What is an expat?

An expat is an employee who works from a foreign country. Paying expats can present challenges with regards to taxes, currency exchange rates, and local labor laws.

Additionally, employers have to make sure that when paying expat employees, they’re taking into account both tax requirements in the employee’s home country as well as in the country they live in. This can often be a complex process requiring expertise in both countries.

Foreign earned income exclusion and other tax provisions

Expats may have certain tax benefits from their home country. For example, in the U.S there’s foreign-earned income exclusion, which allows expats to exclude a portion of their foreign-earned income from US federal income tax to alleviate double taxation. Other countries, like Canada and Australia, have similar tax provisions – though with slight differences.

Additionally, there are countries that have tax treaties with each other, which can also help expats avoid double taxation.

When living outside the US, US citizens or resident aliens’ income—even when living in Europe—is subject to US income tax, regardless of where they live. However, expats can qualify for foreign-earned income exclusions and/or foreign income tax credits.

Some European countries have generous tax incentives for foreigners. In Italy, if an individual lived outside of Italy for the previous five years, and comes from a country with a tax treaty with Italy (such as the US and Canada), they can move to Italy and pay a 7% tax on foreign-source income.

Greece also introduced a 7% flat tax fee for eligible expats for those from the US or Canada.

A few other European countries that offer tax upsides for expats are:

• Malta: flat rate 15% tax on income
• Andorra: Tax exempt on income from 24,000 to 40,000 Euros
• Portugal: tax exemption on all foreign-earned income
• Monaco: zero tax levied on all foreign-earned income

Differences between expat and immigrant

Expats and immigrants can sometimes get mixed up, though the definitions differ quite a bit.

Expats temporarily live in a foreign country and are there for a specified period of time, while still keeping their home country citizenship and not obtaining citizenship in the country they’re temporarily in.

An immigrant, on the other hand, is a person who’s permanently moved to a new country.

Are expats considered part of a contingent workforce?

Not necessarily. Expats and the contingent workforce are different, but there can be overlap.

• Expats (Expatriates): These are employees who relocate to another country for work, usually for long-term assignments with full-time contracts and employer-provided benefits.
• Contingent workforce: This includes temporary, freelance, gig, and contract workers working on short-term projects. They’re not legally considered employees.

However, if an expat is working on a temporary contract (e.g., a consultant or project-based hire), they could be considered part of the contingent workforce.

Paying expats across the globe

For companies with a global workforce, paying expats can get complicated. Not only do you have to deal with the regulatory environment of the expat’s location, but the rules of their home country must also be considered. On top of that, ignorance of the existing tax treaty benefits pertaining to the expat employee can be a serious financial liability.

A payment execution platform can help by offering regulatory knowledge for the relevant countries in question as well as offering payment automation and clear data visibility to mitigate human error.