How are cash-based incentives held by an internationally mobile employee taxed?

Employee Incentives

United States Small Flag United States

Cash based incentives are taxed under the rules described above for equity awards. The point of taxation will be when the individual receives the cash payment.

Also note that the US has tax laws (including Section 409A) that regulate the ability of a participant to defer receipt of cash payments. Generally, any election by an employee must be made no later than December 31 of the calendar year preceding the year in which the relevant services are performed. Employers are generally prohibited from causing cash compensation to be paid later than March 15 of the calendar year following the year in which the services are performed unless the arrangement complies with or is exempt from Section 409A of the Code.

US state wage payment laws may need to be reviewed to confirm that cash payments may be deferred.

Mexico Small Flag Mexico

If the Mexican entity grants the incentive while the employee is rendering services in Mexico, the Mexican entity must withhold and pay tax on the income.

Romania Small Flag Romania

Cash-based incentive usually represent salary assimilated revenues and are taxed accordingly (i.e. are subject to income tax social security contributions). Within an international mobility context, several factors may influence the jurisdiction that has the right to tax such income, but again an important factor is the tax residence of the individual receiving such incentive.

Denmark Small Flag Denmark

The tax treatment of cash based incentives is, generally, in line with the described treatment for the granting of Shares, see question 19.

Ecuador Small Flag Ecuador

This will depend on the tax domicile of the employee. If an employee’s domicile is Ecuador, the employee must file tax declarations, making the deductions permitted by local law.

Notwithstanding the foregoing, any applicable double taxation treaty would have to analyzed. This depends on the existing agreements between the tax domicile and the current residence.

Payments abroad generate the foreign exchange tax.

China Small Flag China

  1. The mainly cash-based incentives to mobile employees is bonus. Before 31 December 2021, there is a special preferential tax policy for the annual one-off bonuses, which will be treated as a separate one-month pay when calculating the tax payable, and not included in the comprehensive income of the year. Specifically, the annual one-off bonuses will be divided in the very month by 12 months first, then determining the applicable tax rate and the sum of quick calculation deduction according to the quotient.
  2. Besides, there are some tax-free incentives to mobile employees, including house allowance, relocation allowance, the expenses of visiting family (travel fee from China to his/her home), language training (Chinese only) expense and children education expense. Law or regulation does not provide specific amount/cap on those items, in practice, the amount of them shall be reimbursed based on actual expenses with invoice.

According to Cai Shui [2018] No. 164, foreign employees can choose to enjoy either special additional deduction or continue to enjoy the tax free preferential policy for subsidies for housing, language training, children education etc.

The Netherlands Small Flag The Netherlands

Please refer to Q&A 19.

Brazil Small Flag Brazil

Please refer to question 19 above.

Japan Small Flag Japan

Same as 19.

Norway Small Flag Norway

Cash-based incentives that relate to employment activity in Norway are normally taxable even if received after departure. There may be exceptions.

United Kingdom Small Flag United Kingdom

The rules for cash-based incentives differ from those applicable to share-based arrangements. Essentially, cash-based arrangements are taxed in the same way as salary and depend upon the individual's residence and domicile status. The underlying principle is that those with the strongest links to the UK should pay more tax in the UK than those with weaker connections.

Germany Small Flag Germany

In general, cash-based incentives are taxable in Germany as soon as they are paid to German tax residents, no matter if the employee is actually located in Germany.

France Small Flag France

As for share options or awards, cash-based incentives held by internationally mobile employee depends on his or her tax residence and tax treaty concluded between the countries concerned (if any).

If the employee's sole tax domicile is France, cash-based incentives are taxed in accordance with French law (see question 7).

Spain Small Flag Spain

See answer 19.

Colombia Small Flag Colombia

It is applicable the same rules mentioned above, since the consideration vary depending on the classification of residence in Colombia as resident or non-resident.

Portugal Small Flag Portugal

The rules above described for the exercise of the options will apply to cash-based incentives.

Italy Small Flag Italy

Taxation depends on whether the individual is an Italian tax resident at the time the tax payment becomes due. If an employee is an Italian tax resident at that time, the regulations governing Italian income taxation shall apply, also, as the case may be, taking into account any applicable bilateral agreements between Italy and the relevant foreign country.

Turkey Small Flag Turkey

Cash based incentives will most probably be treated as income generated in Turkey and will be subject to income tax with consideration of double taxation treaties.

Updated: February 26, 2019