Countries Around World Implement Payroll-Related Changes

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By Anna Massoglia and Howard Perlman

Numerous changes to payroll-related requirements around the world took effect Jan. 1, 2018, or are to take effect later this year.

Employers in the U.S. employing nonresidents, employers in the U.S. employing expatriates working in other countries, and employers in other countries must be aware of these changes so they can maximize global payroll compliance and conduct effective multinational payroll operations.

Implementation of tax reform measures in the U.S. may substantially change withholding requirements and deductions that affect employers of foreign workers in the U.S. and American expatriates around the world.

Social Taxes

French President Emmanuel Macron’s overhaul of France’s social tax system is to be implemented over the course of 2018, in which employee contributions to the general social contribution fund are to increase while contributions for health and unemployment insurance in France are to be reduced, and then eliminated Oct. 1, 2018. Income tax withholding on resident employees’ wages in France is to be in effect for the first time starting Jan. 1, 2019, a delay from the initial implementation date in 2018 to allow the government more time to examine the technological capability of employers regarding compliance with the upcoming withholding requirement for resident employees, the country’s Ministry of Economy and Finance said.

Romania is implementing a social tax overhaul in 2018, combined with a significant income taxation change. The flat personal income tax rate applicable to all employment income decreased Jan. 1 to 10 percent from 16 percent, with the reduced income taxation offset by increased social taxation of employees under Romania’s policy change implemented Jan. 1 that shifted much of the social tax burden away from employers and toward employees. The total social tax rate for employees increased Jan. 1 to 35 percent from 16.5 percent, while the employer standard total social tax rate decreased Jan. 1 to 2.25 percent from 22.75 percent.

Argentina is initiating in 2018 a significant change to its social taxation structure with regard to employment income. Before 2018, the country assessed on employers separate contributions for five programs of the Unified Social Security System. Starting Jan. 1, four of the contributions were combined into one, with the fifth remaining separately assessed. The 2018 rate of the unified contribution generally in effect for private-sector employers is lower than the 2018 rate of the unified contribution for private-sector employers engaged in commercial services that have annual income of more than ARS 48 million ($2.5 million), and incremental yearly increases to the former and decreases to the latter through 2022 are to result in an equalization of those rates.

Income Tax, Minimum Wage

Personal income tax brackets for many countries for with progressive income tax systems changed Jan. 1 with regard to rates in effect, ranges of income applicable to tax brackets, number of tax brackets, or a combination of these factors. Among these changes were Belgium’s elimination of one of its personal income tax brackets for 2018, Malaysia’s decrease starting Jan. 1 of rates for three of its brackets, Portugal’s addition of two brackets for 2018, and South Korea’s increase starting Jan. 1 to rates for two of its brackets.

The stage is set for minimum wage changes across the globe ranging from the volatility of Venezuela’s minimum wage in 2017 to the planned implementation of South Africa’s first standard national minimum wage by May, 1, 2018. Numerous countries adjusted their minimum wages Jan. 1, 2018, or are to do so later this year.

Evolving payroll technologies remain a compliance challenge as well as an opportunity, as more countries implement electronic filing systems for tax documents related to payroll and a growing number of countries require employers to file electronically. More countries are making electronic filing of tax documents available and more countries are making it mandatory. Brazil, Finland, and Romania already have announced plans to require some employers to submit tax documents through an electronic filing system, while other countries have announced plans for testing and implementing electronic filing for employers on a voluntary basis.

Brazil’s new eSocial online portal allows employers to fulfill data filing requirements regarding taxes related to employment, separations from employment, and other aspects of employment law compliance. Employers must start to use eSocial in 2018 in accordance with a five-phase implementation schedule, with a first-phase implementation deadline of Jan. 8, 2018, for private employers that had annual revenue of at least 78 million reals ($24.3 million) in 2016 and a first-phase implementation deadline of July 16, 2018, for private employers that earned less than 78 million reals ($24.3 million) in 2016. When they fully implement eSocial, employers will need to provide to eSocial on a monthly basis information regarding payments to their employees, and must enter into the system data regarding a payment to an employee generally by the seventh day of the month after the month when the payment was made.

Payroll Processing

Australia’s Single Touch Payroll system is a new payroll system that employers will be required to use and that will involve real-time reporting, with payroll reporting to the government occurring at the same time wages are paid to employees. Single-Touch Payroll is required to be used starting July 1, 2018, by employers with at least 20 employees. The Australian Tax Office is seeking to require employers with fewer than 20 employees to be required to use the system starting July 1, 2019, although the Australian parliament must approve of this before it can be implemented.

Multinational employers are also to be faced with changes to double-taxation agreements as countries incorporate recent multilateral treaties into their national laws. Starting as early as January 2018 and before June 30, 2019, European Union member states may put into effect a new EU-wide dispute resolution system extending dispute resolution mechanisms for resolving double-taxation issues in EU member states to employers and potentially affecting preexisting double-taxation agreements.

The Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting, a treaty that is the first multilateral agreement of its kind to amend multiple tax treaties with changes intended to reduce double taxation, poses substantial changes to existing double-taxation treaties and the process of multinational tax dispute resolution as countries incorporate legislation implementing provisions of the treaty.

A significant regulatory framework regarding data privacy, the General Data Protection Regulation, is to be implemented May 25, 2018, for the European Union and is to affect global payroll compliance and data transmission. The regulation expands EU data privacy enforcement to all organizations that transmit personal data in some form in EU countries, that possess or process data of EU residents, or that have some form of business presence there. Employers must coordinate with vendors to ensure compliance with the regulation.

To contact the reporters on this story: Anna Massoglia in Washington at amassoglia@bloombergtax.com and Howard Perlman in Washington at hperlman@bloombergtax.com. To contact the editor responsible for this story: Michael Baer at mbaer@bloombergtax.com.

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