Expatriate Employees and Regulatory Aspects in India

The increased integration of MNCs has greatly bolstered the cross-border movement of people into growing economies.

The people involved in such cross-border movement are known as expatriates, which is derived from the Latin word, ex-patria, which means out of the country. It means a person remaining a citizen of his home country while temporarily residing and employed in another country. Such cross-border movement is known as secondment or deputation. Secondment is usually necessitated based on business needs, knowledge enhancement, and cost reduction.

Let us take an example of two countries: India and Australia. The movement of people can be inbound, i.e., a person based in a home country (say Australia) working in the host country (say India) or outbound, i.e., a person based in a home country (say India) working in the host country (say Australia).

Such movement can have different capacities segregated based on employee, profession, etc. Further, the movement can also differ depending on the duration and the nature of the assignment.

Cross-border movement involves compliance with various laws and regulations in the host country. If we talk about India, the laws and regulations are as follows:

1. Immigration Rules: A foreign national can visit India only with a valid visa issued by the Indian Government. Further, the purpose of the visit should match the visa category.
2. Personal Income Tax: The taxability of salary paid to an expatriate employee for services rendered in India depends upon the residential status of the expatriate.
3. Corporate Tax: Only through a permanent establishment situated in India would the business income derived by a foreign entity is taxable only. In layman’s terms, permanent establishment means a fixed place of carrying out business by a foreign entity.
4. Transfer Pricing: The transactions arising on account of secondment should satisfy the arm’s length principle as envisaged in the ITA. Thus, the domestic transfer pricing regulations also require the transactions between the associated enterprises at arm’s length.
5. Social Security: The EPF Act primarily governs the contribution towards social security in India. It applies to employees of a registered establishment having a monthly payment of up to Rs. 15,000. An expatriate working for a covered establishment is mandatorily required to contribute 12% towards the EPF scheme irrespective of the fact that the monthly payment exceeds Rs. 15,000.
6. Exchange Control: An Indian citizen being an employee of a foreign entity as well as a foreign citizen, may receive the whole salary payable towards services rendered in India, in a bank outside India. Further, where such expatriate is on deputation to office/branch/subsidiary/joint venture of the foreign company, in India, the whole salary payable towards services rendered can also be received in a bank outside India.
7. Goods and Services Tax: The amount paid by the Indian entity to the foreign entity towards the secondment of expatriate may be liable to GST in the hands of the Indian entity under reverse charge mechanism, in some instances.
8. Corporate Law: Any contract or arrangement executed between related parties should be subject to the approval of shareholders and consent of the board of directors as required by The Companies Act, 2013.
9. Customs Baggage Rules: The expatriates must fill up the customs declaration card mentioning the quantity and value of goods brought if they have dutiable goods in their possession or carry goods more than their eligible duty-free allowance.