What is Tax Equalization? Expats (7/10)

Tax Equalization is a complex concept.

One of the most important topics as an Expat is to understand how to deal with your taxes. 

There are two basic policies around this topic:

  • Gross Compensation: In this scheme, any compensation paid by the company is defined in gross terms (i.e. before taxes), being the Expat the risk taker of lower or higher taxes to be paid during the assignment.
  • Tax Equalization: in this case, the company offers the expatriate a certain tax protection that is intended to maintain the same tax burden (in relation to their employment with the company) as if they had not moved from their country of origin. The advantage of this alternative is that it allows the company and the Expat to negotiate neglecting the tax differences between countries.
I will use a Spanish Expat as an example to try to explain the difference between these two approaches: