Understanding the ripple effect of ever increasing movement of cross border travel

Multinational organisations continue to experience challenges as they expand their investment into the African continent. Despite these challenges they believe that a major part of their growth will be generated in this region. The growth in cross border activities places a strain on skills available in the continent, which is not uncommon in other continents either, however, perhaps more of a challenge across Africa.

To achieve a competitive edge and ensuring business success, organisations need to become more aware of high priority issues. There is a need for organisations to focus on moving the right people to the right place, within the right costs and in a short timeframe, which is imperative to gain a competitive edge. The business need drives internal pressures for greater programme flexibility often at a cost of creating specific governance issues, including a breakdown in compliance.

Complying with the in-county immigration requirements is the first obstacle most multi-nationals encounter when navigating the African continent. Archaic immigration policies and regulations are still implemented across the region, which will not improve the ease of mobility. Governments are slow to react in improving immigration regulations that are one step behind the economic reality in-country, with systems that are inflexible and do not meet the business need.

Immigration authorities need to protect their local workforce and therefore expect specialised skills to be transferred to local employees. In reality, this may not be possible as the talent pool, educational infrastructure and the availability of manpower may not exist. This is commonly experienced in the oil & gas industry, where specialised skills are required, which slows down the mobility of their employees.

Non-compliance with in-country immigration regulations is not the only risk company’s face. Assignee’s who travel in and out of a country on short term visas, often create other tax risks for the organisation, which are not timeously detected as these assignees are not on a formal assignment and are not tracked by a specific mobility programme. These potential risks include:

• Unintentional creation of a permanent establishment;
• Failure to withhold employment taxes;
• The creation of a VAT entity;
• Failure to submit tax returns;
• Labour law contraventions;
• Budgetary risks;
• Risk of prosecution and reputational risks for the business; and
• Unhappy employees.

Multinational organisations need to balance the need to make their workforce more mobile with the risks associated with their mobility, as the activities of their employees and the revenue they generate in another jurisdiction, may create a permanent establishment or VAT entity in that jurisdiction. A permanent establishment is a fixed place of business, which normally gives rise to an income tax and a value added tax liability. Other concerns include employees’ tax reporting and employer payroll withholding obligations. While international tax principles and treaties provide guidance in understanding if such risks are created, these guidelines are often interpreted differently by different tax authorities.

As tax authorities look to generate new opportunities for additional revenue and create more sophisticated tracking systems, the consequence is that organisations need to identify and report on their compliance obligations and associated risks created by the movement of their employees across borders.

The risks associated with the mobility of a workforce are not limited to tax compliance but also some critical HR aspects which may determine the success or failure of an assignment. The selection process followed in identifying the correct assignee, and preparing the assignee for cultural differences that may be encountered in the various African countries is vital. The first step in managing these risks is in creating an awareness of these associated risks within the business - this may require the involvement of Finance, Tax, Human Resources, or Legal, as each business owner would be impacted by one or more of the risks mentioned above. An integrated approach, leaning on the knowledge and experience of a well-established service provider in the African continent, who has a sound understanding of the country specific requirements, legislation and practices, is essential for success.