Work Structures of Expatriates in India

Punam Kumari 16 Mar 2023 1,794 Views 0 comment Print Income Tax | Articles

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Discover the various work structures of expatriates in India and their tax implications. Learn about business visits, short-term and medium-long term assignments, permanent relocation, and consulting roles.

The taxation of Expatriates has been a matter of debate ever since the ruling of the Hon’ble Supreme Court in the case of Northern Operating Systems Private Limited. The ruling has not only impacted indirect tax implications but direct tax as well. Before understanding the relevance and taxation of Expatriates, it’s important to understand what “Expatriate” mean and what is their work structure in India.

The term “Expatriate” is nowhere defined in the Income Tax Act. However, as per the technical term, an expatriate is a person who works either temporarily or permanently in a country other than their home country or native country on deputation or secondment. Further, the terms ‘deputation’ and ‘secondment’ have also not been defined. The International Bureau of Fiscal Documentation’s (IBFD) International Tax Glossary defines the term “secondment” to mean “in general a temporary assignment by an employer of an employee to another, typically related, party”. There is no definition for the term “deputation” in the Glossary. These terms may be used interchangeably; however, the tax treatment would depend on the substance of the arrangement and the principles arising out of the judicial precedents.

Coming to the work structures of expatriates in India, it is divided mainly into five parts as follows-

Type of Visit	Characteristics	Tax Implications
Business Visits	Generally, visits are limited to business meetings, conferences, etc.	May attract risk of PE for a foreign entity Short stay exemption available as per tax treaty
Short-term Assignments	The duration of the assignment is less than a year. Expatriates works as an employee of a foreign entity Indian entity compensates the foreign entity for the services provided by the expatriates	May attract risk of PE for a foreign entity Expatriates would be taxable under head Salary Withholding compliances have to be complied with by the foreign entity. (Indian entity may comply with the TDS Compliances on behalf of a foreign entity)
Medium-Long Term Assignments	The duration of the assignment is generally more than a year. Indian entity is the economic employer of the expatriates. Expatriates may be on the payroll of an Indian entity or foreign entity	Expatriates would be taxable under head Salary Indian entity would comply with the withholding tax compliances. PE exposure may or may not arise depending upon the substantial and documentary evidence.
Permanent relocation	Expatriates will be on the payroll of the Indian entity	Expatriates would be taxable under head Salary Indian entity would comply with the withholding tax compliances. No PE exposure would be there
Consultant	Generally independent individuals provide the services to an Indian entity	PE exposure may or may not arise depending upon the fixed place of business Short stay exemption available as per tax treaty Indian entity would comply with the withholding tax compliances.

The taxability and withholding tax implications concerning expatriates depend upon their type of visit to the country. It is imperative to note that the agreements and substantive documents about the deputation/secondment of expatriates need to be analyzed from different tax implications viz. direct, indirect, transfer pricing, exposure of PE, etc. to avoid any legal penalties.

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