Housing Allowance

Typically an allowance paid to expatriates on long-term international assignments, a housing allowance is a financial benefit included in an expatriate's remuneration package to cover the costs of housing in a new location. With the possible exception of foreign taxes and school fees, housing is usually the most expensive portion of an expatriate's international assignment costs. The cost of renting overseas is usually higher than in one's home country because in many popular expatriate destinations, the presence of foreigners drives up rental costs for housing likely to be chosen by expatriates. Temporary rentals on a two-to-three-year lease also tend to be more expensive than permanent housing in one's home country.

A housing allowance is usually included in an expatriate's remuneration package to ensure that expatriates pay no more for housing while abroad than they would have paid had they stayed at home. This is commonly referred to as the “balance sheet” approach. However, inherent in the concept is the expectation that expatriates should still contribute a portion of their salary toward foreign housing costs, just as they would for housing in their home country. To determine the amount of housing allowance to be paid, most organizations base their decision on knowledge of a location's rental market, experience in that market with other expatriates, and advice from external data sources (e.g., housing guidelines from consulting firms). Seniority, salary, and family size may also influence the amount of housing allowance paid or offered. Housing allowances are then set either at a fixed amount per month/year or using rental cost guidelines that allow for some flexibility if a specific need exists.

In addition to the above, other approaches to housing allowances may also be adopted. For example, some organizations share the cost of housing with expatriates by paying an approved amount and permitting an expatriate to pay the extra portion if he/she wishes to live in more expensive accommodations. Many organizations also prefer to hold the lease in the company's name for tax purposes, as most countries consider cash payments for rent to expatriates (through remuneration) as taxable. When the organization holds the lease, it is treated as a business expense, which can substantially reduce [Page 833]the amount of tax due. There are also some locations where rental property owners require that a lease be held in a company's name to ensure that if the expatriate moves out before the lease has expired, the rental income can still be obtained. In these locations, rental-property owners prefer to enter into a contract based on the security of a company's continued presence in that location rather than risk leasing their property to nonpermanent expatriates. In some cases, particularly in remote locations, a company may provide accommodation in residences owned by the organization. This typically occurs in locations where a company may have a long-term presence, but it is more cost-effective to own homes or apartments for expatriates' use.

Utility costs may or may not be included in a housing allowance. Since rental charges do not include utilities, it has become common practice in some locations (particularly in locations where utility charges are high) for organizations to pay all utility costs or a fixed monthly utility allowance. Utilities can include electricity, gas, wood, heating oil, water, septic tank or sewage connection, garbage collection, and cable television. If utility charges exceed a fixed monthly allowance, the expatriate is expected to pay the difference. If utility charges do not exceed a fixed monthly allowance, expatriates typically are not entitled to receive the shortfall.

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