A person living temporarily for working reasons in a different country other than his country of citizenship is an expat employee. The employee is working in a different country either individually or employed by an employer for a work-related project. Expat Tax professionals at ASC Group assists multinational groups in the mobilization of their resources by devising strategies as per the needs of the groups in an efficient and regulatory compliant manner.
Key things that are important in relation to expat employees: –
- Experience and expertise: The reason behind hiring expat employee is that he has a good experience and he is expertise in his position. This in return will automatically be utilised in the company and will boost the learning and growth.
- Residential status: According to section 6 of the Income Tax Act, residential status of any person is decided based on their physical presence in India. For the purposes of taxation of expatriates, their residential status is determined according to the Income Tax Act in addition to the Double Taxation Avoidance Agreement.
- Employee stock option plan: Under this plan the employees get a right to buy particular number of shares as an incentive at a specified rate in a fixed time period. The objective is to retain the talented employees considering that they have invested in the company stocks.
- Social security agreement- The basic reason to sign a Social Security Agreement between different countries is with the purpose to protect the cross-border worker’s interest to ensure equal treatment with respect to social security.
- Income tax clearance certificate– it is important for an expatriate employee to obtain the tax clearance certificate from authority before leaving the Indian territory to prove that he is not having any remaining tax liability.
- Double taxation avoidance agreement (DTAA) – According to section 90 of the Income Tax Act a tax treaty is signed between 2 or more countries to help taxpayers to avoid double tax payment on same income. Currently, India has DTAA with at least 88 countries and exactly 86 are in force.
- Knowledge on international market – Expat employees have a good exposure and knowledge on international market, the cultural values, operations & norms and such an exposure can have a positive impact and prosper the growth of the Company.
- Unique approach for innovation –Different background will have a different approach, unique ideas, fresh outlook which shall help in framing new plans and policies for the company. This will also help in solving problem of the company and bring more innovation.
- Tax Calculation of expatriate employee in India
The income rates applicable to the expat employees are given as follows:
| Taxable income | Income tax rates |
| Upto Rs. 2,50,000 | Nil |
| Rs. 2,50,000 to Rs, 5,00,000 | 5% |
| Rs. 5,00.000 to Rs. 10,00,000 | 20% |
| Rs. 10,00,000 and above | 30% |
The simple rule of taxation for an expat employee is that the salary is taxable in the country where the employee is physically present while doing services.
- Income Tax Deadlines – A Practical Outlook
Income tax deadlines are extended by the government to provide relief to the taxpayers. However, practically, expats need to intimate their tax compliance to the Foreigners Regional Registration Office (FRRO). This mandates expats to file their tax returns within the original due dates unless FRRO also provides the extension otherwise.
Conclusion
After 3-4 years of their arrival, the income earned by these expatriates’ employees is taxable in India and the international income of these employees may be liable to tax together with their owned assets and liabilities whether inside or outside India. Therefore, it is significant for these expatriate employees to understand their tax aspects of income coming from employment. ASC Group help in complete advisory and consultancy for expat salary and taxability. Expat Tax professional’s advice on various exemptions available under the provisions of the Double Taxation Avoidance Agreement.
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