For employees and directors with international responsibilities a salary split is a legitimate and often attractive instrument to reduce taxes. In many cases it is even the (legally and fiscally mandatory) consequence of an actual working situation. In this memo we elaborate on the conditions and benefits of a salary split structure.
A salary split exists when the salary of an employee is attributed to two or more countries. It can arise in several ways. For example, a salary split situation arises when you are formally employed by a company in another country (host country) while continuing your employment with your formal employer in your home country. Consequently, you will most likely become liable to tax in the host country, while continuing to be liable for tax in your home country as well. Tax treaties and/or local tax law should prevent double taxation. If the foreign tax relief provided by the home country exceeds the tax liability in the host country, the salary split is financially beneficial.