The Role of Hypothetical Tax in Expatriate Assignment Pay ...

Tax rates

differentiate throughout the world. When to individual goes on to expatriate assignment they may move to a higher or lower tax regime. In some cases home country tax obligations may remain. If differences are not taken in tax into account by multi-national organizations, it becomes difficult to move individual expatriates to high tax countries, as they will all prefer working in low-tax countries.
Hypothetical Tax (Hypotax) is a concept that was developed as part of a tax equalization approach to expatriate pay. The idea is to Ensure that individuals pay the same amount of Effectively tax they would hypothetically have paid at home.

As it?s name implies, Hypothetical tax is a method of tax calculation in terms of company policy rather than tax legislation. It is an administrative tool used to calculate taxes consistently and equitably between individuals in different countries as part of the calculation of expatriate assignment pay. The base of this tax is a set of assumptions (hypothosis) Relating to the Basic Salary, Allowances and Benefits for typical individuals in the home country company. The assumptions include the amount of salary, and the type and amount of each allowance and benefit. Benefits that are provided by the host country company seeking as housing, transportation, medical and education, are usually excluded. Additional personal income and spousal income are therefore excluded Typically, as are allowances Relating to the assignment examined as cost of living and hardship allowances. The selected hypothetical Home Basic Gross Salary, Allowances and Benefits are used to deter mine the applicable (hypothetical) using the applicable tax home country tax and social security contributions. . The Home Net Salary is deterministic mined by deducting the tax from the United Hypothetical Home Salary

For example Hypothetical tax could be used to calculate the Home Net Salary as follows:

1) Calculate The Great Home Salary

ec Basic Salary (100,000) + Allowances (12,000) + Benefits (6,000) = Gross Salary Home (118.000)

2) Using the home tax regulations, calculate the amount of tax payable on the Hypothetical Gross Salary Home

ec Basic Salary Tax (20,000) + Tax Allowances (1,200) + Benefits Tax (60) = Hypothetical Tax (21.260)

Hypothetical tax is used to calculate the Net Home Salary individuals (ie after tax salary.

3) Calculate the Home Net Salary

ec Great Home Salary (118.000) less Hypothetical Tax (21.260) = Home Net Salary (96.740)

The Home Net Salary is the basis for the calculation of the Net Salary Assignment.
Assignment as cost of living allowances seeking hardship and are added to the Home Net Salary. These amounts differentiate Depending on the cost of living and hardship differences between the home and host country. The Net Assignment Salary is the amount expatriate assignee will receive after host country tax and social security contributions have been deducted. The host country company wants to add the amount of tax Typically and social security payable to arrive at the host Gross Salary. This individual will be paid the Guarantees of Assignment Salary net of their home country he Hypothetical Tax regardless of the actual tax rate in the host country.

Hypothetical tax is a powerful tool in Therefore Ensuring consistent and equitable treatment of all employees. It also facilitates mobility of individuals between high and low tax countries because neither gain nor loose individual?s due to differing tax regimes.

id=?article-resource?> http://www.xpatulator.com a website that provides cost of living index Calculates information and what you need to earn in a different location to Compensate for cost of living, hardship, and exchange rate differences

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