What is Tax Equalization,
Do I need it?
Expats may be eligible for tax equalisation while on-assignment abroad.
Tax Equalization, or TEQ, is a benefit provided by an employer to neutralize the tax impact on an expat’s net income.
The idea is that the expat would pay not much more or not much less taxes while on-assignment abroad, compared to the taxes they would’ve paid had they stayed at home.
That’s because every country in the world has different tax rates and policies.
While not being significantly worse-off sounds ideal, being Tax Equalized is not beneficial for everyone either.
Tax Equalization is not ideal for everyone.
The key is to know the tax rate difference between your home country and host country.
Case Study Example #1
If you were an expat assigned from UK to Dubai:
If you were Tax Equalized, you’d continue to pay UK tax rate (~45%) for the salary you receive while working in UAE.
You would have missed out on Dubai’s 0% tax!
Case Study Example #2
Another example, let’s say you’re an expat from US to Japan:
If you were Tax Equalized, you’d continue to pay US tax rate (~37%).
Meanwhile, your employer pays for Japan taxes (~56%).
TEQ will be beneficial in this scenario.
Quick Summary
- If you’re going from lower tax to higher tax location – Tax Equalization benefits you.
- If you’re going from higher to lower tax location – Tax Equalization will not benefit you.
Join the discussion One Comment