During recent years, there has been a growing trend for larger corporations to develop trading units around the globe and to have operations throughout much of the world. This trend has naturally caused an increase in the number of senior expatriate executives who work away from their home country. There are a number of remuneration issues which are likely to be of concern to such executives, amongst them:
they will naturally wish to minimise the tax which they have to pay in their host country, whilst at the same time reducing if possible the tax which they have to pay in their home country. They will not wish to be disadvantaged by being taxed on their income both in their host country and in their home country;
- They will only wish to contribute to a social security system – either in their host country or in their home country – if they will benefit from doing so;
- They will not wish to be paid in a country or currency which is subject to exchange controls; and
- They will want to be paid in a ‘hard’ currency, only converting to a ‘soft’ currency such part of their remuneration as may be required for their immediate living expenses in their host country.
One way in which these concerns can be addressed, is through the establishment in Jersey of an offshore employment company (“the Employment Company”), which directly employs the executives concerned and sub-contracts their services to the company using their services (“the Contractor”). The Employment Company might be a subsidiary or associate of the Contractor; or it might be owned by the executive; or it might be owned by a purpose trust established by the Contractor or by the executive. Volaw Trust Company is able to assist in planning for, establishing and managing and administering the Employment Company. It should be noted that in some circumstances such Employment Companies may require a permit under Jersey’s Regulation of Undertakings and Development Law.
A European group which employs pilots on long term contracts for various projects around the world, was concerned that some of the pilots remained subject to tax and social security contributions in their home country. Moreover, many of the pilots were working in countries which still retain exchange controls, and they were unwilling to be paid in local currency in their host country.
Volaw Trust Company established an employment company in Jersey, owned by a special purpose trust. The employment company entered into a contract with the European group to locate suitably qualified pilots and to sub-contract their services to the group, wherever and whenever pilots are required.
The Jersey employment company pays the pilots their agreed salary, without any tax or social security deductions. Payment is made to whatever bank account is nominated by the pilots: often, salary payments are split, part going to the pilot’s host country bank account and part to the pilot’s home country bank account. Pilots are offered an opportunity to participate in an insurance scheme which provides health and similar cover.
The Jersey employment company is remunerated under its contract with the group and receives sufficient to cover the employment costs of the pilots and its own administration costs, leaving a small profit.
The Contractor does not usually obtain any direct benefit from such an arrangement: however, by establishing an arrangement for senior staff to be paid without deduction of tax, the Contractor will indirectly benefit through the goodwill generated with those staff.