Pay packets for expatriate middle managers in the UK cost nearly $40,000 less than twelve months previously
The United Kingdom is no longer the most expensive country of the top-40 financial hubs for expatriate pay packages.
According to an annual report conducted by global mobility experts, ECA International (ECA), the UK has fallen to second place behind Japan as the value of a typical pay package for an expatriate middle manager in the UK is now $344,508, a drop of $39,898 compared to last year.*
“Over the past few years we have seen a steady drop in pay package values for expat workers in the UK when compared in US dollars internationally,” said Steven Kilfedder, Production Manager at ECA International. “The fall in the value of the British pound after Brexit has made it cheaper to send staff to the UK from abroad, resulting in Japan replacing the UK as the most expensive location to send staff.”
ECA’s MyExpatriate Market Pay report considers three main elements for analysing the appropriate middle manager pay packet in each country: the cash salary, benefits – to cover the cost of accommodation, international schools, utilities or cars – and tax. The report helps to assist companies relocating staff with benchmarking their packages against the market.
Although dropping to second place, pay packages for expatriates in the UK are still costly for foreign companies, largely due to high accommodation costs and taxes. Taxes account for the largest single cost to companies in both Japan and the UK.
Kilfedder said: “The tax element is the most expensive component of an expatriate package in the UK by a substantial margin. The cost of providing benefits is also considerable, at around double that of the salary element, due to high expat rental accommodation prices in London.”
Europe more attractive for foreign business as cost of staff drops
Due to the dollar performing strongly against the Euro in 2017, most European countries dropped in cost of pay packages compared to the previous year. Sweden and Switzerland have dropped out of the top ten most expensive countries, and the pay package in France has dropped by $15,478. However, Italy saw the biggest drop in cost of pay packages and is now the cheapest European country of the top 40 financial hubs to send staff.
“The extension of an expatriate tax concession, part of a series of tax changes designed to make Italy a more favourable destination for investment, has significantly reduced the cost of sending staff to the country,” said Kilfedder.
Asian nations dominate most expensive expat pay packages
Asian nations on the whole continue to feature towards the top of the rankings, offering the highest overall packages to foreign workers. After Japan and the UK; India, China and Hong Kong complete the top five respectively.
“Although some of the top Asian countries, such as China and Pakistan, have seen a drop in the average expat pay package, they still continue to require among the most expensive overall packages in the world. India especially has become increasingly expensive for companies, with an average total package of $293,097 – a rise of $15,230 this year alone mostly due to companies having to pay a higher level of benefits and tax costs,” Kilfedder explained.
To incentivise employees to accept an assignment in certain destinations companies will often grant additional allowances on top of the base salary that aren’t necessary when sending staff to other countries. In Hong Kong for example the most expensive element of a pay package is the benefits provision. This is largely due to dangerous levels of air pollution, combined with high international school fess and accommodation costs.
In contrast Malaysia saw a drop of $17,188 for the average expatriate pay package, making it the cheapest country of the top-40 financial hubs to send expatriates.
Kilfedder said “Due to much cheaper accommodation costs and relatively low levels of tax, the average cost of sending an expatriate middle manager to Malaysia is now approximately $150,868; less than half what it would cost to send an expatriate to Japan.”
Argentina jumps in cost for expatriate staff
In the Americas, Argentina has seen a big jump in the average expatriate package. The overall pay package has risen by $11,256, with most of the increase being seen in the cash salary.
“Argentina has seen high inflation over the past few years which has pushed up expat salaries. Due to the continued weakness of the peso and a possible bailout from the International Monetary Fund in the coming months, this trend is likely to continue in the future,” said Kilfedder.
Middle East salaries remain highest in the world for expatriates
There was little change seen in the Middle East, but expatriate salaries in the region remain some of the highest in the world – with Saudi Arabia and UAE in first and second place respectively when looking at the annual salary. However as there are no personal income taxes paid in Middle Eastern countries, all three nations continue to require cheaper total pay packages for expatriate staff than the majority of the top 40 financial hubs.
Kilfedder concluded: “Middle Eastern nations have offered high wages for expats for a long time now and combined with the 0% tax rates, the Middle East is often considered a lucrative place of work for overseas staff. However, due to the newly-introduced 5% VAT tax rate in the region which will increase the cost of living, we expect to see rises in both the salary and benefits elements of expat pay packages.”