Building a tax-compliant global expense policy: Insights for 2026
Tax compliance doesn't have to feel like decoding ancient scrolls. A solid travel and expense policy keeps the IRS happy, your employees reimbursed correctly, and your finance team from drowning in receipts.
This guide explains how to build a tax-compliant global expense policy that maximizes deductions, eliminates payroll tax headaches, and keeps everyone on the same page.
Key takeaways
- A tax-compliant global travel and expense policy operating as an IRS accountable plan keeps reimbursements non-taxable for employees while maximizing deductibility for your business, eliminating payroll tax burdens on both sides.
- Proper expense substantiation requires five elements: amount, date, place, business purpose, and business relationship. Missing any one of these can trigger deduction denials during an audit, costing your company back taxes plus penalties.
- According to the IRS 2026 mileage reimbursement rate, businesses can deduct 72.5 cents per mile for business travel, up from 70 cents in 2025, making accurate mileage tracking increasingly valuable for tax optimization.
- Companies with international operations can reclaim Value Added Tax (VAT) on eligible business travel expenses across multiple jurisdictions, potentially recovering up to 25% of costs that would otherwise be lost without proper documentation systems.
- Expensify helps teams manage global travel and expense policies in one place, combining automated expense tracking, policy enforcement, and reimbursement workflows to reduce compliance risk and manual effort.
What is a global travel and expense policy?
A global expense policy is your company-wide rulebook for how business travel expenses get approved, documented, reimbursed, and deducted.
It answers the questions employees actually ask: What can I expense? How much can I spend? What do I need to save?
Three key terms:
Accountable plan: An IRS-approved reimbursement structure where documented business expenses aren't taxed as employee income. This is what you want.
Substantiation: Tax speak for proving an expense was legitimate business spending. Requires specific documentation.
Per diem: A fixed daily allowance for meals that eliminates the need to save every receipt.
Why every business needs a tax-compliant expense policy
Tax-compliant policies aren't optional bureaucracy, but how you keep more of your money while staying on the right side of regulators.
Maximize legitimate tax deductions
Properly documented company travel expenses reduce taxable income. But only if you can prove the expenses were business-related and substantiated correctly.
Maintain regulatory compliance
Tax authorities have specific standards for what qualifies as deductible and how it must be documented. Non-compliance can trigger audits, penalties, and uncomfortable IRS conversations.
Control company travel expenses
Clear policies prevent the "wild west" approach, where everyone interprets the rules differently. When expectations are explicit, overspending drops.
Eliminate administrative bottlenecks
Standardized rules mean fewer questions and faster reimbursements. According to recent research, approximately 60% of travel and finance teams still rely heavily on manual processes for expense reporting, creating unnecessary compliance risk.
IRS rules for business travel expense deductions
The IRS allows deductions for "ordinary and necessary" business travel expenses. Translation: reasonable costs directly related to business activities.
Qualifying business travel expenses
Transportation: Airfare, trains, rental cars, rideshares, taxis – any legitimate way to get from A to B for business.
Lodging: Hotels and short-term rentals during overnight business trips. Day trips don't qualify for lodging deductions.
Meals: Subject to partial deductibility limitations (typically 50%). Business meals require documentation of who attended and why.
Incidentals: Tips, baggage fees, business communications during travel – you know, the small stuff that adds up but often gets overlooked.
Accountable plans vs non-accountable plans
This distinction matters more than you'd think. Get it right, and reimbursements flow tax-free. Get it wrong, and suddenly everyone's dealing with payroll tax surprises.
| Plan type | Employee tax impact | Employer deductibility | Requirements |
|---|---|---|---|
| Accountable plan | Not taxable income | Fully deductible | Business connection, substantiation, and return of excess |
| Non-accountable plan | Taxable as wages | Subject to payroll taxes | None |
Accountable plans are clearly superior, but they require actual compliance with IRS rules, not just calling your reimbursements "accountable" and hoping for the best.
Per diem rates and standard meal allowances
Per diem policies are how smart companies simplify meal expense compliance. Instead of collecting every coffee receipt, you pay a fixed daily rate based on location. The federal government publishes per diem rates that vary by city.
For 2026, the IRS standard mileage rate increased to 72.5 cents per mile, making mileage one of the most valuable and commonly misreported deductions. Clear policy rules and consistent tracking are essential.
Substantiation and recordkeeping requirements
The IRS wants five specific pieces of information for every business expense:
Amount: How much was spent
Date: When the expense occurred
Place: Where it happened
Business purpose: Why was this expense necessary
Business relationship: Who was involved (for meals and entertainment)
Miss any one of these and the deduction can be denied during an audit. The good news? Digital records (eReceipts) are fully acceptable – you don't need boxes of paper receipts gathering dust.
Key components of an effective global expense policy
Tax rules tell you what's allowed. Your policy tells employees how to comply.
Policy scope and employee eligibility
Define who the policy applies to and under what circumstances. Clear scope prevents "I didn't know that wasn't covered" conversations.
Covered business travel expense categories
List every expense type: transportation, lodging, meals, incidentals, and business communications.
Daily allowances and spending limits
Set reasonable limits by expense type that reflect actual costs in travel destinations. A $150 hotel limit makes sense in Tulsa but not in Manhattan.
Booking procedures and preferred vendors
Specify whether employees must use company booking tools or preferred vendors. Pre-approved channels improve cost control and compliance tracking.
Approval workflows and timelines
Define who approves what and include submission deadlines. Expenses submitted six months late create accounting headaches.
Expense reimbursement process
Outline the steps from submission to payment so employees know what to expect when it comes to travel reimbursement.
Exception management and escalation protocols
Define who has the authority to approve out-of-policy expenses and the process for requesting exceptions.
How to document business travel expenses
Documentation is where tax compliance lives or dies.
Required documentation by expense type
Lodging: Itemized hotel folio showing nightly rate, taxes, dates.
Transportation: Receipts for flights, trains, rideshares. For rental cars, keep the rental agreement.
Meals: Itemized receipts if not using per diem. Include attendee names and business purpose.
Incidentals: Receipts when available. For small amounts like tips, maintain a written log with dates and amounts.
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Receipt retention and digital storage
Digital copies are IRS-acceptable. Best practices: capture receipts immediately, store in organized folders, keep records for at least three years.
Creating audit-ready records
Records that withstand IRS scrutiny are contemporaneous (created at the time), complete (all five required elements), and organized (easy to locate specific expenses).
How to create your global travel and expense policy
1. Define your policy scope and objectives
Which employees are covered? What travel types? Which geographies? Are you optimizing for cost control, employee experience, tax compliance, or all three?
2. Establish expense categories and limits
Set spending caps based on business needs and destination costs. Use past travel data to inform limits.
3. Design approval workflows
Map out who approves what: Manager approves up to $500, Director approves $500–$2,000, VP approves $2,000+.
4. Set documentation standards
Remove ambiguity by specifying exactly what employees must submit for each expense type.
5. Plan distribution and employee training
Schedule training sessions, create quick-reference guides, and make the full policy easily accessible.
6. Schedule regular policy reviews
Review policies annually and whenever significant tax law changes occur.
Sample travel expense policy template
Here's a starting framework you can customize for your organization:
Purpose: This policy establishes guidelines for business travel and expense reimbursement to ensure tax compliance, cost control, and fair treatment of employees.
Scope: Applies to all full-time employees traveling on company business within the United States and internationally.
Expense categories and limits:
Domestic flights: Economy class for trips under five hours
International flights: Business class for trips over eight hours
Lodging: $200/night in standard cities, $300/night in high-cost areas
Meals: Federal per diem rates by location
Rental cars: Compact or midsize vehicles unless business need requires larger
Approval requirements:
Expenses under $500: Manager approval
Expenses $500–$2,000: Director approval
Expenses over $2,000: VP approval
Documentation standards:
All expenses over $75 require itemized receipts
Meal expenses require business purpose and attendee information
Mileage logs must include date, destination, purpose, and miles driven
Reimbursement timeline:
Submit expenses within 30 days of trip completion
Approved expenses reimbursed within 10 business days
Exception process:
Submit exception requests to your manager with justification
Emergency exceptions can be approved verbally, with written confirmation to follow
Remember: This is a starting point, so adapt spending limits, approval thresholds, and documentation requirements to fit your business.
International tax compliance for global teams
Operating globally means navigating tax rules in multiple jurisdictions.
Navigating multi-jurisdictional tax rules
Each country has its own rules for expense deductibility, VAT treatment, and documentation. Maintaining global travel policy compliance across multiple jurisdictions requires a core framework with country-specific addendums.
VAT reclaim opportunities
Value Added Tax (VAT) is a consumption tax applied in many countries, typically 10% to 25%. You can often reclaim VAT on eligible business travel expenses.
In many countries, businesses can reclaim VAT on eligible travel expenses, sometimes recovering a meaningful portion of costs that would otherwise be lost without proper documentation.
The catch? VAT reclaim requires meticulous documentation and filing within specific timeframes.
Currency conversion and reporting standards
Global policies need consistent rules for converting foreign expenses. Common approaches: use the exchange rate on the transaction date, when submitted, or monthly average rates. Pick one method and apply it consistently.
Automate tax-compliant expense management with Expensify
Everything covered in this guide – substantiation requirements, approval workflows, documentation standards, policy enforcement – becomes dramatically easier when you're not managing it through spreadsheets and email chains.
Expensify connects travel booking, expense tracking, policy enforcement, and reimbursement in one platform. SmartScan captures receipt data automatically. Policy rules flag out-of-compliance expenses before they're submitted. Integrations with accounting systems mean approved expenses flow directly into your books.
The result? Tax-compliant expense management that doesn't require constant manual oversight or dedicated staff just to process reimbursements.
Get started with Expensify by clicking on the button below to see how automated expense management reduces compliance risk while saving time.
FAQs about global travel and expense policy tax compliance
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The de minimis safe harbor election allows businesses to deduct certain asset purchases up to a threshold amount immediately rather than capitalizing and depreciating them over time. This simplifies accounting for smaller equipment and supply purchases.
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Under an accountable plan, reimbursements for substantiated business travel expenses are not taxable income to employees and are not subject to payroll taxes. Under non-accountable plans, reimbursements are treated as taxable wages.
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Many businesses miss deductions for incidental expenses like tips, parking, and business communication costs during travel because employees fail to document these smaller expenditures. They add up, but only if you capture them.
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Review your global travel policy annually at a minimum, and whenever significant tax law changes occur. The annual mileage rate increase is a perfect example – policies should be updated to reflect current IRS rates.
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Inadequate documentation can result in denied deductions during an audit, requiring the company to pay back taxes plus interest and potential penalties. In severe cases, repeatedly inadequate documentation can trigger closer IRS scrutiny of future returns.
