EY survey identifies challenges with the status of accompanying family and child expenses during overseas

・90% of all respondents answered they pay some form of preschool education expenses (kindergarten and nursery school) for accompanying children of assignees.
・More than 60% of respondents indicated they allow accompanying family members to work locally, while only 2% actively encourage it. For issues related to local employment, many respondents stated that they did not fully grasp the employment situation, were unsure of any action that needed to be taken in situations where accompanying family members were working, or simply that they were not sure of how much support they should be providing.
・96% of respondents answered that they provide pre-assignment allowances. Among those respondents, 37% are subject to Japanese income tax while 47% are not, resulting in a bifurcation of tax treatments.

We are pleased to announce the release of EY Mobility Survey No. 4, a joint project of Ernst & Young Tax Co. and EY Immigration Co. which aims to explore the treatment of allowances and tax practices pertaining to assignees of Japanese companies who work internationally. Within this survey, we specifically inquired about the education of accompanying children, employment of accompanying family members, and pre-assignment allowances. We made sure to include these topics as they proved to be of high interest to respondents throughout surveys one through three.
This installment in the EY Mobility Survey series was conducted over two months from September to October of 2022 to gain insight into corporate management of allowances, treatments, and taxation of overseas assignees. EY surveyed and analyzed responses provided by 250 respondents (230 companies), primarily from administrative departments, including HR, accounting, executive functions, and corporate planning.

EY Mobility Survey No. 4: Findings

Education of accompanying children

1. Establishment of a standard school
   The results were fairly split between responding companies that had established a standard school and those that did not. Around half of the companies that had established a standard school cited references such as the Japan Overseas Educational Services and information obtained directly from assignees and local supervisors for doing so.
2. Expenses for elementary and middle schools in areas without Japanese schools
   Eighty-four percent of respondents said they would subsidize these expenses somehow. The average amount supplied by companies in instances where annual tuition is equivalent to JPY1m is JPY928,259 with the median provided amount being JPY1m.
3. Local high school expenses
   Eighty-one percent of respondents said that they would subsidize these expenses in some way. The average amount supplied by companies in instances where annual tuition is equivalent to JPY1m is JPY842,846, with the median provided amount being JPY1m.
4. Ultimate bearer of education expenses
   Fifty percent of respondents indicated that the host country was ultimately responsible for these expenses, while 31% indicated that the responsibility remained with the Japanese company. It is generally accepted that the host company is responsible for these education expenses as the costs are directly associated with the assignee. If the Japanese company ultimately decides to bear these expenses, there is a risk that these payments could be deemed as donations as a result of a tax audit.
5. Status of education expenses on local tax returns
   Fifty-nine percent of respondents answered that they make sure to report these expenses in countries and areas that require it, while 27% indicated that this responsibility lies with each local subsidiary and thus, they do not have a full grasp on the situation. Therefore, the possibility of tax return misreporting should be considered.

Employment status of accompanying family members

1. Scope of support regarding local income tax return filings for accompanying family members.Among respondents who indicated that they actively encourage or allow accompanying family members to work locally, less than 10% said that they provide financial support through tax return preparation expense coverage and coverage for income tax liabilities. However, nearly 30% of respondents answered that they assist in providing tax return preparation methods and introducing vendors.
2. Reasons for disallowing accompanying family members to work locally
   Over 90% of respondents answered that they do not allow accompanying family members to work due to them entering the country on a family visa and therefore are not allowed to work from a legal perspective. Around 30% of respondents answered that they disallow accompanying family members to work locally due to tax and/or safety concerns.
3. Challenges
   Among respondents who indicated that they actively encourage or allow accompanying family members to work locally, around 45% answered that they did not completely understand the employment status of accompanying family members. Without understanding the employment status, risks related to safety management and income tax return misreporting may arise. In addition, we received many comments from the respondents indicating that there was no precedent for this, thus resulting in each case being handled individually each time an accompanying family member wished to work. The increasing cost of living due to global price increases and a rising emphasis on career development from accompanying family members are expected to result in an escalation in the number of cases where accompanying family members wish to work locally in the future.

1. Payment period and calculation method
   Seventy-one percent of respondents answered that they supply this allowance before the start of the assignment, while other companies indicated that they allow the assignee to decide when they receive this allowance. Responses regarding the pre-assignment allowance calculation method were split between companies answering that this was determined via a fixed amount per rank at the company and those that answered that all assignees were provided the same amount regardless of rank at the company or yearly income with each response representing 40% of the total received responses. Based on responses, the average pre-assignment allowance is JPY298,772 with the median being JPY280,000.
2. Allowance paid after arriving at the assignment location (excluding pre-assignment allowance)
   Twenty-three percent of respondents answered that they do supply this allowance. Amongst respondents who indicated that they do provide this, the average amount given is JPY310,628, with the median being JPY240,000.
3. Taxation of pre-assignment allowance
   If non-taxable, the allowance is presumed to be treated similarly to other reimbursable expense items such as travel expenses. In this instance, it is imperative to confirm that the provided pre-assignment allowance payments are equivalent to the actual expenses incurred by the assignee.

Commentary from Megumi Fujii, Partner at Ernst & Young Tax Co.:
In this survey, we focused on three specific areas: education expenses of accompanying children, employment of accompanying family members and pre-assignment allowance. In a world that is experiencing soaring tuition fees, we see an increased burden being put on assignees under existing school tuition subsidy standards. In particular, the persistently weak Japanese yen and low domestic salary levels exacerbate this issue. For this reason, the burden on assignees will only continue to increase if companies do not consider increasing subsidy amounts, consequently leading to an increased avoidance of overseas assignments. On the other hand, it is expensive for companies to provide for costs associated with accompanying children. When it is difficult for the local subsidiary to bear these costs, the Japanese head office has no choice but to cover them, therefore resulting in a risk that these payments could be deemed as donations as a result of a tax audit in Japan.

In addition, the employment of accompanying family members has recently become a point of great interest amongst Japanese companies sending employees on assignments overseas. As times change from the age of the standard “full-time housewife” to the age of dual-income earning couples, company policies pertaining to international assignees remain premised on the old-fashioned family model. This has resulted in various challenges, including issues related to the employment of accompanying family members. The COVID-19 pandemic has also had major impacts on the working environment. In addition, companies should consider many related matters,  such as requests from accompanying family members to continue working for their Japanese employers while living abroad.

Regarding the pre-assignment allowance, amounts being supplied by companies have not significantly changed due to prices in Japan remaining relatively constant throughout the past 20 years or so. It is also interesting to note that the tax treatment related to this allowance is split into two parts. Due to the rising cost of living in assignment destination areas in combination with the weakening of the Japanese yen, we may start to see an increase in companies opting to provide post-arrival allowances in order to aid assignees with settling into their host locations.

Overview of survey findings:

Please see the main findings from the survey in the attachment.

Overview of EY Mobility Survey No.4

This EY Mobility Survey was conducted regularly to gain insight into the corporate management of overseas assignees, business travelers, and employees on inbound assignments to Japan.

Purpose: To investigate and analyze the treatment of international assignees
Topics: Education of accompanying children, employment status of accompanying family members, pre-assignment allowance
Survey period: Thursday September 8th, 2022 – Friday October 14th, 2022
Number of respondents: 250 (valid responses*: 230)

*The following standards were applied in cases where there were multiple respondents from the same company:

1.Responses from head offices were prioritized over those from overseas subsidiaries.
2.Responses from human resource departments were prioritized over those from all other departments.
3.Surveys from respondents with the most valid responses were prioritized when multiple respondents were from the same department or group.

Supplementary information:

All items from EY Mobility Survey No. 4 are listed below. (Items in bold are those included in the summary version)

1.Affiliation of respondents
Service lines, positions, industries, corporate nationality, number of employees, number of overseas assignees
2.Recommendation of child accompaniment for overseas assignees
Eighty percent of companies leave the decision to employees, with 12% recommending accompaniment
3.Provision of preschool educational expenses
Ninety percent provide for all or part of expenses in some manner
4.Setting standard schools (kindergarten and daycare)
5.References used when setting standard schools (kindergarten and daycare)
Most companies refer to information on schools provided by external organizations
6.Timing of initial provision for kindergarten and daycare expenses
7.Specific amounts of kindergarten expenses (language used in classes: Japanese/languages other than Japanese)
8.Educational expenses in regions without Japanese schools
Eighty-four percent provide for all or part of expenses in some manner
9.Setting standard schools in regions without Japanese schools
Approx. 40% set standard schools and approx. 40% do not
10.References used when setting standard schools in regions without Japanese schools
Most refer to information provided by responsible persons in assignment locations
11.Scope of payment of educational expenses
12.Specific amounts provided for tuition in regions without Japanese schools
13.Educational expenses when a child commutes to high school
14.Specific amounts provided for high school expenses
15.Ultimate bearer of educational expenses
16.Filing taxes locally with regard to company-provided educational expenses
Fifty-nine percent of respondents make sure to include educational expenses in tax filings in countries and regions that require it
17.Approval of accompanying family members working in assignment locations
Sixty percent of companies passively approve of accompanying family members working
18.Scope of support for working in assignment locations
19.Scope of support for accompanying family members filing income taxes in assignment locations
20.Change in treatment for assignees when accompanying family members work in assignment locations
21.Reasons for not approving of accompanying family members working in assignment locations
Over 90% of respondents cited the use of family visas to enter the country as the primary reason
22.Challenges related to accompanying family members working in assignment locations
Approx. 45% of respondents report not having a clear understanding of the employment status of accompanying family members
23.Provision of pre-assignment monetary assistance
Ninety-six percent of respondents provide pre-assignment monetary assistance
24.Timing of provision of pre-assignment monetary assistance
Over 70% provide prior to the assignee departing to the assignment location
25.Calculation methods for pre-assignment assistance
26.Specific amounts of pre-assignment assistance
27.Whether pre-assignment assistance is taxable in Japan
28.Scope of pre-assignment allowance
29.Allowances provided after arrival in assignment location
Twenty-three percent indicate providing allowances in addition to pre-assignment monetary assistance
30.Specific amounts of allowances provided after arrival in assignment location

Note: This is an English translation of the news release which EY Japan published on 21 December 2022 (local time). Where there is any divergence between the Japanese original and the translated version, the original will prevail.

Japanese news release: 
EY調査、海外赴任時の帯同家族の就労状況、帯同する子の費用負担が課題 | EY Japan

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