# HYPO Tax or Tax Equalization



## Mandibulus

My company (A US Company) employed me direct from the UK to Dubai - I am a UK Citizen - resident in UAE.

I have been here for 3 years - For the 1st year I was paid without the deduction of Hypo tax, from year 2 onwards the company has take 15% of my pay.

Is this legal?

My freezone contract (DAFZA) makes no mention of the deduction, whilst my contract with the employer does mention the deduction - would I have a case to claim this money back.

Thanks for any responses


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## BBCWatcher

Mandibulus said:


> Is this legal?


Sure. Your compensation agreement with your employer governs. If your agreement is for tax equalization, that means your employer is compensating you in such a way that you enjoy a U.K.-like after-tax experience.

OK, now you're in Dubai. Dubai has no personal income tax. Ergo your employer reduces your total compensation, other things being equal. You don't enjoy a tax windfall -- your employer does.

Your other potential choice is local employment on a local contract, but employers in Dubai pay less, other things being equal, precisely because the personal income tax rate is zero. "There's no free lunch."

If some of your hypothetical tax is going toward U.K. national pension contributions, that's helpful. That might be part of your tax equalization package, continuation and preservation of U.K. social insurance benefits.


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## thethirdcoast

Mandibulus said:


> My company (A US Company) employed me direct from the UK to Dubai - I am a UK Citizen - resident in UAE.
> 
> I have been here for 3 years - For the 1st year I was paid without the deduction of Hypo tax, from year 2 onwards the company has take 15% of my pay.
> 
> Is this legal?
> 
> My freezone contract (DAFZA) makes no mention of the deduction, whilst my contract with the employer does mention the deduction - would I have a case to claim this money back.
> 
> Thanks for any responses


Yes, this is what US firms do with their expats in this day and age.

What they will do is withhold the hypo amount from your paycheck, then pay the actual tax from that amount.

Any excess withholding goes to the company because the policy is there to benefit them, not you.

One would think that the hypo withholding could be adjusted to a more accurate level so this sort of situation does not happen, but again, these policies are there to benefit the corporation, not you.

Best.


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