Destination Mozambique: Sending Assignees to Obscure Locations
CompassTAX - Sept 2005
By Diana Matwichuk, CompassGUIDES Tax Specialist
Mozambique – that’s in Africa isn’t it? Assignment Managers could clean up in the Geography section of a game show since they regularly send employees to the most obscure places. Unfortunately, with assignment planning, it is not enough to know the precise global position of the host country, and gathering the required information about the assignment location is no easy task.
We recently forayed into the Mozambique tax arena for a Canadian client. Consider this article to be a tax travelogue of that adventure.
Mozambique is an independent republic off the east coast of Africa, where the official language is Portuguese. The country endured a civil war in the 1970’s, and now has a centrally planned economy, although the government is currently instituting free-market reforms.
As in many poorer countries, serious diseases are a risk requiring prior immunization for assignees. There are also water quality issues. Medical services are expensive, with advance payment required, and insurance must be arranged prior to travel. Individual risk assessment is also recommended.
The Planning Dilemma
While this information about Mozambique is just a quick view of the country, assignment managers must gather as much relevant information about the host country operating and living conditions as possible, as a basis for preparing policy. The importance of this information should not be downplayed if assignment policy, including assignment tax policy, is to be applicable and effective in the host country.
Ensuring that there is an appropriate fit between assignment policy and the host country helps to avoid breaches of protocol and provide the assignee with a positive experience. Assignees should not have to be worrying about local taxation and the blending of such with their Canadian taxes. Rather, all of these details should be investigated and incorporated into assignment tax policy.
The Assignment Issues
For our client, taxation was a prominent issue, as it was to determine where assignees should be physically located to do the work in Mozambique. Should they be set up in Mozambique for work on site, or in South Africa for regular rotation into the work location? This, of course, would also determine the corporate structure that was to be set up for the business venture in Mozambique.
Other natural questions focus on the security situation in Mozambique and how that would affect assignees. How would the travel costs of the rotator scenario compare against the additional insurance and COLA costs of locating the assignees directly in Mozambique?
How Assignees are Taxed
Through business colleagues in Africa, we investigated how assignees and the corporation would be taxed in Mozambique.
An expatriate working in Mozambique holding a work permit and earning a salary would be subject to personal tax ranging from 0.4 to 27% , an expatriate working on contract basis without work permit would be subject to 20% withholding tax , and a local company or branch from a holding company outside Maputo would be subject to 30% corporate tax.
In order to ensure that charges relating to Mozambique are not subject to tax in South Africa, it is important that there be a separate contract for all work and payments pertaining to Mozambique. This would substantiate, should the company decide to locate in South Africa, that the amounts are not connected to a permanent establishment in South Africa, and accordingly not subject to tax in South Africa.
The approach we took in investigating this small piece in the assignment planning process is documented in our CompassGUIDES Assignment Manager’s Planning Checklists. Offered online from our website, these checklists include an entire section on Gathering Global Assignment Information.
Assignment Manager’s Planning Checklists
Our Assignment Manager’s Planning Checklists can be used free of charge in a secure environment, with access from the Home Page of our website (www.compassguides.ca). Comprised of 250 questions or prompts, these 44 checklists provide a solid base and starting point for assignment planning.
Sending assignees to obscure locations in the far corners of the globe does not preclude solid assignment planning, which is just as important, and in some cases even more so, than a relocation to a very ordinary locale.
Gathering the information to feed this planning is challenging, but it has to be done at some point, and better sooner than later, since business decisions should be based on information such as tax details. At CompassTAX, we have helped clients plan assignments to very unusual and remote locations, which allows us to say with confidence that there is always a way to unearth details for assignment tax planning.
At CompassTAX, we develop cost-effective assignment tax programs for Canadian companies sending employees around the world and bringing international consultant expertise to their Canadian projects. These Assignment Tax Programs provide detailed advanced tax planning, including policies, procedures and employment contracts, which serve to minimize costs and mitigate any risk of litigation.
CompassTAX™ also offers clients with international assignees pre-departure and re-entry tax planning with a view to minimizing tax and providing experienced tax representation with the Canada Revenue Agency (CRA). CompassTAX™ specializes in all areas of cross-border taxation for consultants coming to Canada temporarily, Canadians moving back to Canada, and individuals living outside Canada with Canadian business ties.
The author wishes to thank Peter Simpson, CA, for his contribution to this article .