Multinational companies that hurl ...

Multinational companies that hurl employees to work overseas are repeatedly concerned about their employees' income tax liabilities; however, they frequently overlook the potential costs of foreign social security (the equivalent of the Canada Pension Plan). Social security taxes are not concealed by income tax treaties and can be a significant constituting of any foreign assignment. Moreover, if the employer has an equalization policy or reimbursement plan to overspread foreign social security, the outlays of the transfer can rise steady higher.

Fortunately, relief can ofttimes be found in Canada's Social Security Totalization Agreements.

Obligation to pay social security

All countries have different dominions regarding the obligation for foreign nationals to contribute to social security plans. In the United States, for example, social security tax applies to wages paid for services performed as an employee within the US, regardless of citizenship or the residence of the employee or employer In the UK social security payments are required for employee working in the UK on the other hand foreign nationals may be entitled to one-year exemptions in a less degree than certain circumstances. In Japan, in the greatest degree expatriates can avoid Japanese social security if they remain in succession offshore payrolls.

Comparison of rates

Canada's social security rates are among the lowest in the world. Employee contributions to CPP are capped at $180180 for 2003 whereas in the US, the rife rate (including the required Medicare contribution) is 765% of salary up to $87000 US, and 165% of salary throughout $87,000 US (with no upper limit).

In greatest in quantity countries, the employer is required to match the employee contribution. Below is a comparison of the employee and employer portions of social security payments required onward a salary equivalent to $100000 CDN*:

Totalization Agreeements

Canada publicly has Totalization Agreements with forty-seven countries, including the US, the United Kingdom, and Germany. Japan is individual of the countries not included in this list; therefore, Canadian employee working in Japan may be make liable to its social security, unles they remain forward non-Japanese payrolls. A list of the countries with which Canada has Totalization Agreements can be build on the Human Resources disclosure Canada website at www.hrdcdrhc.gc.ca/isp/internat/sum_e.shtml.

Totalization Agreements render certain that employees are not required to contribute to the two countries' plans during a temporary posting in a foreign political division In order to qualify for an exemption from foreign social security contributions, the employer must obtain a Certificate of Coverage from the Canada Customs and reward Agency (CCRA). Generally, the employee must be working in Canada for an employer affiliated with the foreign employer and contributing to CPP before the foreign assignment. The foreign posting must be part of the employee's in every one's mouth work duties, and not an entirely modern job that has no relation to their position in Canada. Also, the foreign assignment must be temporary-generally not longer than 60 month If all these conditions are met the CCRA will usually grant a Certificate of Coverage, which will allow the employee and the employer to contribute alone to CPP during the assignment. A original of this certificate should be sent to the foreign employer's payroll department before the first pay period as authorization for exemption from foreign social security withholdings.

Retirement benefits

Totalization Agreements also help fill in gaps in benefit protection for workers who divide their careers between Canada and other countries. The Agreements assist individuals who have worked in the couple Canada and a foreign rural parts but have not worked lengthy enough in either country to qualify for retirement benefits. In tenor the Agreements enable employees to qualify for partial Canadian and foreign benefits based onward combined, or "totalized," coverage credits from the one and the other countries.

While Canada's contribution rates are relatively subdued the retirement benefits may also be lower than in other countries. For 2003 the maximum monthly CPP retirement benefit plus aged Age Security benefit is $ 120733 (part of the OAS amount may be clawed back depending onward the recipient's net income). In comparison, the maximum monthly retirement benefit from the US Social Security program for 2003 is $1701 US. The US contribution is still proportionately higher than the Canadian rate when comparing benefits.

Planning

If employee are to be sent overseas, the outlay of foreign social security contributions should not be have charge ofed A review of the foreign country's social security program should be complet to determine if there is an obligation to pay into its plan or if a Totalization Agreement exists. Where an Agreement exists and the requirements for an exemption are met an application should be made for a Certificate of Coverage to possessed of immunity the employer and employee from making contributions in the foreign jurisdiction, and to allow continuing contributions to CPP Canada's contribution rates are relatively subdued so most planning is aimed at avoiding foreign social security and keeping the employee within the Canadian plan.