Expatriate is someone who is temporally or permanently residing in the country other than the country of his citizenship. An expatriate can be individual who has relinquished his citizenship of one country to get of another.
Expatriate is usually done by the order of employer in order to work in other branch office. An expatriate also gets additional benefits like extra allowances, relocation assistance or housing allowance.
Various expatriate services are provided such as:
- DOUBLE TAXATION AVOIDANCE AGREEMENT
- FOREIGN TAX CREDIT AND GROSSING UP COMPONENTS
- ARRIVAL DEPARTURE TAX BRIEFING
- ASSISTING INTERNATIONAL TAX LITIGATION
- TAX EQUALIZATION AND COMPUTATION
- HYPOTHETICAL TAX COMPUTATION
Expatriate services in India gives various services to expatriates who are working in other country or are outsourced.
DOUBLE TAXATION AVOIDANCE AGREEMENT:
Double taxation is implementation or levying of taxes by two or more jurisdiction on the same income.
- the main taxing jurisdiction may exempt foreign-source income from tax,
- the main taxing jurisdiction may exempt foreign-source income from tax if tax had been paid on it in another jurisdiction, or above some benchmark to not include tax havenjurisdictions,
- The main taxing jurisdiction may tax the foreign-source income but give a credit for foreign jurisdiction taxes paid.
It is not an easy task to have taxable gains or capital gains therefore there is a need of double taxation avoidance so that there won’t be loss in income.
DOUBLE TAXATION AVOIDANCE AGREEMENT
If a person finds that he is obliged by domestic laws to pay tax on gains locally and pay again in the country in which he has gained then this is called double taxation. Since this is inequitable, many nations make bilateral double taxation avoidance agreements with each other. In some cases, this requires that tax to be paid in the country of residence and be exempt in the country in which it arises. In the remaining cases, the country where the gain arises deducts tax at source and the taxpayer receives a compensating foreign tax credit in the country of residence to reflect the fact that tax has already been paid. To do this, the taxpayer must declare himself (in the foreign country) to be non-resident there.
So the second aspect of the agreement is that the two taxation authorities exchange information about such declarations, and so may investigate any anomalies that might indicate tax evasion. Individual or natural persons can have only one residence at a time whereas corporate persons, owning foreign subsidiaries, can be simultaneously resident in multiple countries. Control of unreasonable tax avoidance of corporations becomes more difficult and requires investigation of transfer pricing set for transfer of goods, intellectual property rights, and services, among its subsidiaries.
DOUBLE TAXATION IN INDIA
There are agreed rates of tax and jurisdiction on specified types of income arising in a country to a tax resident of another country. Under the Income Tax Act 1961 of India, there are two provisions, Section 90 and Section 91, which provide specific relief to taxpayers to save them from double taxation. Section 90 is for taxpayers who have paid the tax to a country with which India has signed DTAA, while Section 91 provides relief to tax payers who have paid tax to a country with which India has not signed a DTAA. Thus, India gives relief to both kinds of taxpayers.
SALARY STRUCTURING AND PAYROLL PROCESSING:
The method of setting up salary during a job is called salary structuring. It involves the ways and lists of all the reasons and types of taxes and benefits added and subtracted. It is a breakup of various components.
Payoff processing is the process or system which automates the transaction between employer and employee, shopper and merchant etc.
Salary structuring and payoff processing is a vital information to be recorded as it mentions all the breakup of components and automates all the transactions. Salary structuring and payoff processing service generally helps in keeping record of expatriates about all the salary components and transactions between employer employee, merchant shopper etc.
The major heads of salary structure are:
- Gross Salary
- Net Salary
The major/popular components of salary structure are:
- Basic Salary
- Dearness Allowance
- City Compensatory Allowance
- Medical Allowance
- Special Allowance
- Uniform Allowance
- Cost of Living Allowance
- Medical Reimbursements
- Travelling allowance
- Perquisites like Car, house rent, helper, books, periodicals, etc.
- House Rent Allowance
- Car Allowance
- Provident Fund Employers’ Contribution
- Provident Fund Employee Deduction
- ESIC Contribution
- Professional Tax Deduction
- TDS deduction
- Children Education Allowance, Children Hostel Expenditure Allowance
- Commission, Sales based commission, Profit based commission
- Maternity/Paternity Allowance
- Birthday / Anniversary Gift Allowance
- Leave Encashment
- Leave Travel Allowance
- Hilly area compensatory allowance, etc.
FOREIGN TAX CREDIT AND TREATMENT OF GROSSING UP COMPONENTS:
Foreign tax credit in India is the credit offered by the income tax system to those who are taxed on worldwide income to mitigate potential of double taxation. The credit may also be granted in those systems taxing residents on income that may have been taxed in another jurisdiction.
The credit generally applies only to taxes of a nature similar to the tax being reduced by the credit (taxes based on income) and is often limited to the amount of tax attributable to foreign source income. The limitation may be computed by country, class of income, overall, and/or another manner.
The credit is generally limited to those taxes of a nature similar to the tax against which the credit is allowed. Foreign tax credit Rules in India defines that those taxes eligible for credit may refer to one or more of the following characteristics of foreign credit tax:
- Nature of the foreign levy (compulsory, payment for services, optional, discretionary as to rate, etc.),
- Whether the foreign country allows a similar credit,
- Whether the two countries have a tax treaty,
- Nature of the base on which the levy is imposed (gross receipts, income net of deductions, deemed profits, property, or other basis),
- Form in which payments are made (withholdings, payment by check or giro, or payments in kind),
- Political considerations (boycotts by taxing country, etc.),
- Conditions imposed by levying body on taxpayers (information disclosure, etc.), or
- Services or property provided by levying body or related persons as a result of the tax.
Grossing up and computation of income tax liability of expats in India is a practice usually in reference to an employer reimbursing a worker for the taxes paid on some portion of their income, usually from a one-time payment such as relocation expenses. In other words, if an employee is promised $5,000 for relocation expenses, the actual check might be issued for $6,500.
TAX EQUALIZATION POLICY AND COMPUTATION:
Tax equalization policy is applicable for those who are working in one country, is a taxpayer of other country, and are obliged to have double taxation. This policy is for making neutralised choice for a worker to work abroad or home country. Tax equalization is basically followed in multinational corporations.
Tax equalization computation can cut both ways, depending on whether the effective tax rate is higher or lower when working abroad; if the policy only benefits the employee then international organisation who is about to expand their work and needs to send their employees abroad must see whether sending them do not trouble them like problem of double taxation. Tax equalization policy helps them to have no trouble regarding their income and taxes
The basic objective of tax equalisation policy is to protect expatriates from adverse financial/tax impact arising due to international assignment as they may continue to have home country income tax filing requirements, in addition to host country tax filings. Tax equalization calculation is made of what the home country tax liability would have been on the non-expatriate components of an individual’s remuneration package – in other words, salary, standard benefits in kind, bonuses, stock options etc. No account is taken for cost of living allowances, and other expatriate benefits such as disturbance allowance, school fees, home leave and local accommodation etc.
It removes the disparity and inequality in different provisions of taxes which are levied on expatriate. This policy follows the method of converting gross salary into net salary in such a manner that the expatriate take same amount to home country as in host country.
HYPOTHETICAL TAX COMPUTATIONS:
For the purpose of having equalisation tax scheme, the employer provides for a national tax in the expatriate payroll, which is an estimate of the amount of tax that the expatriate would have paid, had he continued to be employed in his home country and not gone on an international assignment. Hypothetical tax computation came along with the practice of tax equalization.
The employer then reduces the home country salary by the hypothetical tax amount to arrive at the net salary which will be equivalent to his salary that he is taking in home country.
After accepting the international assignment, the expatriate’s tax liability is restricted to hypothetical tax only and the actual home country and host country income tax liability is actually borne by the employer on behalf of the expatriate. The hypothetical tax is often limited to the tax on salary and the other employment related income, but sometimes includes personal investment income as well.
FRRO REGISTERATIONS AND EXTENSIONS:
FRRO stands for foreign regional registration office. It is registration that is required by any foreigner nationals entering in India for greater than 6 months. The body which maintains its registrations is called FRRO. FRRO registration extension is required to make an update about the foreigner nationals entering in India for work. This body handles all the issues related to the foreigner who have entered in India on employment visa.
In India FRRO offices are in Chandigarh, Calicut, Ahmedabad, Chennai, Delhi, Dehradun, Gurgaon, Hyderabad, Kolkata, Banglore, Amritsar, Kochi, Mumbai, Lucknow, Tiruvananthapuram, Kozikhode, Goa.
- A Hindi speaking person from your company or school.
- Up to ten recent passport size photographs.
- Photocopy of,
- The photo page of yourpassport
- Photocopy of your Indian visa page of the passport;
- Proof of residential address in India.
- Copy of valid notarized lease/rent agreement or copy of C-form from the hotel and copy of recent electricity/telephone bills along with letter from the landlord.
- For a student visa
- Bona fide (real) certificate from school/college.
- For an employment visa
- A request letter
- Undertaking letter
- Contract agreement from employer.
FRRO registration exemption:
- Foreigner visiting India on education visa, research visa, tourist visa etc is not required to get registered under FRRO.
- Children below 16 years are not required to get registered under FRRO.ISTRAT
FRRO registration form C is form for all the Foreign National Student studying in Indian Educational Institutions and also staying in Any Hostel / Hotel / Guest House / Dharmashala / Individual House / University / Hospital / Institute / Others etc. who provide accommodation to foreigners must submit the details of the residing foreigner in Form-C to the Registration authorities within 24 hours of the arrival of the foreigner at their premises.
CERTIFICATE OF COVERAGE:
The certificate of coverage acts as a proof that the employee and employer are exempt from the payment of social security taxes to the foreign countries. A COC is issued in the employee’s home country by the social security authority in accordance with the provisions of relevant SSA.
Certificate of coverage ensures confidentiality as it does not disclose personal information to third party. Since it is open to all and provides all service therefore sometimes it may be harmful but as everything has pros and cons.
- Faster service
- Data verification
- Online help
- Up to date information
- Email confirmation
This certificate is issued according to the terms and conditions of group. It provides a insurance. One must fill the certificate of coverage application form to get the benefit.
Certificate of coverage in India is the coverage for the employees who are working in India but have resident in abroad. To protect themselves from paying EPF (employment provident fund) in both the nations the employee should have COC (certificate of coverage) which protects the employee from paying EPF twice that is in host country and India.
INCOME TAX COMPLIANCE:
Degree of responsiveness to taxpayer that he complies with the tax laws of the country is called tax compliance. These are the compliances and procedures that an expatriate seconded on an international assignment to India is required to comply from the perspective of income tax and other applicable laws.
INCOME TAX COMPLIANCES AND PROCEDURES
- Permanent account number: permanent account number (PAN) is the income tax registration number and every individual having a taxable income in India has to mandatorily obtain a PAN. PAN is the 10 digit alphanumeric number issued by the Indian tax authorities and all expatriates are required to apply for a PAN by making an application to the tax authorities.
- Rates of tax: the individual’s income is taxable at the rates prescribed by the finance act enacted every year, the rates of tax applicable for the financial year 2014-2015 as proposed y the finance bill 2014.
- Advance tax and self assessment tax payment: an expatriate is required to pay advance tax on the income on which tax is not deducted at source by employer and the total estimated tax liability on such income for a particular financial year exceeds Rs. 10000
- Filing of return of income; an expatriate having taxable income in India is required to file a return of income, in the prescribed form by 31 July following the end of relevant financial year.
Secondment agreement India is an agreement between two different parties with mutual consent where one employee of one organisation is being sent temporarily or permanently to another organisation for specific defined time period and specific purpose. It also includes the secondment agreement between companies in India on mutual consent of both the companies for fulfilment of task.
This could be defined as horizontal transfer within or outside organisation. This could be beneficial for secondment employee or employee who is being sent or being transferred as it give the maximum exposure that he can get in working out space. The person or employee who has been transferred is called secondee and the 2nd organisation in which employee has been transferred is called seconder.
Once the employee has been transferred or sent to secondment organisation he is only responsible and accountant to the secondment organisation not the host organisation.
But sometimes secondment agreement can create problem for secondee as in host organisation he may be holding another post in different profile other than his specialized field.
The secondment agreement contract term also needs consent of the employee who is being transferred. All the information of company, profile etc should be disclosed to that person before getting transferred.
The terminated point should be disclosed in advance and the termination letter should be given one month before for a reminder. If the organisation wants secondee to continue work then continual letter must be given one month before
OCI CARD AND PIO CARD:
OCI card stands for overseas citizen of India card. A person who has origin of India gets migrated to abroad other than Pakistan and Bangladesh and gets citizenship of that country are eligible to get till the countries grant the dual citizenship under their local laws.
PIO card stand for person of Indian origin card. This scheme came into operation on 15 January 2002. PIO card India is the identification card which states that the person who has passport of the OCI India other than Pakistan, Bangladesh, china, Nepal, Bhutan and Sri Lanka has origin in India
On 9 January 2015 the PIO scheme was reschedules into OCI scheme. All currently PIO cards are treated as OCI card.
PIO card India or OCI card India are issued to people on the following conditions:
- Any person who has ever held an Indian passport, or
- The person’s parents, grandparents or great grandparents were born in and were permanent residents of India and never moved to (i.e., were never nationals of) Bangladesh and Pakistan, or
- The person is the spouse of a citizen of India or of a PIO and has been so for two years or more, and
- The person and his/her parents, grandparents or great grandparents must not have been a national of Bangladesh or Pakistan at any point of time.
OCI card application India:
- If applicant is in India, he can apply in FRRO at Delhi, Mumbai, Kolkata or Amritsar
- They can also apply to Chief immigration officer in Chennai or under secretary of ministry of home affairs.
PIO card application India:
- Delhi resident: FRRO, level 2 east block 7 R.K Puram sector 1 new Delhi
- Mumbai resident: FRRO, annex 2 commissioner of polIce Craw Frad market
- Kolkata resident: FRRO,23, Acharya Jagdish Kolkata700020
ASSISTANCE IN INTERNATION TAX LITIGATIONS:
Tax litigation is the process in which during the assessment of taxes there are many of tax payers who have escaped from taxpaying or didn’t showed their actual income while paying tax and these disputes are solved in courts are called tax litigation. Litigation assistance service is the only way of solving tax disputes.
International tax litigations assistance involves various sections like:
- Section 143(1): it is the preliminary checking of return of income tax. At this stage no detailed scrutiny of the return of income is carried out. At this stage, the total income or loss is computed after making the following adjustments (if any), namely:-
- any arithmetical error in the return
- an incorrect claim,If such incorrect claim is apparent from any information in the return, means a claim on the basis of an entry in the return:-
- of an item which is inconsistent with another entry of the same or some other item in such return
- in respect of which the information is required to be furnished under the Act to substantiate such entry and has not been so furnished
- in respect of a deduction, where such deduction exceeds specified statutory limit which may have been expressed as monetary amount or percentage or ratio or fraction
- Section 143(3): after the section 143(1) if there is any sum that is liable to pay or refunded from the income tax office then it should be intimated within the time limit. This is a detailed assessment and is referred to as scrutiny assessment. At this stage a detailed scrutiny of the return of income will be carried out. At this stage a scrutiny is carried out to confirm the correctness and genuineness of various claims, deductions, etc., made by the taxpayer in the return of income.
- Section 144: this is the assessment carried out as per the best judgment which can be made out of all the information or source he has gathered. This assessment is carried out in cases where the taxpayer fails to comply with the requirements specified in section 144.
- Section 147: This assessment is carried out if the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year Scope of assessment under section 147
- The objective of carrying out assessment under section 147 is to bring under the tax net any income which has escaped assessment in original assessment
- Original assessment here means an assessment under sections 143(1), 143(3), 144 and 147
- In other words, if any income has escaped (*) from being taxed in the original assessment made under section 143(1) or section 143(3) or section 144 or section 147, then the same can be brought under the tax by resorting to assessment under section 147.
ARRIVAL DEPARTURE TAX BRIEFINGS:
It is the form of counselling given to the expatriate while entering or leaving the country about the various tax laws which they need to be know while entering and exiting from the country. While arrival of the person to the country the person is suppose to bring the NOC (no objection certificate) from tax department and while leaving that country he has to take back the NOC (no objection certificate) from tax department.
As per the provisions of s 230(1A) of the act, every person not domiciled in India is required to obtain an ITCC from the Indian tax authorities prior to his/her departure from India. The ITCC has to be applied in form 30A which is an undertaking given by the employer in relation to any future tax liability arising in case of an expatriate under the act would be paid by employer. The tax authorities will then issue the ITCC in form 30B which is valid for specified period during which an expatriate is permitted to depart from INDIA. Arrival tax briefing and departure tax briefing is the only service which make expatriates aware about the taxation system in India.
Following documents are required to be submitted within the Indian tax authorities:
- An affidavit by the expatriate.
- Copies of prior year’s return of income.
- Proof of taxes deducted by employer on expatriate’s salary income in the relevant financial year until the date of departure.
- Copy of expatriate’s PAN card
- Copy of expatriate’s departure air ticket.
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- Book Keeping
- Business Compliance
- Corporate Compliance
- Income Tax Compliance
- Other Business Compliances
- International Taxation
- Arrival – Departure tax briefings
- Assistance in Internation Tax Litigations
- Certificate of Coverage
- Double Taxation Avoidance Agreement
- Foreign Tax Credits And Treatment of Grossing up Components
- FRRO Registrations and Extensions
- Hypothetical Tax Computations
- Income Tax Compliance
- OCI CARD AND PO CARD
- Salary Structuring and Payoff Processing
- Secondment Agreements
- Tax Equalization Policy and Computations
- Other Services
- Foreign Company
- Transfer Pricing
- Not For Profit Sector
- Start a Business
- Company Formation Outside India
- Foreign Owner
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