The payment of tax on behalf of an individual is, normally seen as a benefit in kind itself which adds to the taxable part of salary.
Therefore, an additional liability to tax arises on the amount of tax paid by the employer and so on.
The only ‘tax’ that the individual pays is the ‘hypothetical tax’ withheld at source to reflect home country tax and social security liabilities.
Of course, if someone becomes non-resident in their home country, it is unlikely that any great liability to tax would have existed there anyway, however we must remember the aim of tax equalisation is to ensure that the individual is no better or no worse off as a result of the assignment.
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So the individual is required to bear the cost in terms of tax and social security that they would have borne on the non-expatriate parts of their salary package, as if they had simply not gone on assignment.
Conversely, it is the employer’s responsibility to bear the cost and discharge any personal tax and social security liabilities resulting in the host country.
At the end of the section we present an expat employment contract checklist that you can use to assess whether the contract you are offered contains all the relevant provisions and that all elements of expat contract negotiation have been covered.
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