Employer income tax withholding, social security contributions and employee benefits mandates usually amount to a straightforward issue of the local law at the place of employment. An employee working in Italy is subject to Italian tax withholding, social security and benefits mandates. Someone based in Chile is subject to corresponding Chilean rules. Staff in Korea is subject to Korea’s requirements.
This means that an inbound expatriate whose place of employment shifts to a new host country generally gets caught under host country tax withholding, social security and benefits requirements. This is certainly how it works stateside: A foreign entity—one not organized under US law—that employs an alien who immigrates to the US and works a job in, say, Seattle or St. Louis is almost always subject to US tax withholding requirements, to US social security contributions and to US COBRA medical insurance continuation. Cf. IRS Rev.Rul. 92-106 (12/7/92). The US does not want foreign employers to use their offshore payrolls to pay employees who are not legal US residents but who work on US soil and who benefit from US government services in a way that avoids American tax withholding, American social security contribution and American COBRA requirements.
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