This article provides detail on the Qualifies for Short Term Exemption? feature available for Cost Estimates.
When set to Yes, this feature applies the income tax treaty exemption, typically for assignments with duration of less than 183 days.
The Tax Engine evaluates five criteria to determine whether income can be exempted from host country income tax, and therefore taxable in the home country.
By setting to Yes, the following qualifying criteria are assumed to be met:
employee is not paid by host country payroll; and
move costs are not recharged to host country entity.
The Tax Engine then evaluates the 3 remaining criteria:
Is an Income Tax Treaty in force between the home and host country?
Is the employee home country tax resident?
Does the move duration meet the period defined in the treaty?
The diagram below summarizes the Tax Engine behavior when Qualifies for Short Term Exemption? is set to Yes.
When an income tax treaty applies, income is exempted from host taxation. In the Cost Estimate Calculation Details report, the exemption is shown in the Host Calculation Details page, while domestic taxability of line items is still displayed in the Allowances Details.
Where the income tax treaty is not applied and double taxation results, the appropriate double tax relief method (Foreign Tax Credit, Foreign Earned Income Exemption or Exemption with Progression) is applied to the Home tax calculation.