OK...first a caveat that I am trying to seek some professional advice elsewhere on this question, but thought some of the gurus here might have an opinion...now in as small a nutshell as possible (coconut sized! )...
- My firm is moving our family to Hong Kong, but I'm to remain a US employee paid on US payroll. The main reasons to do this are it's a temporary assignment (3 to 5 years) and we want to keep our retirement contribution and other benefits (which aren't available if I was employed directly by our Hong Kong office).
- Other than initial relocation expenses and trips home, we will receive no housing/education benefits -- so basically little to no non-cash comp.
- The firm is hiring a reputable accounting firm to do our US/Hong Kong taxes (which should be a source of relief) but the explanation for how our taxes will be calculated seems interesting..."your cash compensation will be subject to hypothetical tax withholding which will be based on what your tax liability for [firm] compensation would have been had you continued to be a resident in the US...[the accounting firm] will calculate an estimated hypothetical tax, and we will use this to withhold taxes from your compensation. At the end of the tax year, D&T will finalize the hypothetical tax calculation and it is likely there will be some amount owed by you or by [the firm] in the final settlement... [The firm] will be responsible for any actual tax liabilities on your cash and non-cash benefits...while both parties acknowledge that steps need to be taken to facilitate tax equalization, it is also recognized that there will be legitimate opportunities to minimize the tax liabilities for [the firm] and you...and we confirm our mutual intention to work together to this end."
So what I *think* my main question should be is...is it better to have my firm paying the actual tax liability and us paying the 'hypothetical calculation' vs. paying US/Hong Kong tax ourselves directly? IOW, are we missing out on a lower overall tax liability given the above scenario, or should we trust that my firm and the accounting firm will work with us to get the best deal, i.e. not paying state taxes, which we would be liable for if we were in the US?
If you've read this far without falling asleep, thank you...sign me up to buy you a pint once we've arrived!