How to save money with a salary split
By Oliver Biernat, Benefitax GmbH
High-income earners working for several entities of international groups in different countries may profit from a salary split. Normally the salary is paid in the home country only and the involved group countries split or reimburse the costs among each other. An interesting alternative is to have several labour contracts with each respective group company the employee works for on a regular basis (salary split).
At first glance, this causes more work and cost for the employer, such as multiple payroll administration and legal costs for preparing and changing the labour contracts. The employee may initially dislike this set-up because they might have to open bank accounts abroad and file income tax declarations in several countries. Possible implications on social security benefits also need to be taken into consideration.
When looking deeper into the matter, financial advantages may outweigh the disadvantages. Should the countries involved have a double taxation treaty with each other in place, allowing the exemption method for income from employment income, such income is usually only taxed in the country where the work is actually exercised and exempt with progression in the home country.
Lower tax rates, higher tax free allowances or special tax exemptions for expatriates in other countries may generate interesting tax savings on the total tax burden of this employee. So, for example, a total tax burden of EUR 102,000 which an unmarried manager has to pay on a EUR 250,000 income in Germany may be reduced to EUR 80,000 or less under certain conditions. GGI experts in many countries will be happy to advise further.
Oliver Biernat, Managing Partner
Benefitax GmbH Steuerberatungsgesellschaft, Wirtschaftsprüfungsgesellschaft
Frankfurt am Main, Germany
T: +49 69 256 227 60
Benefitax GmbH is a tax consultancy and public auditing company located in Frankfurt, which is widely recognised as the financial centre of Germany. Benefitax predominantly serves German entities of foreign multinational groups, midsized German companies with crossborder activities and wealthy private individuals.
Oliver Biernat is the founder and managing partner of Benefitax. He is a German chartered accountant, certified tax advisor and specialist advisor for international taxation with more than 20 years of experience. Since 2008, he has chaired GGI’s International Taxation Practice Group, increasing its size to more than 460 experts from 80 countries in the process.
published: April 2015