Norway for tax purposes, unless they enter may be granted in some cases.into Norway with the intention of remaining in Norway for Tax returns must be filed by nonresidents who receive anymore than six months. Norwegian-sourced income (except for Norwegian dividendEmployment income is generally treated as Norwegian- income, which may be subject to final withholding tax, assourced when the individual performs the services while well as interest income and royalties).physically located in Norway. Employer reporting and withholding requirementsTax trigger points An employer, regardless of whether Norwegian or foreign,Technically, there is no threshold/minimum number of has a bimonthly reporting obligation as well as withholdingdays that exempts the employee from the requirements to obligations related to income earned while performing workfile a Norwegian tax return, nor pay tax in Norway. To the in Norway.extent that the individual qualifies in accordance with the In addition, employers may be liable for payroll tax (socialdependent personal services article of the applicable double security tax of 14.1 percent).tax treaty, there will be no tax liability. The treaty exemptionwill not apply if a Norwegian entity is the individual’seconomic employer. Other Work permit/visa requirementsTypes of taxable income Employees from certain countries must apply for a visaFor extended business travelers, the types of income that are before the individual enters into Norway. The type of visagenerally taxed are employment income and benefits-in-kind required will depend on the purpose of the individual’s entryfrom the employer, Norwegian-sourced income, and gains into Norway.from taxable Norwegian assets (such as real estate). Double taxation treatiesTax rates In addition to the Norwegian domestic regulations, NorwayThe gross salary income is taxed at the marginal income has entered into double taxation treaties with more thantax rate of 12 percent. Net taxable income is taxed at a 80 countries in order to prevent double taxation and allowflat rate of 28 percent. The marginal income tax rate is cooperation between Norway and overseas tax authoritiestherefore 40 percent. The rates apply for both resident and when it comes to enforcing their respective tax laws.nonresident taxpayers. THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS / 131 © 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • Permanent establishment implications Local data privacy requirementsThere is a risk that a permanent establishment could be Norway has data privacy laws.created as a result of extended business travel to Norway, Exchange controldepending on the type of services performed and the level Norway does not restrict the flow of Norwegian or foreignof authority the employee has when performing services in currency into or out of the country. Certain reportingNorway. obligations, however, are imposed to control tax evasionIndirect taxes and money laundering. Legislation requires financialValue-added tax (VAT) is applicable at 25 percent on goods institutions and other cash dealers to give notification of cashand services. Reduced rates apply for groceries and transactions above 25,000 Norwegian krone (NOK), as welltransportation. as suspicious cash transactions and certain international telegraphic or other electronic fund transfers (there is noTransfer pricing minimum amount). All currency transfers (in Norwegian orNorway has a transfer pricing regime. A transfer pricing foreign currency) made by any person into or out of Norwayimplication could arise to the extent that the employee is of NOK 25,000 or more in value must be reported.being paid by an entity in one jurisdiction but performingservices for the benefit of the entity in another jurisdiction, Nondeductible costs for assigneesin other words, a cross-border benefit is being provided. Nondeductible costs for assignees include contributions byThis would also be dependent on the nature and complexity an employer to non-Norwegian pension funds.of the services performed.132 / THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS© 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swissentity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • PanamaIntroduction Contact Luis LaguerreAll individuals in Panama, including citizens, residents, and KPMG in Panamanonresidents, are taxed only on Panamanian-source income. Tax Partner T: +507 208 0704Residents are subject to tax levied at progressive rates on an E: llaguerre@kpmg.comindividual’s taxable income for the year, which is calculated bysubtracting allowable deductions from the total assessableincome. Nonresidents are subject to tax levied at a flat rate.Key messagesExtended business travelers are likely to be taxed on employment income relating to their Panamanian workdays. THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS / 133 © 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • Income tax The employer and employee rates are summarized as follows:Liability for income tax Paid byA person’s total tax liability to Panamanian tax is determined Total Type of insurance Employer Employee percentby residence status; residency status determines the tax rates percent percentapplied to Panama-sourced income. A person can be a residentor a nonresident for Panamanian tax purposes. A resident for Social security (2012) 12 9 21tax purposes is any person who stays more than 183 days Total percent 12 9 21in Panama in any calendar year. A nonresident of Panama isgenerally someone who spends less than 183 days in Panama Panama has entered into a formal social security totalizationin any calendar year. Extended business travelers are likely to agreement with the 20 other Iberoamerican Organizationbe considered nonresidents of Panama for tax purposes unless countries to prevent double taxation and allow cooperationthey enter Panama with the intention to remain in Panama for between Panama and overseas tax authorities in enforcing theirmore than 183 days. respective tax laws.Definition of sourceEmployment income is generally treated as Panamanian- Compliance obligationssourced compensation where the individual performs the Employee compliance obligationsservices while physically located in Panama. Tax returns are due by March 15 following the tax year-end,Tax trigger points which is December 31. An extension to file may be granted forTechnically, there is no threshold/minimum number of days two months, but extensions to pay the tax are not granted.that exempts the employee from the requirements to file Individuals with employment income from only one sourceand pay tax in Panama. are not required to file a tax return if their income tax liability is satisfied through withholding.Income may be excluded from taxation if it is attributable toservices performed in countries other than the assignment Individuals required to file a tax return must, at the time oflocation if these services are not economically related with filing a return, declare estimated income for the next yearthe taxable activities that the employee performs within and pay an estimated tax based on the difference betweennational territory. withholdings and estimated tax payable.Types of taxable income Estimated tax payable must be paid in three installments,For extended business travelers, the types of income that which are due June 30, September 30, and December 31.are generally taxed are employment and Panamanian- Employer reporting and withholding requirementssourced income and gains from taxable Panamanian assets Withholdings from employment income are covered(such as real estate). under the Pay-As-You-Go (PAYG) system. If an individual isTax rates taxable on employment income, the employer has a PAYGFrom 2010, resident individuals´ net taxable income is taxed withholding requirement.at graduated rates ranging from zero percent to 25 percent.The maximum tax rate is applied to income earned over Other50,000 Panamanian balboa (PAB). Nonresidents are subject Work permit/visa requirementsto tax at a flat rate of 15 percent. If an individual is a nonresident, that individual will need to comply with the entry clearance formalities applicableSocial security to nationals of that individual’s particular country beforeLiability for social security coming to Panama. Requirements generally involveSocial security covers workers’ compensation, illness, obtaining a visa and a work permit for those who come toinjury, and maternity leave in addition to old age pension. Panama for employment purposes.Salary is subject to contributions of 9 percent for employees Immigration procedures will also need to be complied withand 12 percent for employers. These rates will increase in for dependants accompanying the individual to Panama or2013 and are expected to be 9.75 percent for employees who will be joining later.and 12.25 percent for employers. If an individual is a national, the individual is not subjectA professional risk premium is also payable by employers based to the entry clearance requirements mentioned above,on workers’ compensation. Rates range from 0.98 percent to although the individual will need to bring a passport to7 percent, depending upon the applicable risk classification. establish identity and nationality satisfactorily. In someEducational tax is 2.75 percent of taxable compensation cases, other documents may be acceptable for this(1.50 percent for employers and 1.25 percent for employees). purpose (such as a national identity card), but the exact requirements should be checked before traveling.134 / THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS© 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swissentity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • Double taxation treaties –  The rental of real estate and tangible property or anyThe Republic of Panama has signed double taxation other convention or act that implies or is intended toagreements with the following countries: Italy, Mexico, give the use or enjoyment of the propertyBarbados, Spain, The Netherlands, South Korea, France, Qatar, • Importation of tangible goods or merchandise used eitherLuxembourg, Portugal, Singapore, and Ireland. Only the treaty for personal consumption, charity, educational, scientific,with Mexico is currently in force. or commercial purposes or for the transformation,Permanent establishment implications improvement, or production of other goods.There is the potential that a permanent establishment couldbe created as a result of extended business travel, but this All individuals or legal entities that provide professionalwould depend on the type of services performed and the services, sell, and/or import goods, including state-ownedlevel of authority the employee has. industrial and commercial enterprises, are required to register when their monthly gross income exceeds 3,000 US dollarsIndirect taxes (USD) or USD36,000 per year.The standard tax rate of value-added tax (VAT) sinceJune 1, 2010 is seven percent of the amount of the Only individuals and legal entities registered as taxpayersprofessional fees or of the value of the transfer of the (or taxable persons for VAT purposes) operating domesticallypersonal property or commodities except for the import, within Panamanian boundaries may be registered in thewholesale, and retail sale of alcoholic beverages, for which Panamanian’s Taxpayers Registry (Registro Único dethe tax rate is 10 percent; accommodation and lodging Contribuyentes). Such a registration involves the identificationservices in all public modes, for which the tax rate is of the relevant taxable person with an identification number10 percent; and for the import, wholesale, and retail of all valid for all tax purposes (including invoicing, filing of taxkinds of cigarettes and cigars, for which the tax rate is returns, and other reports to the tax administration).15 percent of the taxable base. The aforementioned registry includes not only VAT taxableVAT in Panama is a tax on the transfer of tangible goods persons, but all other types of taxpayers and/or taxableand rendering of services called ITBMS (Impuesto a la persons subject to Panamanian tax laws (including incomeTransferencia de Bienes Corporales Muebles y Prestación de tax, excise taxes, VAT, and others).Servicios). In general, all transactions involving the transfer Transfer pricingor transmission of tangible personal property (commodities Through a recent tax reform, Panama adopted a transfer pricingand products) and the rendering of services within the regime. It basically indicates that all operations performedRepublic of Panama are subject to this value-added-type tax. by taxpayers with related parts must be valued under theSupplies that are liable to VAT include the following arm´s-length principle. This means that all the ordinary andtransactions: extraordinary income, as well as the costs and necessary expenses to perform operations, should be determined• The sale or contract implying the exchange of ownership according to the agreed price or amount by (1) independent• The personal use of corporate or noncorporate property by parties, (2) similar circumstances, and (3) arm´s length. the owner, partners, directors, legal representatives, board of directors, or shareholders Local data privacy requirements Panama has a variety of strict data privacy laws, including• The promise of a sale (contract) on goods to be transferred those aimed at banking and e-commerce. physically Exchange control• Transfers of goods to owners, partners, or shareholders as a There is a reporting obligation regarding the movement of result of the definitive closure of an enterprise funds into Panama of USD10,000 as a minimum.• Rendering of services, such as: Nondeductible costs for assignees –  Works with or without the delivery of materials Nondeductible costs for assignees include contributions by –  Intermediation in general an employer to non-Panamanian pension funds. –  Personal use by the owner, partners, directors, legal representatives, board members, or shareholders of the enterprise of the services rendered by it THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS / 135 © 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • Papua New GuineaIntroduction Contact Colin MilliganA person’s tax liability in Papua New Guinea (PNG) is KPMG in Papua New Guineadetermined by residence status for taxation purposes Tax Partner T: +675 321 2022and the source of income derived by the individual. Only E: cmilligan@kpmg.com.auresident individuals are entitled to tax rebates and creditsfor foreign tax paid.Key messagesExtended business travelers are likely to be taxed on employment income relating to work performed in PNG.Residents are taxed on worldwide income whereas nonresidents are generally taxed on PNG-sourced income only.136 / THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS© 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swissentity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • Income tax Social securityLiability for income tax Liability for social securityA person’s liability for PNG tax is determined by residency Superannuation is a mechanism requiring individuals to savestatus. A person can be a resident or a nonresident for money for retirement. It is prescribed that employers makePNG tax purposes. A resident of PNG generally refers to a minimum contribution of 8.4 percent of the employee’san individual who is domiciled in PNG or who stays in PNG salary (capped at 15 percent of salary) into an authorizedcontinuously or intermittently for more than six months superannuation fund. The minimum contribution by employeesin any year of income. A nonresident of PNG is one who is 6 percent of their salary. Superannuation contributions areis domiciled outside PNG and who does not stay in PNG not mandatory for expatriates.for more than six months. The general rule is that a personwho is a resident of PNG is assessable on the individual’s Compliance obligationsworldwide income. Nonresidents are generally assessable Employee compliance obligationson income derived directly or indirectly from sources Tax returns are due by February 28 following the tax year-in PNG. end, which is December 31. Where a tax agent is used,Definition of source there is an automatic extension. Tax returns must be filed byEmployment income is generally treated as PNG-sourced nonresidents who derive any PNG-sourced income (othercompensation where the individual performs the services while than PNG salary or wages income and PNG dividend orphysically located in PNG. interest income, which are subject to final withholding tax).Tax trigger points Employer reporting and withholding requirementsEarnings for any work performed in PNG are normally taxable Withholdings from employment income are covered underin PNG. Unless the individual qualifies for relief under the the salary and wages tax system. If an individual is taxable ondependent personal services article of an applicable double employment income, the employer has a salary and wagestax treaty, the number of days worked in PNG is not relevant. tax withholding requirement. In addition, employers may be liable to a training levy where the annual payroll exceedsTypes of taxable income PGK 200,000.For extended business travelers, the types of PNG incomethat are generally taxed are employment income and PNG-sourced income such as interest or rents. In addition to Othercash income and allowances, employees are taxed on the Work permit/visa requirementsprescribed values of accommodation and motor vehicles. A work permit and visa must be applied for before the individual enters PNG to work.Tax ratesNet taxable income is taxed at graduated rates ranging up Double taxation treatiesto 42 percent on incomes above 250,000 PNG kina (PGK). PNG has entered into double tax treaties with nine countriesThe tax rates for nonresidents are the same as those for to prevent double taxation and allow cooperation betweenresidents, with the exception that nonresidents do not PNG and overseas tax authorities in enforcing their respectivebenefit from the tax-free threshold applicable to income tax laws. There is relief in the double tax treaties by whichup to PGK 7 ,000. residents of other countries would not be subject to salary and wages tax in PNG under certain conditions. THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS / 137 © 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • Permanent establishment implications Local data privacy requirementsThere is the potential that a permanent establishment could PNG currently does not have data privacy laws.be created as a result of extended business travel, but this Exchange controlwould be dependent on the type of services performed and PNG has foreign exchange control laws that, among otherwhether or not the home country of the employee has a measures, require approval from the exchange controldouble tax treaty with PNG. authority for the opening and operation by residents ofIndirect taxes a bank account outside PNG and the transfer or physicalGoods and services tax (GST) is levied at 10 percent removal of cash in excess of PGK 20,000 (or a foreignon taxable supplies of most goods and services. GST currency equivalent). A tax clearance certificate is requiredregistration is required if annual turnover is in excess of from the Internal Revenue Commission (IRC) to repatriatePGK 100,000. amounts exceeding PGK 200,000 in any calendar year. This can be obtained if the employee’s tax affairs areTransfer pricing up-to-date.A transfer pricing implication could arise to the extent thatthe employee is being paid by an entity in one jurisdiction Nondeductible costs for assigneesbut performing services for the benefit of the entity in Nondeductible costs for assignees include contributions byanother jurisdiction, in other words, a cross-border benefit an employer to a non-PNG pension fund.is being provided. This would also be dependent on thenature and complexity of the services performed.138 / THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS© 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swissentity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • PeruIntroduction Contact Guillermo Grellaud-PigatiA person’s liability to Peruvian tax is determined by residence KPMG in Perustatus for taxation purposes and the source of the individual’s Tax Partner T: +51 1 611 3000income. For residents, income tax is levied at progressive rates E: ggrellaud-pigati@kpmg.comon an individual’s taxable income for the year, which is calculatedby subtracting allowable deductions from the total assessableincome. For nonresidents, income tax is levied at a flat rate onan individual’s taxable income for the year.Key messagesExtended business travelers are likely to be taxed on employment income relating to their Peruvian workdays. THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS / 139 © 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • Income tax Social securityLiability for income tax Liability for social securityA person’s liability for Peruvian tax is determined by residence Employers and employees must make contributions to thestatus. A person can be a resident or a nonresident for social tax scheme in Peru as follows:Peruvian tax purposes. Paid byA resident is defined as someone who has spent 183 days Total Type of insurance Employer Employee percentin Peru within any 12-month period. This status is lost after Percent Percentthe individual is absent from the country at least 184 days(in total) during the previous year. Health system 9 0 9A change in the tax treatment applies at the start of the Pension Fund 0 13 13following Peruvian tax year. Total percent 9 13 22As a general rule, a person who is a resident of Peru Source: KPMG in Peru, June 2010is assessable on the individual’s worldwide income. With regard to the pension fund:Nonresidents are generally assessable on income deriveddirectly or indirectly from sources in Peru. Extended business • The employee can choose between the Public Pensiontravelers are considered nonresidents of Peru for tax System (ONP) and the Private Pension System (from thepurposes. available pension management companies)Definition of source • ONP applies a rate of 13 percent, while each company ofEmployment income is generally treated as Peruvian-sourced the Private Pension System applies different rates, so thecompensation when the individual performs the services while 13 percent listed above is an average value.physically located in Peru. Peru has entered into a formal social security totalizationTax trigger points agreement with the 20 other Iberoamerican OrganizationTechnically, there is no threshold/minimum number of days countries to prevent double taxation and allow cooperationthat exempts the employee from the requirements to file between Peru and overseas tax authorities in enforcing theirand pay tax in Peru. To the extent that the individual qualifies respective tax laws. However, such agreement has not beenfor relief in terms of the dependent personal services entirely implemented in Peru.article of the applicable double tax treaty, there will be notax liability. Compliance obligationsTypes of taxable income Employee compliance obligationsFor extended business travelers, the types of income that Annual income tax returns are due during the first threeare generally taxed are employment and Peruvian-sourced months following the tax year-end, which is December 31.income and gains from taxable Peruvian assets (such as Due dates are established each year by the Peruvian taxreal estate). administration (SUNAT).Tax rates Employer reporting and withholding requirementsPeruvian individual income taxes are calculated using a Withholdings from employment income are coveredprogressive scale expressed in tax units. These units are under the Pay-As-You-Go (PAYG) system. If an individual isestablished each year by the government, and the current tax taxable on employment income, the employer has a PAYGunit value for 2011 is 3,600 Peruvian nuevo sol (PEN). It was withholding requirement.PEN 3,600 for 2010; PEN 3,550 for 2009; and PEN 3,500 Withholding obligations are applied only to residentfor 2008. employers. If the employer is a nonresident entity, no taxFor residents, net taxable income is taxed at graduated rates withholding obligation arises, and it is the responsibility of theranging from 15 percent to 30 percent (15 percent, 21 percent, employee to file and pay the corresponding taxes properly.and 30 percent). The maximum tax rate is currently 30 percenton income earned over 54 tax units. Nonresidents are subject Otherto a flat tax rate of 30 percent on total taxable income. Work permit/visa requirements In general, the individual must apply for a visa before entering Peru. The type of visa required will depend on the purpose of the individual’s entry into Peru. Under limited circumstances, an individual may enter the country on a business visitor140 / THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS© 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swissentity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • visa, called Visas de Negocios. In order to qualify for the VAT is payable on:business visa, the short-term traveler, among other very • The sale of goods in the countrylimited activities, may attend meetings, attend a sales call onbehalf of a non-Peruvian entity, and attend seminars. Another • The rendering of services in the countrytype of visa and, possibly, work permits will be required for • The use of services in Peru (rendered by nonresidents)individuals not meeting the criteria. • The first sale of real estate performed by the builder orBusiness visas are generally valid for 90 days. The maximum companies linked to the builderbusiness visa stay is 183 days. • Building activitiesIf the foreign individual will perform services within Peruvianterritory under an employment relationship (either with a • Imports of goodsPeruvian employer or with a foreign employer), the individual There is no special registry in Peru for VAT. Nevertheless, therewill need a work visa. This visa could be applied for and granted is a general obligation for taxpayers to register with the Peruvianby the Peruvian Consulate abroad before entering Peru or tax authority (SUNAT) to obtain their taxpayer identificationas a result of the procedure of change of migratory quality number (Registro Único de Contribuyentes (RUC)).upon DIGEMIN (Peruvian immigration office). Therefore, aforeign individual is allowed to change migratory status while The aforementioned registry not only includes VAT-taxablebeing in Peru. persons, but all other types of taxpayers and/or taxable persons subject to Peruvian tax laws as well (includingDouble taxation treaties income tax, VAT, and others).In addition to Peru’s domestic legislation that provides somerelief from international double taxation, Peru has entered Transfer pricinginto double taxation treaties with six countries (Bolivia, Brazil, Peru has a transfer pricing regime based on arm’s-lengthCanada, Colombia, Chile, and Ecuador) to prevent double principles. A transfer pricing implication could arise totaxation and allow cooperation between Peru and overseas the extent that the employee is being paid by an entity intax authorities in enforcing their respective tax laws. one jurisdiction but performing services for the benefit of the entity in another jurisdiction, in other words, a cross-borderPermanent establishment implications benefit is being provided. This would also be dependent onThere is the potential that a permanent establishment (PE) the nature and complexity of the services performed.could be created as a result of extended business travel, butthis would depend on the type of services performed and the Management fees are deductible unless they are paid to alevel of authority the employee has. resident of a tax haven. The authorities release a list of tax havens each year. A 30 percent withholding rate is applied toA simple assignment of employees to Peru will not result in a management services performed in Peru, but does not applyPE in Peru. The following are considered to be examples of a if the services were rendered abroad. Additional informationPE of a nonresident entity: can be found in Articles 24 and 108-118 of the Income Tax• A person acting in Peru on behalf of the nonresident entity Regulations and Resolution 167-2006. and empowered by it to sign contracts on its behalf who Local data privacy requirements habitually uses such empowerment in Peru Recent legislative activity and governmental agency reports• A person acting in Peru on behalf of the nonresident entity has Peru moving towards a comprehensive data protection who habitually maintains goods in stock within Peruvian regime based upon the EU Data Protection Directive 95/46/ territory to be negotiated in Peru. EC. Until those laws are passed, various laws and articles of the 1993 constitution outline current data privacy rights.Indirect taxesThe standard rate of value-added tax (VAT) is 16 percent. Exchange controlThe municipal promotion tax (Impuesto de Promoción Peru does not restrict the flow of Peruvian or foreign currencyMunicipal (IPM)) of 2 percent is also added to the value of into or out of the country.goods or services used to determine the IGV (Peruvian VAT), Nondeductible costs for assigneeswhich results in an 18 percent sales tax overall. Nondeductible costs for assignees include contributions byThe Peruvian VAT (Impuesto General a las Ventas (IGV)) is a an employer to non-Peruvian pension funds.tax based on the value-added method. It is applied followingthe subtraction method on a financial basis of tax against tax. THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS / 141 © 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • PhilippinesIntroduction Contact Herminigildo G MurakamiResident citizens are taxed on their income from all sources. KPMG in the PhilippinesA person who is not a citizen of the Philippines (that is, someone Tax Principal T: +63 (2) 885 0117who is defined as an alien), regardless of whether the person is a E: hmurakami@kpmg.comresident or a nonresident, is taxed only on the individual’s incomefrom Philippines sources. Likewise, nonresident citizens are taxedonly on their income from Philippines sources.Key messagesExtended business travelers are likely to be taxed on employment income relating to their Philippines workdays.Income tax returns are due by April 15 in the year following the tax year ending December 31.Employers are requiredto withhold tax from the employee’s compensation.142 / THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS© 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swissentity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • Income tax Social securityLiability for income tax Liability for social securityThe liability of aliens for Philippines tax is determined by their Each employer is required to deduct an amount from theresidence status. An alien who is present in the Philippines salary of each employee for premium contributions remittablefor at least two years is a resident alien. An alien who stays to a social security fund and the Medicare system to financein the Philippines for less than two years is considered the retirement, sickness, disability, health, and other sociala nonresident alien. There are two classifications of a security benefits of the employee. The employer is alsononresident alien: required to remit a counterpart contribution for the employee. The amount of premium contributions by the employer and• Engaged in trade or business in the Philippines employee depends on the salary bracket of each employee,• Not engaged in trade or business in the Philippines based on a precalculated table of contributions.A nonresident alien engaged in trade or business (NRAETB) isone who stays in the Philippines for more than 180 days during Compliance obligationsthe calendar year. If the individual stays in the Philippines for Employee compliance obligationsless than 180 days, the individual is considered a nonresident An individual taxpayer is taxable on a calendar year basis.alien not engaged in trade or business (NRANETB). The In general, every citizen, resident alien, and NRAETB in thetaxable income of citizens, resident aliens, and NRAETB is Philippines is required to file an income tax return and andefined as gross compensation and net business income less annual information return. The said returns should be filedpersonal allowances. The taxable income of NRANETBs is their and the net tax on the income tax return should be paid ongross income. or before April 15 following the close of the year covered by the return.Nonresident citizens and aliens are subject to income tax onPhilippines-sourced income only. Employer compliance obligations The employer is required to withhold the tax due from theResident citizens are subject to Philippines income tax on employee’s compensation income and remit the same toworldwide income. Nonresident citizens and aliens are the tax authorities. If the correct amount of tax due has beensubject to Philippines income tax on their Philippines-sourced properly withheld during the calendar year, the employee mayincome only, such as employment income and passive qualify for substituted filing, in which case there is no need forincome. the employee to file an annual income tax return. A NRAETB,Definition of source however, does not qualify for substituted filing.Employment income is generally treated as Philippines- The employer reports the tax withheld using BIR Formsourced compensation where the individual performs the 1601-C (Monthly Remittance Return of Income Taxesservices while physically located in the Philippines. Withheld on Compensation) and BIR Form 1604-CF (AnnualNRANETBs are taxed at a flat rate of 25 percent. Information Return of Income Tax Withheld on Compensation and Final Withholding Taxes).Tax trigger pointsExtended business travelers will be taxable in the Philippineson income derived from services rendered in the Philippines. OtherIt is important to ascertain whether they will be taxed as Work permit/visa requirementsNRAETBs or NRANETBs, that is, whether they were in Aliens may be required to show proof that they paid their income tax when they renew their visa.the Philippines for more or less than 180 days, as this willdetermine the applicable tax rate. A visa must be applied for before the individual enters the Philippines. The type of visa required will depend on theTypes of taxable income purpose of the individual’s entry into the Philippines. ForFor extended business travelers, the types of income that aliens renewing their Philippines visa, the Philippines Bureauare generally taxed are employment income and other of Immigration and Deportation requires them to show proofPhilippines-sourced income. that they paid their income tax in the preceding year. ForTax rates individuals who are required to file a return, the proof wouldNet taxable income of citizens, resident aliens, and NRAETBs is be their Philippines income tax return. For those not requiredtaxed at graduated rates ranging from 5 percent to 32 percent. to file a return, a certificate of taxes withheld issued by theThe maximum rate is currently 32 percent on income earned withholding agent may suffice.over 500,000 Philippine pesos (PHP). NRANETBs are taxed ata flat rate of 25 percent of gross income unless a lower rate isapplicable under a double tax treaty or special law. THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS / 143 © 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • Double taxation treaties Transfer pricingIn addition to the Philippines’ domestic arrangements The Philippines, as a matter of policy, subscribes to the OECD’sthat provide relief from international double taxation, Transfer Pricing Guidelines as its interim transfer pricingthe Philippines has entered into double taxation treaties guidelines while the draft of the Revenue Regulations onwith 37 countries to prevent double taxation and allow Transfer Pricing is still pending. Until the revenue regulationscooperation between the Philippines and overseas tax on transfer pricing are issued, any and all concerns/issuesauthorities in enforcing their respective tax laws. Tax treaty in the interim related to transfer pricing shall be resolved inrelief, however, is not automatic. A tax treaty relief application accordance with the principles laid down by the OECD Transferprocess should be complied with. Pricing Guidelines.Permanent establishment implications Local data privacy requirementsUnder the double taxation treaties of the Philippines with other The Philippines currently does not have data privacy laws.countries, there is the potential that a permanent establishment Exchange controlcould be created as a result of extended business travel, but The Philippines has liberalized foreign exchange rules andthis would be dependent on the type of services performed and regulations. Generally, foreign exchange receipts, acquisition,the level of authority the employee has. or earnings may be sold to or outside the banking system orIndirect taxes may be brought in or out of the country. Domestic contractsValue-added tax (VAT) of 12 percent is imposed on sales made entered into by Filipino citizens can be settled in any currency.in the course of trade or business on goods, properties, and Nondeductible costs for assigneesservices in the Philippines and on the importation of goods to The personal and additional exemptions of PHP50,000 andthe Philippines (regardless of whether the importation is for PHP25,000 for each qualified dependant are not deductiblebusiness use). to the employer. The said exemptions are deductible only from the gross compensation income of the assignee for the purposes of calculating personal income tax liability in the Philippines.144 / THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS© 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swissentity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • PolandIntroduction Contact Andrzej MarczakA person’s liability for tax in Poland is determined by residence KPMG in Polandstatus for taxation purposes and the source of income derived Partner T: +48 22 528 1176by the individual. Income tax is levied at progressive rates on E: amarczak@kpmg.plan individual’s taxable income for the year, which is calculatedby subtracting allowable deductions from the total assessableincome. In certain cases, income tax is levied using a flat rate taxat 19 or 20 percent.Key messagesExtended business travelers are likely to be taxed on employment income relating to their Poland workdays.Other Polish-sourced income is also taxable. The application of relevant double tax treaties should be considered. THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS / 145 © 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • Income tax Social securityLiability for income tax Liability for social securityAn individual’s income tax liability in Poland is determined by Liability for Polish social insurance may be determinedthe residency status of that individual. based on general EU provisions (place of performance of work) or based on Polish provisions if a local contractAccording to Polish personal income tax regulations, an is concluded. The Polish social security system consistsindividual having a place of residence in Poland will be of three pillars to which payments are made. The first andsubject to an unlimited tax liability in Poland (tax resident). second are obligatory; the third is not. Contributions areUnder such circumstances, the individual’s worldwide split between the employee and the employer. Generally,income will be subject to taxation in Poland regardless of social security applies to income derived under a Polishthe source of income. employment contract and/or Polish service contracts,Alternatively, an individual who does not have a place of business activities, etc., depending on the situation. As aresidence in Poland will be subject to a limited tax liability in rule, it does not apply to foreign-sourced income, unlessPoland. In this case, only income from Polish sources will be EU regulations are applicable.subject to Polish taxation. The Polish social security scheme for employees isPolish tax regulations provide for a definition of an individual compulsory; it cannot be avoided by implementing specialhaving a place of residence in Poland as one or both of the private agreements, which would be null and void by law.following: Certain types of contracts are not subject to Polish social insurance.• An individual whose center of vital interests (center of economic or personal interests) is in Poland Extended business travelers employed by an employer located in an EU/EEA member state or Switzerland, in• An individual who spends more than 183 days in a calendar most cases, can remain subject to their home country year in Poland. social security scheme. They can obtain an exemption fromThese rules, however, should be applied taking into paying social security in Poland, regardless of their countryconsideration the provisions of double tax treaties concluded of citizenship. This exemption is based on the EU/EEA/by Poland. Swiss rules with respect to posting and/or simultaneous employment.Generally, extended business travelers are likely to beconsidered nonresidents of Poland for tax purposes unless Other extended businesses travelers, in some cases, maythey spend more than 183 days in a year in Poland or move stay in their home countries’ social security systems andtheir center of vital interests to Poland. obtain exemptions from paying Polish social security based on the provisions of a social security treaties signed betweenTax trigger points their home countries and Poland.There is no threshold/minimum number of days that exemptsthe employee from the requirements to file and pay taxin Poland. Exemption from tax, however, may result from Compliance obligationsthe relevant double tax treaty if certain criteria are met. Employee compliance obligationsThe individual becomes liable to taxation as soon as such Individuals subject to Polish tax are required to make monthlyexemption ceases to apply. tax advance payments (18 percent). These advance payments are payable by the 20th of the following month. An annual taxTypes of taxable income declaration should be submitted by April 30 of the followingFor extended business travelers, the types of income that are year. The payment of the tax is transferred to the tax officegenerally taxed are employment income or personal service bank account on the same date. Tax returns must be filed bycontracts, other Polish-sourced income, and gains from nonresidents who derive any Polish-sourced income.Polish assets (such as interest, real estate income, etc). Employer reporting and withholding requirementsTax rates Foreign employers are not responsible for Polish tax advanceEmployment income is subject to taxation in Poland at payments. Withholdings from Polish employment incomeprogressive tax rates ranging from 18 percent to 32 percent. are covered under the Pay-As-You-Earn (PAYE) system. If anCapital gains are subject to a flat rate tax of 19 percent. individual concludes a local contract, the employer is subjectSome specific types of income (personal service contracts, to PAYE withholding requirements. The tax withheld bydirector’s fees) received by nonresidents are subject to the employer must be paid to the tax office by the 20th of the20 percent flat rate tax. month following the month in which the tax was withheld. In the case of foreign employment contracts, the individual is personally responsible for tax payments; the foreign employer is not involved.146 / THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS© 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swissentity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • Other Transfer pricing Poland has a transfer pricing regime.Work permit/visa requirementsTravelers from most countries can enter Poland without a visa. Local data privacy requirementsCitizens of states with which Poland has signed agreements Poland has data privacy laws, and it is recommended that therelating to visa-free travel may remain within the territory employer obtain the employee’s consent in order to transferof Poland (without performing work) for periods of up to data outside Poland. The consent should state the specificthree months. However, citizens of certain countries still require data to be transferred, the reason for transfer, and the partya visa in order to enter Poland. In general, work permits are to whom the information will be transferred. An electronicrequired for foreign individuals. As a rule, employees of EU signature or acceptance from the employee is sufficient forcountries are exempt from the work permit requirement. this consent requirement.The procedure for obtaining this document requires Exchange controlinvolvement of the Polish company where work is performed. Poland does not restrict the flow of Polish or foreign currencyDouble taxation treaties into or out of the country. However, certain reportingPoland has a broad network of bilateral tax treaties. Polish obligations are imposed to control tax evasion and moneydomestic tax regulations also provide methods to avoid double laundering. Amounts in cash up to 10,000 euros (EUR)taxation of income taxed outside Poland. (or the equivalent in foreign currencies) may be taken out of the country without specific permits; any amounts mayPermanent establishment implications be transferred out of the country, provided appropriateThere is the potential risk that a permanent establishment documentation exists such as contracts, invoices, etc.could be created as a result of extended business travel, butthis would be dependent on the type of services performed Some limitations and restrictions are applicable, especially inand the level of authority the employee has. relation to transactions with entities from states that are not part of the EU, EEA, OECD, or states with which Poland hasIndirect taxes not concluded bilateral investment treaties.Poland’s basic rate of value-added tax (VAT) is 23 percent.Certain transactions are subject to lower rates of 8 percent, Nondeductible costs for assignees5 percent, or 0 percent, and some transactions are exempt Nondeductible costs for assignees include contributions paidfrom VAT. by an employer to pension funds outside the European Union. In addition social insurance payments already deducted inTaxes are also imposed on certain civil law transactions such other countries are nondeductible in Poland.as loans, the creation of a company, etc. THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS / 147 © 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • PortugalIntroduction Contact Jorge TaínhaA person’s liability to Portuguese tax is determined by residence KPMG in Portugalstatus for taxation and the source of income derived by the Partner T: +351 210 110 075individual. E: jtainha@kpmg.comPortuguese residents are subject to tax on their worldwide incomeat progressive marginal tax rates, and nonresidents are subjectto Portuguese tax on their Portuguese-sourced income at theapplicable rates (between 15 and 25 percent), depending on thetype of income received. A double taxation treaty may provide avariation to these rules.Under the new regime of nonhabitual tax residents, theindividuals who normally qualify as tax-resident will be subjectto tax on Portuguese-sourced income at a special 20 percentrate; a tax exemption applies to the foreign-sourced incomereceived by the individual (if certain conditions are met, namely,if the referred to income is subject to tax in its country source).Key messagesExtended business travelers are likely to be taxed on employment income related to their Portuguese working daysprovided that their income is paid or the related costs are recharged to a Portuguese entity.148 / THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS© 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swissentity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • Income tax Tax rates Net taxable income earned by a resident is taxed atLiability for income tax progressive marginal tax rates from 11.5 percent up toA person’s liability for Portuguese tax is determined by 46.5 percent. Some flat rates may apply (for example,residency status. interest and dividends are taxed at 21.5 percent).A person qualifies as a resident for tax purposes in For nonresidents, the tax rate depends on the type of incomePortugal provided that the person is physically present received, as follows:in Portugal for more than 183 days during the calendar year, • Employment income is taxed at a 21.5 percent flat tax rate.either continuously or not, or that the person owns a homein Portugal at December 31 of the relevant year with the • Rental income is taxed at a 15 percent special tax rate.intention to use and occupy it as a habitual residence. • Interest is taxed at a 21.5 percent flat rate.A Portuguese resident is liable for tax on the individual’s • Dividends are taxed at a 21.5 percent flat rate.worldwide income. • Capital gains arising from immovable property located inIf none of the above conditions is met, the person is Portugal are subject to tax at a 25 percent autonomousconsidered to be a nonresident. Tax liability will occur only tax rate.with regard to the individual’s Portuguese-sourced income(in the case of employment income, Portuguese-sourced Under the nonhabitual tax residents’ special regime,income would include compensation derived from activities where the activity performed by the individuals in Portugalperformed in Portugal as well as compensation paid by a is deemed to be a “high-value-added” activity,1 the netPortuguese entity). employment income derived from such activity should be taxed at a 20 percent special rate.The special regime for nonhabitual tax residents will applyprovided that the individual: Otherwise, if the activity that the individual performs is not deemed to be ”high-value-added, the employment income ”• Has not been taxed as resident in Portugal in the last received will be taxed at the marginal tax rate up to 46.5 percent. five years This regime also allows for a tax exemption on the foreign-• Qualifies as tax resident in Portugal under the domestic sourced income received by the individual, provided that one rules in each year of that 10-year period of the following conditions are met:• Is registered as a “nonhabitual” tax resident with the • Such income is subject to tax in the country of its source Portuguese tax authorities. under the provisions of a double tax treatyThe option to be taxed under this regime is valid for • Such income is subject to tax in the country of its source10 consecutive years. under the provision of the OECD model tax convention andTax trigger points provided that it does not relate to any activity performedThere is no minimum number of days that exempts the in Portugal.employee from the requirements to file and pay tax inPortugal with regard to Portuguese working days. However, Social securitythe application of a double tax treaty may determine that Liability for social securitythe employee does not have a filing obligation, provided Individuals working in Portugal are liable for social securitythat the individual spends less than 183 days in Portugal and contributions at a rate of 11 percent on their grossthat the individual’s income is not paid by or recharged to a remuneration (9.3 percent for board members).Portuguese entity. Employers are liable for social security contributions atTypes of taxable income a rate of 23.75 percent on the same gross remunerationFor extended business travelers, the types of income that (20.3 percent for members of the board).are generally subject to tax are employment income, as wellas any other Portuguese-sourced income, and gains from As a rule, contributions are not capped except for those oftaxable Portuguese assets (such as real estate). The definition board members.of employment income is broad and tends to include allbenefits-in-kind. THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS / 149 © 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • In general terms, an exception for social security Double taxation treatiescontributions can apply if a foreign employee is assigned In addition to Portuguese domestic arrangements thatto work in Portugal for an expected period of less than one provide relief from international double taxation, Portugalyear and continues to pay social security contributions in the has entered into double taxation treaties with more thanemployee’s home country. Such a period of exemption may 50 countries to prevent double taxation and allowbe extended for an additional 12 months. cooperation between Portugal and overseas tax authorities in enforcing their respective tax laws.Based on the EU regulations, as well as on social securitybilateral agreements, an exemption may apply on social Permanent establishment implicationssecurity contributions for extended business travelers. There is the potential risk that a permanent establishment could be created as a result of extended business travel,Compliance obligations but this would be dependent on the type of services performed and the level of authority the employee has.Employee compliance obligationsTax returns are due within the following deadlines, depending Indirect taxeson the type of income received: VAT (value-added tax) may be required in Portugal on the following:On paper: • Supply of goods and rendering of services carried out in• From March 1 to March 31, if only employment or/and the Portuguese territory pension income was received • Imports of goods• From April 1 to April 30, if any other type of income was received • Intra-community acquisition of goodsBy Internet: There are three different VAT rates:• From April 1 to April 30, if only employment or/and pension • Reduced: 6 percent (applied in general to basic food income was received products, pharmaceutical products, medical services, electricity, etc.)• From May 1 to May 31, if any other type of income was received • Intermediate: 13 percent (applied in general to wine, flowers, oil and diesel oil, etc.)Employer reporting and withholding requirementsIf the income is paid by a Portuguese company, the employer • Normal: 23 percent (applied to the remaining goods andis required to withhold tax on a monthly basis at: services not subject to the above rates)• Progressive marginal rates, if the individual qualifies as Transfer pricing Portugal has a transfer pricing regime. A transfer pricing a resident implication could arise to the extent that the employee is• A 21.5 percent flat rate, if the individual qualifies as a being paid by an entity in one jurisdiction but is performing nonresident. services for the benefit of the entity in another jurisdiction, in other words, a cross-border benefit is being provided.The employer also is required to report the income paid and This would also be dependent on the nature and complexitytax withheld to the employee and to the tax authorities within of the services performed.specific deadlines. Local data privacy requirementsOther Portugal has data privacy laws.Work permit/visa requirements Exchange controlNon-European Union individuals must apply for a visa before Portugal does not restrict the flow of Portuguese or foreigntheir arrival in Portugal. The type of visa required will depend currency into or out of the country. However, certainon the purpose of the individual’s entry into Portugal. reporting obligations are imposed to control tax evasion and money laundering.150 / THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS© 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swissentity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • Puerto RicoIntroduction Contact Rolando LopezA person’s liability for Puerto Rican tax is determined by KPMG in Puerto Ricoresidence status for taxation purposes and the source of income Tax Partner T: +1 787 756 6020derived by the individual. Income tax is levied at progressive E: rlopez@kpmg.comrates on an individual’s taxable income for the year, which iscalculated by subtracting allowable deductions from the totalassessable income.Key messagesExtended business travelers are likely to be taxed on employment income relating to their Puerto Rican workdays. THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS / 151 © 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • Income tax agreements eliminate dual coverage and contributions for foreign nationals working in the United States for limited timeLiability for income tax periods. In addition, some nonresident visa holders (specifically,A person’s liability for Puerto Rican tax is determined by F J, Q, and M visas) may qualify for exemption from FICA. ,residence status. A person can be a resident or a nonresident forPuerto Rican tax purposes. An individual is presumed to be The contribution rates are summarized as follows:a resident of Puerto Rico if the individual spends more than Paid by183 days in a calendar year in Puerto Rico. However, domicile Totalwill have a greater role in determining whether the taxpayer Type of insurance Employer Employee percentwill be considered a resident or nonresident for Puerto Rican percent percentincome tax purposes. Social security 6.20 6.20 12.40The general rule is that a person who is a resident of Medicare 1.45 1.45 2.90Puerto Rico is taxed on the individual’s worldwide income. Total percent 7.65 7.65 15.30Nonresidents are generally taxed on income deriveddirectly or indirectly from sources within Puerto Rico. Source: KPMG in Puerto Rico, June 2010Although Puerto Rican nationals are U.S. citizens, bona fideresidents of Puerto Rico are exempt from U.S. federal income Compliance obligationstax on income derived from sources within Puerto Rico. Employee compliance obligationsExtended business travelers are likely to be considered Generally, tax returns are due by April 15 of the followingnonresidents of Puerto Rico, for income tax purposes. year, assuming the taxpayer is on a calendar basis. Foreign taxpayers will generally not be required to file aDefinition of source tax return if their entire tax liability was fully satisfied byEmployment income is generally treated as Puerto Rican– Puerto Rican withholding.sourced compensation when the individual performs theservices while physically located in Puerto Rico. It is not Employer reporting and withholding requirementswhere the wages are paid from that determines the source, Withholdings from employment income are coveredbut rather where the services are performed. under the Pay-As-You-Go (PAYG) system. If an individual is taxable on employment income, the employer has a PAYGTax rates withholding requirement.Net taxable income is taxed at graduated rates, dependingon the filing status. The tax rates range from 7 percent upto 33 percent. Nonresidents are subject to the same Other Work permit/visa requirementsgraduated tax rates on compensation income. In most cases, Generally, Puerto Rico follows the same immigration lawsthe highest tax bracket is reached once taxable income as the United States. A visa must be applied for beforereaches 50,000 U.S. dollars (USD), which is 33 percent. the individual enters Puerto Rico. The type of visa requiredFor taxable year 2011, the highest tax bracket will be reached will depend on the purpose of the individual’s entry intoonce the taxable income reached USD60,000. Puerto Rico.Social security Foreign nationals generally must obtain visas at AmericanLiability for social security embassies and consulates to enter the United States.Puerto Rico is covered under the U.S. federal social security rules. A waiver of the visa requirement is available to nationals of most developed countries if a trip is brief and for tourism orSocial security tax (established by the Federal Insurance nonemployment business purposes.Contributions Act (FICA)) is imposed on both the employerand employee. FICA is assessed on wages paid for services Individuals coming to the United States or Puerto Rico for theperformed as an employee within the United States or purpose of engaging in employment must generally obtain aPuerto Rico, regardless of the citizenship or residence of visa that authorizes such employment. Information on visa andeither the employee or employer. The employee portion of the other travel/work document requirements can be obtainedtax may not be deducted in computing U.S. income tax. from the U.S. embassy or consulate in your jurisdiction or by visiting the U.S. Department of State Web site at www.travel.FICA consists of the old age, survivors, and disability insurance state.gov.tax (OASDI) and Medicare tax (hospital insurance part).The OASDI rate is 6.2 percent on all wages up to USD106,800 Temporary or nonimmigrant visas are granted to provide(for the year 2011). This cap is adjusted annually. However, for the opportunity of employment in the United States or2011 only, a 4.2 percent will be withheld, as opposed to the Puerto Rico. Assignees may also be eligible for permanentmandatory 6.2 percent. The Medicare tax rate is 1.45 percent, residence (green card status), which may be based uponimposed on all wages without a cap. the sponsorship by a relative who is a citizen or a green card holder. Additionally, green cards may be issued in connectionForeign national employees may be exempt from FICA with permanent employment in the United States, in whichpursuant to a totalization agreement between the United case, sponsorship by the employer is not unusual.States and the employee’s home country. Totalization152 / THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS© 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swissentity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • Most assignees initially work in the United States with Double taxation treatiesnonimmigrant visas. Income taxes paid or accrued to the United States and itsCertain nonimmigrant visas provide work authorization possessions or to foreign countries during the taxable yearfor employment in the United States, as well as for the may be credited against the Puerto Rican income tax in orderassignee’s spouse and dependants. If, however, a particular to avoid double taxation. As a general rule, only residentsvisa does not provide for work authorization for the assignee’s are in a position to claim the foreign tax credit against theirspouse or dependants in the United States, they would need Puerto Rican tax because, in principle, only they are subjectto obtain their own employment visas to be eligible to work in to Puerto Rico taxes on their worldwide gross income.the United States. The foreign tax credit is subject to two limitations, a per- country limitation and an overall limitation.Because there are many different visa categories, whichare applicable to different employment relationships, Permanent establishment implicationswe recommend obtaining professional assistance from an There is the possibility that a permanent establishment couldexperienced law firm if the company does not have qualified be created as a result of extended business travel, but thisprofessionals on staff. would depend on the type of services performed and the level of authority the employee has.The following lists examples of nonimmigrants, by alienclassification, who are authorized to work in the United Indirect taxesStates and Puerto Rico without specific authorization from Puerto Rico assesses a combined 7 percent sales and usethe U.S. Citizenship and Immigration Services (USCIS). tax. Taxpayers must register at the local level.This listing is abbreviated and, therefore, not all-inclusive. The Local data privacy requirementsalien’s I-94 will not have the USCIS employment authorization Puerto Rico follows similar data privacy rules as the Unitedstamp, and the alien will not have an Employment States. The data privacy scheme in the United States is aAuthorization Document (EAD). collection of federal, state, and industry case law, rules, andFor the L classification, the spouse is also authorized to -2 practices as a result.work without specific Department of Homeland Security(DHS) authorization. The L spouse is not required to apply -2 For example (these are not comprehensive examples):to DHS for an EAD card as documentary evidence of work • The Office of Management and Budget plays a limited roleauthorization but may choose to do so. in setting policy for federal agencies under the Privacy Act of 1974. Class of Description admission • The American Institute of Certified Public Accountants F-1 Academic student visa – for on-campus and the Canadian Institute of Chartered Accountants employment and designated school official have developed a Generally Accepted Privacy Principles (DSO) authorized curricular practical training framework that companies can follow. H-1B Visa for foreign professionals sponsored by a • The Federal Trade Commission has oversight over some U.S. employer to work in specialty occupation privacy areas. J-1 Visa for individuals participating in work and • The USA PATRIOT Act, renewed in 2006, addresses some study based on approved exchange visitor privacy issues. programs Exchange control L-1 Temporary work visa for intracompany Puerto Rico does not restrict the flow of currency into or out transferee of the country. L-2 Temporary work visa for the spouse of an Nondeductible costs for assignees intracompany transferee Nondeductible costs for assignees include contributions bySource: KPMG in Puerto Rico, June 2010 an employer to non-U.S. pension funds. THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS / 153 © 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • RomaniaIntroduction Contact Madalina RacovitanA person’s liability for Romanian tax is determined by residence KPMG in Romaniastatus for taxation purposes and the source of income derived by Director T: +40 (372) 237 7782the individual. Income tax is levied at a flat tax rate of 16 percent E: mracovitan@kpmg.comapplied to each type of income.Key messagesExtended business travelers are likely to be taxed on employment income relating to their Romanian workdays.154 / THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS© 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swissentity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • Income tax Social securityLiability for income tax Liability for social securityA person’s liability for Romanian tax is determined by Generally, a 5.5 percent health insurance contribution isresidence status. A person can be a resident or nonresident due by foreign individuals who have residence in Romaniafor Romanian tax purposes. (that is, who obtain a Romanian residence permit).A resident of Romania generally is defined as an individual Exemption from Romanian social security contributionswho has a domicile in Romania, has a center of vital may be available where there is a totalization agreementinterests in Romania, or spends more than 183 days in between Romania and the home country or where ECRomania during any 12-month period during the fiscal year Regulation 883/04 is applicable.concerned. A nonresident of Romania is generally someonewho spends less than 183 days in Romania. Compliance obligationsThe general rule is that a person who is a resident of Employee compliance obligationsRomania is assessable on the individual’s worldwide Generally, annual tax returns are due by May 15 following theincome. Nonresidents are generally assessable on income tax year-end, which is December 31. Employment incomederived from sources in Romania. An exception to the must be declared and income tax must be paid for the previousgeneral rule above is available for non-Romanian nationals month by the 25th of each month.who are treated as Romanian tax residents. During the No extension of the deadline is available.first three years of being Romanian tax residents, theseindividuals are liable for Romanian tax only on Romanian- Employer reporting and withholding requirementssourced income. Full liability to tax may occur in the fourth Where an individual is employed by a non-Romanianconsecutive year. employer, that employer has no personal tax withholding or reporting obligations. It is generally the employee’s obligationExtended business travelers are likely to be considered to declare and pay Romanian personal tax on a monthly basis.nonresidents of Romania for tax purposes unless theyspend more than 183 days in Romania. The Romanian entity where the individual carries out activity has certain reporting obligations towards the localEmployment income is generally treated as Romanian- tax authorities at the commencement and at the end of thesourced compensation to the extent that the individual business trip.performs services while physically located in Romania.Tax trigger points OtherTechnically, there is no threshold/minimum number of Work permit/visa requirementsdays that exempts the employee from the requirements A visa and/or a work permit must be applied for before theto file and pay tax in Romania. Under Romanian domestic individual enters Romania, depending on the nationality oflegislation, nonresident individuals deriving dependent the individual. The type of visa required will depend on theactivities in Romania are liable for Romanian personal purpose of the individual’s entry into Romania. There areincome tax from the first day of activity in Romania. various exceptions to the rule, especially for EU nationals.However, to the extent that the individual qualifies for reliefin terms of the dependent personal services article of an Double taxation treatiesapplicable double tax treaty, there will be no tax liability. In addition to Romania’s domestic arrangements that provideThe treaty exemption will not apply if the Romanian entity relief from international double taxation, Romania has enteredis the economic employer. into double taxation treaties with more than 80 countries to prevent double taxation and allow cooperation betweenTypes of taxable income Romania and overseas tax authorities in enforcing theirFor extended business travelers, the types of income that respective tax laws.are generally taxed are Romanian-source employmentincome, as well as other Romanian-sourced income, Permanent establishment implicationsand gains from taxable Romanian assets (such as real estate). There is the potential that a permanent establishment couldFringe benefits, broadly noncash employment income, be created as a result of extended business travel, but thisare deemed to be employment income and taxed similarly to would be dependent on the type of services performed andemployment income. the level of authority the employee has.Tax rates Indirect taxesNet taxable income (a deduction is generally available for Value-added tax (VAT) is applicable at 24 percent (standardcompulsory employee social security contributions) is taxed VAT rate) on taxable supplies. VAT registration may beat a flat rate of 16 percent. Nonresidents are also subject to a required in some circumstances.flat tax rate of 16 percent. THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS / 155 © 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • Transfer pricing electronic funds transfers (there is no minimum amount).Romania has a transfer pricing regime, and thus, related-party All currency transfers (in Romanian or foreign currency)transactions must observe the arm’s-length principle. made by any person into or out of Romania amounting to EUR15,000 or more in value must be reported.Local data privacy requirementsRomania has data privacy laws. Nondeductible costs for assignees Nondeductible costs for assignees include contributions toExchange control private medical insurance or pension funds above certain caps.Romania does not restrict the flow of Romanian or foreigncurrency into or out of the country. Certain reportingobligations, however, are imposed to control tax evasion andmoney laundering. Domestic legislation requires financialinstitutions and other cash dealers to give notification ofcash transactions over 15,000 euros (EUR), suspicious cashtransactions, and certain international telegraphic or other156 / THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS© 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swissentity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • RussiaIntroduction Contact Alevtina BorisovaA person’s liability to Russian tax is determined by residence KPMG in Russiastatus for taxation purposes and the source of income derived Partner T: +7 (495) 937 29 87by the individual. The scope of taxation and tax rates applicable E: aborisova@kpmg.ruto individuals in Russia depends mainly on their tax residencestatus in Russia in a particular tax year. Income tax is leviedat flat rates (general rates are 13 percent for Russian taxresidents and 30 percent for Russian tax nonresidents) onan individual’s taxable income for the year. Due to the fairlylow income tax rate for tax residents, there are a very limitednumber of possible tax deductions, and the most significantis the property tax deduction on the sale or purchase of landor dwellings. Tax deductions are only available for Russian taxresidents.Key messagesExtended business travelers are likely to be taxed on employment income relating to their Russian workdays.Such an approach, however, is not directly addressed in Russian tax law, and there are various potentialinterpretations of taxation rules for extended business travelers. THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS / 157 © 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • Income tax If an individual changes tax residency status during a calendar year from nonresident to resident, the individual isLiability for income tax entitled to receive a tax refund of 17 percent of income taxA person’s liability for Russian tax is determined by residence excessively withheld (the difference between the resident’sstatus. A person has unlimited liability to taxation (as a “tax and the nonresident’s income tax rate). Beginning in 2011,resident”) if the person is physically present in Russia for a total such a tax refund can only be obtained by the individualof not less than 183 days during the previous 12 consecutive through the Russian tax authorities based on an annual taxmonths. In order to determine an individual’s tax residence return and documents confirming the individual’s residencystatus for a reporting calendar year, the 183-day check should status. Tax agents (employers, etc.) are no longer allowedbe made in this calendar year (i.e., January 1– December 31) to provide the tax refund in these cases.rather than in any other 12-month period. According to theclarifications of the Russian Ministry of Finance, for the purposeof calculations of Russian days, both days of arrival in Russia Social securityand days of departure from Russia should be counted. Liability for social security Currently, Russian social security contributions are payableIf the ”183 days of presence” test is not fulfilled, the person in the form of social contributions to the pension fund, socialhas only limited liability to taxation (as a nonresident) in security fund, and mandatory medical insurance fundsRussia, that is, the individual is generally assessable only on and contributions for mandatory social insurance againstincome derived directly or indirectly from sources in Russia. occupational accidents and diseases (MSI). Generally,Extended business travelers will be considered nonresidents employment in Russia is the criterion for paying socialof Russia for the particular calendar year unless they spend security contributions.183 days or more in Russia during the calendar year. Social security costs are borne by the employer only;Definition of source employees are not required to contribute.Employment income is generally treated as Russian-sourced Contributions to the pension fund, social security fund,compensation where the work is performed in Russia. and mandatory medical insurance funds are assessedTax trigger points on the gross payroll of each employee. The combinedTechnically, there is no threshold/minimum number of days rate is 34 percent. These contributions are kept at thethat exempts the employee from the requirements to file and level of 463,000 Russian rubles (RUB) of accumulatedpay tax in Russia. To the extent that the individual qualifies remuneration per employee per annum.for relief in terms of the dependent personal services article Contributions to the Pension fund, social security fund,of the applicable double tax treaty, there should not be a tax and mandatory medical insurance funds are not payable byliability. The treaty exemption will not apply if the salary is foreign nationals who, for migration purposes, have a statusborne by the Russian entity or by a permanent establishment of temporarily present in the territory of Russia.2that the foreign employer has in Russia. MSI is payable on the total payroll at a flat rate, whichTypes of taxable income varies depending on the risk category of the employer, asFor extended business travelers who do not qualify for tax determined by the Russian Social Insurance Fund. The currentresidence in Russia, the types of income that are generally minimum rate is 0.2 percent of payroll, and the maximum istaxed are employment income, reimbursement of certain 8.5 percent.expenses, provision of benefits-in-kind that can be attributableto activity in Russia, and proceeds (if any) from transactionswith property in Russia. Compliance obligations Employee compliance obligationsTax rates The general deadline for filing annual Russian tax returnsRemuneration is taxed at the flat rate of 13 percent for a is April 30 and for paying income tax based on the taxRussian tax resident and at 30 percent for nonresidents. return is July 15 of the year following the reporting year.Effective July 1, 2010, the 13 percent tax rate also applies No extensions are available.to Russian employment income of nonresidents – foreignspecialists who work in Russia under the “highly qualified Expatriate nationals who terminate their Russian assignmentspecialist” regime and have obtained the relevant work and leave Russia during a tax year are required to submit a taxpermit.1 Other rates apply to specific categories of return one month prior to departure. Income tax due shouldnonemployment income. be paid within 15 days after submission of the tax return. A foreign specialist is generally considered as “highly qualified” if the professional obtained work 1 experience, skills in a particular sphere, and the professional activities in the Russian Federation are remunerated with a gross salary of at least RUB 2,000,000 per 365 calendar days. Foreign nationals are considered as temporarily present in the territory of Russia if they have a 2 migration card without a residence permit or without a permit for temporary residence in Russia.158 / THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS© 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swissentity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • Generally, a tax return must be filed if the individual receives The standard VAT rate is 18 percent and applies to mostincome that is subject to taxation in Russia if Russian income goods and services. The reduced VAT rates apply, inter alia, intax has not been withheld by a tax agent. A tax return is the following cases:also required in order to apply for tax deductions, reliefs/ • 10 percent rate: bread, milk, meat (specified), fishtax credits under the double tax treaty, and tax refund due (specified), and medical goods (specified)to change of tax residence status from “tax nonresident” to“tax resident” during a calendar year. • 0 percent rate: international transportation of cargo and individuals; export operationsEmployer reporting and withholding requirementsIf remuneration is paid by an employer in Russia (i.e., VAT-exempt supplies include the domestic sale of someRussian legal entity or representative office of a foreign medical goods and services, some other specified goods andlegal entity in Russia), the employer is considered a tax services, banking and insurance services, etc.agent, is obliged to calculate income tax on the employee’s Also, cross-border provision of services may be VAT-exemptbehalf, and must withhold and remit it to the budget at the under the ”place-of-supply rules, i.e., depending on the ”source of payment. The employer is liable for the correct particular type of service and on whether the providing/remittance. As a tax agent, the employer is obliged to receiving party operates in or outside Russia.report income paid to the individual and tax withheld duringa reporting year on Form 2-NDFL, which must be submitted Generally, taxpayers are entitled to claim for recovery inputto the Russian tax authorities no later than April 1 of the VAT related to purchased goods and services subject tofollowing year. certain conditions. If input VAT exceeds the amount of output VAT charged on supplies of goods and services, theOther issues difference may be refunded to the taxpayers from the budget.Work permit/visa requirements Beginning in 2010, taxpayers are entitled to a refund of theA visa must be applied for before the individual enters Russia. VAT through the accelerated VAT refund procedure, whichThe type of visa required will depend on the purpose of the generally allows them to receive the cash tax refund priorindividual’s entry in Russia. to completion of a desk tax audit. For instance, the taxpayer may apply for this accelerated VAT refund procedure byA foreign national can commence employment in Russia obtaining a bank guarantee from a bank approved by theonly on obtaining a work permit, i.e., permission for a foreign Ministry of Finance.employee to work at the position specified in the work permitwithin a certain period and region of Russia. Generally, only a Beginning July 1, 2010, there are specific procedures anddirect employment contract with the employer can be used exceptions relating to transactions within the Customs Unionto obtain employment and work permits. of Russia, Belarus, and Kazakhstan.Double taxation treaties Transfer pricingRussia currently has agreements on avoidance of double Transfer pricing rules allow the tax authorities to adjust taxabletaxation with more than 70 countries to prevent double profits where transactions are not carried out at an arm’s-taxation. length basis. The transfer pricing regime applies to transactions between interdependent parties inclusive of any charges madePermanent establishment implications to the Russian company for business travelers, as well as toThere is a potential that a permanent establishment foreign trade and barter transactions. Transfer pricing controlcould be created for a foreign employer as a result of an also covers transactions performed by the taxpayer, whereemployee’s extended business travel and consequent prices differ by more than 20 percent in a short period of time.activity in Russia, but this would depend on the type ofservices performed and the level of authority the employee Local data privacy requirementshas, as well as the provisions of the relevant double tax Russia has a data privacy law.treaty. Exchange controlIt should also be considered whether the presence of the Foreign currencies can be exchanged at the daily exchangeexpatriate employee in Russia during extended business rates. Credit cards are accepted almost everywhere intravel leads to registration requirements with the Russian Moscow, St. Petersburg, and other large Russian cities.tax authorities for the foreign employer. Generally, foreign currency transactions between residentsIndirect taxes and nonresidents can be performed without limitation.Supplies of goods and services are generally subject to Currency transactions between nonresidents generally canvalue-added tax (VAT). be performed without restrictions.The applicable VAT treatment depends on the types of goodsdelivered or the nature of services provided. VAT is alsoimposed on most imports into Russia. THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS / 159 © 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • There are no limits for foreign or Russian currency brought Nondeductible costs for assigneesinto Russia (both residents and nonresidents). In the case Generally, Russian tax nonresidents cannot deduct anyof bringing cash into Russia, travelers’ checks or certificated expenses from their gross income.securities in excess of the equivalent of 10,000 US dollars A very limited list of deductions is available to Russian tax(USD), the entire amount needs to be reported to the Russian residents. Generally, they can deduct (within certain limits)Customs Authorities. only their expenses for education, medical treatment inThe maximum amount of foreign or Russian currency Russia, voluntary personal insurance, and some others.that can be taken out of Russia without reporting it to the These deductions are allowed by the Russian tax authoritiesRussian Customs Authorities is an equivalent of USD3,000. on the basis of a person’s individual tax return. ProperAmounts between USD3,000 and USD10,000 must be confirmation documentation should be also provided.reported to the Russian Custom Authorities. Taking anamount in excess ofthe equivalent of USD10,000 out ofRussia is not allowed unless the amount was previouslybrought into Russia within the limits indicated in thedocuments confirming such importation.160 / THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS© 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swissentity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • Saudi ArabiaIntroduction Contact Ashraf AlarabiTax in Saudi Arabia consists primarily of corporate income tax, KPMG in Saudi Arabiawithholding tax, and Zakat. Non-Saudi nationals are taxed on Partner T: +966 (1) 874 8585income from self-employment, income from capital investment, E: alarabi@kpmg.comand income from any business activity conducted in the Kingdom ofSaudi Arabia at a rate of 20 percent.Citizens of Saudi Arabia and the Gulf cooperating countries(Bahrain, Kuwait, Oman, Qatar, and the United Arab Emirates) aregenerally exempt from the payment of income tax but, instead,are subject to the payment of Zakat. Zakat is a religious tax basedon Islamic law (the Sharia) and is assessed on earnings andholdings.Key messagesExtended business travelers are not taxed on their employment income but may create a permanent establishment(PE) for the entity they represent. THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS / 161 © 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • Income tax Other issuesLiability for income tax Work permit/visa requirementsA resident non-Saudi individual who does business in A visa must be applied for before the individual entersSaudi Arabia will be subject to tax on income from any Saudi Arabia. The type of visa required will depend on theactivity within Saudi Arabia, less any deductions allowed purpose of the individual’s entry into Saudi Arabia.within the law. Double taxation treatiesA resident individual is not subject to income tax on Saudi Arabia’s network of double tax treaties (either signed,employment-related income (salary). to be ratified, or in the process of being ratified) includes France, India, China, Pakistan, Austria, South Africa,Tax trigger points United Kingdom, Korea, Spain, Malaysia, Italy, Netherlands,An individual is considered a resident if the individual meets Turkey, Greece, Uzbekistan, Belarus, Japan, Russia,either of the two following conditions: Singapore, Syria, Tunisia, Vietnam, Bangladesh, and Poland.• The individual has a permanent place of residence in Permanent establishment implications Saudi Arabia and resides in the country for a total period A permanent establishment (PE) may be created as a result of not less than 30 days in the taxable year. of extended business travel, but this would be dependent on• The individual is physically present in Saudi Arabia for a the type of services performed and the level of authority the period of not less than 183 days in the taxable year. employee has.Types of taxable income According to Saudi Arabia’s tax law, a PE has been definedFor extended business travelers, the type of income that is to include a permanent place of activity of a nonresidentgenerally taxed includes income generated from a source in through which it carries out business in full or in part,Saudi Arabia. including business carried out through an agent.Tax rates The following are considered a PE:A non-Saudi resident individual or a nonresident person • Construction sites, assembly facilities, and the exercise ofwho does business in Saudi Arabia through a permanent supervisory activities connected with themestablishment is subject to tax at a rate of 20 percent of thetax base. • Installations or sites used for surveying for natural resources, drilling equipment, or ships used for surveyingIncome subject to tax is gross income, including all income, for natural resources, as well as the exercise of supervisoryprofits, gains of any type, and any form of payment resulting activities connected with themfrom carrying out the business activity, including capital gainsand any incidental income other than exempt income. • A fixed base where a nonresident natural person carries out businessSocial security • A branch of a nonresident company that is licensed to carryLiability for social security on business in Saudi Arabia.There is no liability for social security for business travelers Indirect taxesalthough, if the individual is working (on a work visa/permit) There are no indirect taxes in Saudi Arabia that are applicablefor a company that is present in Saudi Arabia, the employer is to business travelers, except for customs duties on goodsresponsible for the payment of social security. imported. Exceptions may be granted for used personalCompliance obligations effects.Employee compliance obligations Withholding taxesThere are no compliance obligations for employees in According to the current income tax law, payments forSaudi Arabia. services from a source in the Kingdom to nonresident parties are subject to withholding tax at flat rates ranging fromEmployer reporting and withholding requirements 5 percent to 20 percent, depending on the nature of theThere are compliance obligations for resident employers in services involved. Withholding tax should be deposited withrelation to social security. the Department of Zakat and Income Tax (DZIT) by the resident paying entity within the first 10 days of the month following the month in which the taxable payments were made.162 / THINKING BEYOND BORDERS: MANAGEMENT OF EXTENDED BUSINESS TRAVELERS© 2011 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swissentity with which the independent member firms of the KPMG network are affiliated. 23943NSS
  • According to the tax bylaw, payments made to an affiliate for Transfer pricingservices are subject to withholding tax at a rate of 15 percent, There are no specific transfer pricing rules in Saudi Arabia,regardless of the nature of such payments, e.g., payment for although Saudi Arabian tax laws include a general ”anti-technical services is subject to withholding tax at 5 percent; avoidance” clause that requires related-party transactions tohowever, if similar payment for technical services is made be at arm’s–length.to a related party, it will be subject to 15 percent and not Local data privacy requirements5 percent. Generally, secondment charges are subject to Saudi Arabia has data privacy laws.15 percent withholding tax. Exchange controlA recent circular issued by the DZIT allows a refund for Currently, Saudi Arabia does not enforce any exchangeoverpayment of withholding tax if the applicable withholding controls.tax