In the last few years, there has been a sharp increase in the number of people relocating for work to India & vice – versa. Very often companies send their representatives/ employees to work in their subsidiaries/sister concerns in another country. The duration/period of such relocation may vary depending on the nature of the project/work involved.
The people involved in such cross-border relocations are very often referred to as expatriates. An expatriate is a migrant worker who is a professional or skilled worker in their profession. The worker takes a position outside of their home country, either independently or as a work assignment scheduled by the employer.
Following are the types of assignment models for expatriates:
An expatriate when relocating to India under secondment/deputation/employment should ensure that he should have the right type of visa i.e employment, business, project visa, etc. An expatriate coming to India under an employment visa & business visa is required to register himself with the Foreigners Regional Registration Office (FRRO). However, this could also be subject to the duration of the stay in India. However, here it is imperative to note that every case is different, therefore the immigration rules need to be analyzed on a case-to-case basis.
The Income Tax Act 1961 (‘ITA’) is the law that regulates the payment of taxes in India. As per the ITA, an individual is required to pay taxes in India depending upon his residential status. His residential status depends upon the number of days he stays in India. By virtue of his residential status, if an expatriate becomes a resident in both his host country & home country, in that case, the provisions of the Double Taxation Avoidance Agreement (‘DTAA’) between the home country & host country need to be considered to determine the country in which the expatriate would pay taxes.
If an expatriate receives a salary from his Indian employer, the Indian employer will deduct taxes on such salary & deposit the same with the Government. The expat can take the credit of taxes so deducted when filing a return of income in India.
Very often employees are issued shares/securities under the Employees Stock Option Plan (ESOP) when he/she serves the company for a specified period of time. In the case of expatriate employees when services are rendered in more than two countries during the period between grant & exercise of options, the question arises as to which country & what extent are such benefits taxable, if, on the date of allotment, the expatriate employee were rendering services in India.
Expatriates employed with an establishment in India to which the Employees Provident Fund applies are required to make a contribution of 12% of the basic wage & employers are also required to contribute a matching amount. In the case of expatriates, all allowances are treated as basic wages.
Here, it is important to note that not all expatriates are required to make a contribution to EPF. An expatriate’s contribution to the social security program of his/her country with which India has entered into a Social Security Agreement (SSA) is not covered under a PF regulation in India. For such expatriates, PF rules shall be determined in accordance with the provisions of the SSA.
When a foreign company derives business income in India, such income is taxable under the head ‘Profits & Gains from Business & Profession’ when the foreign company has a Permanent Establishment (‘PE’) in India. A PE in India may be in the form of a guest house, hotel room etc. The presence of an expatriate in India may also trigger the provisions of PE of the foreign country in India & may create a PE exposure for the foreign company. This may give rise to tax & other compliance obligations.
For an expatriate who comes to India & will earn income in India & also file taxes, it is advisable to obtain a PAN & an Aadhar Number. A PAN & an Aadhar card is a proof of identity is required at the time of opening bank accounts or entering into any financial transactions.