Wednesday, October 24, 2012

Tax and International Salary Calculations

The question that often comes up is how tax figures into international salary calculations adjusted for cost of living differences.

For example: "Does the calculator take into account the tax rates of each country. I currently pay about 38% in Australia but the UAE tax rate is nil. should I enter my before tax or after tax salary into the calculator."

We advise using net (after tax) salary. The calculator will then apply the following formula based on the selections in the calculator:

Net Salary in Home Location X Cost of living Index Differential X Exchange Rate X Hardship Differential = Calculated Net Salary in Host Location

If you use net salary the result will be the net salary in the new location. Given the tax rate is nil in AED the net salary would not be grossed up for tax but will be adjusted for cost of living, hardship and exchange rate.  If however the new location tax rate was 25% then the net salary would be grossed by 25% to arrive at the equivalent gross salary in the host location.