What are the Tax Implications for One-Way Transfers?

    Jul 18, 2022 @ 06:45 PM / by Jeremy Piccoli

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    According to this year’s MOS survey, 68% of companies report having an international One-Way Transfer (OWT) policy—the 3rd most common policy after Long-Term and Short-Term.

    Over the past couple of years, AIRINC has observed an uptick in one-way moves across our clients and we have adapted our cost estimator tool to understand the cost of deploying talent in this manner. 

    AIRINC is excited to share that the Assignment Cost Estimator (ACE) now supports one-way transfer cost estimates. The new package features a variety of user-interface, mobility data, and tax logic enhancements to allow users to effectively run cost estimates within minutes.

    Prior to the new package, historical ACE users were using our Host-Plus policy to run these estimates by excluding all return allowances. While this represented a sufficient estimate, AIRINC and our clients worked to develop a sophisticated package to recognize the crucial differences between a temporary Host-Plus transfer and a permanent One-Way Transfer.

    Among the interface and data enhancements is the new ability to cutoff ongoing allowance after a certain date. This feature allows users to taper off or eliminate ongoing allowances, such as housing or education, after a designated amount of time. This is a common policy stipulation, which promotes and encourages an expatriate to localize over a period of time in the Host location.

    Creating specific permanent move tax defaults is also a key enhancement in the new OWT package. The distinction between a temporary (Host-Plus) and a permanent (OWT) transfer has important tax implications. As such, AIRINC has defaulted the social security option in the OWT package to always pay in the Host location only (with the ability to select to pay in both Home and Host locations). This is because Totalization Agreements and Certificates of Coverage, which allow exemption from Host location social security, are typically only available for temporary assignments, with an intention to return to the Home location, for up to five years. As a result, a typical OWT would not be eligible for Totalization, and therefore subject to Host social security.

    In addition, there are many countries that treat expatriates and local nationals differently for social security contribution purposes. For example, expats on a temporary move are not required to contribute to the Housing portion of Chinese social security, but local nationals are. In Singapore, only Singapore citizens or permanent residents are allowed to contribute to the Central Provident Fund (CPF). Across the world, the differentiation may depend on the length of assignment, intention of the assignment, visa status, and/or other factors. Therefore, ACE’s OWT package includes a checkbox to ‘Treat as Local National’ to dictate whether an employee would be subject to local national or expatriate social security contribution rules, which can drastically impact the cost of a transfer.

    The new package also includes the ability for the user to indicate whether Home residual tax and/or social security is covered by the employer, employee, or shared. In addition, users can indicate on the review screen whether allowances are to be delivered gross or net.

    Finally, for U.S. Outbounds, ACE has a new checkbox to dictate residual state income tax. There are states in the U.S. that are considered ‘domicile’ states, which means that state tax residency cannot be broken on a temporary assignment, with an intention to return home. Therefore, the new ‘Include Residual State Tax’ checkbox allows the user to consider the cost impact of employee’s (in)ability to break state tax residency.

    The new OWT package on ACE is an innovative solution that has been designed to meet the interface, data, and tax needs specifically related to one-way transfers. ACE remains the longest-standing, industry-leading cost estimation tool in the marketplace.

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    Topics: International Tax, Tax, International Tax Summaries, Assignment cost estimator, International Tax Guide, Long-Term Assignment, Tax Equalization, host plus assignments, one-way transfers, Expatriates

    Jeremy Piccoli

    Written by Jeremy Piccoli

    Jeremy joined AIRINC in the fall of 2012 and is responsible for managing AIRINC’s International Tax Guide and tax calculator products, as well as consulting with clients. Prior to joining AIRINC, Jeremy spent more than 6 years with PricewaterhouseCoopers’ International Assignment Services practices in Hartford and Boston, providing tax compliance and consulting services to multinational companies and their expatriate population. He received his B.S. with a concentration in Accounting and a Master of Science in Accounting from the University of Connecticut. Jeremy is an Enrolled Agent, a federally licensed tax practitioner who specializes in taxation.