The movement of employees across countries has been a growing trend in recent years with increasing multinational presence of companies.
Planning taxation or social security compliances in more than one country, triggered by the presence of cross-border employees, has been a constant challenge for companies.
Social security (primarily provident fund and pension) was not mandatory for cross-border employees coming into India until 2008.
The concept of International worker (IW) was introduced in India for the first time in October 2008 and social security contributions were made mandatory for IWs in India.
A foreign national (non-Indian passport holder) coming to India will qualify as an IW if he or she is coming to work in an establishment covered by Indian social security provisions.
An Indian national will qualify as an IW if he/she has worked or is going to work in a country with which India has a Social Security Agreement (SSA) and is eligible to avail its benefits.
For an IW who has divided time between countries, there could be a requirement to contribute to social security in both the home and host country. SSAs are bilateral agreements which help in avoiding such double contributions.
The SSA gained prominence from 2008 when social security was made mandatory in India for IWs. As of December, SSAs with eight countries are in force — Belgium, Germany, Switzerland, Denmark, Luxembourg, France, Netherlands and Korea. SSAs with Hungary, Norway and the Czech Republic are signed but not yet operational.
SSA mainly provides for:
– Detachment
A cross-border worker who is contributing to home country social security and goes to work in another country with which there is an SSA for a specified period as prescribed in the SSA can become a “detached worker/excluded worker” by obtaining a “certificate of coverage” from the home country.
– Totalisation of benefits
SSAs give cognizance to the period of service rendered by an employee in a foreign country to be counted in determining the eligibility for benefits.
An IW is permitted to withdraw social security contributions only on attaining the retirement age of 58 years or as per provisions of the SSA. This is a huge concern for IWs as their social security contributions get locked for a long period of time.
As per the SSA between India and Republic of Korea, which came into force in November, it has been provided that IWs from Korea need not wait until 58 to withdraw social security contributions. Subject to fulfilment of prescribed conditions as applicable to Indian nationals, early withdrawal is permitted. The expectation is other countries would also consider this and renegotiate or amend SSAs to provide for early withdrawal.
Social security regulations relating to cross-border workers in India has been a highly debated topic in recent years. In the future, we can expect social security regulations to be more evolved and SSAs with more countries to come into effect.