The social security scheme in India – popularly known as Employee Provident Fund Scheme (EPF)‐ recently underwent certain drastic changes. As per recent amendments, international workers (i.e. both inbound and outbound assignees) employed by an establishment liable / covered under Indian PF regulations are compulsorily required to contribute to the EPF scheme. Hitherto, there was no clarity whether expatriates deputed to India or Indian employees posted abroad were compulsorily required to contribute to the EPF Scheme. In most cases, these employees were not liable to contribute considering their salary levels, since the EPF scheme was applicable only to employees earning a basic salary of INR 6,500 per month.

An establishment would be covered under the Indian EPF regulations if it employs 20 or more persons (including international workers) as also certain other establishments specified by the Central Government in India.

Thus this amendment has brought into net all expatriates working in India where the Indian entity is already covered by EPF regulations by virtue of its employing more than 20 people.

Interestingly, the new rules are applicable irrespective of whether the salary is paid in India or outside India and charged back to the Indian entity as also irrespective of the period of deputation to India. In case of contracts involving split payments (payment in home and host country), the PF contribution would have to be paid on the total salary earned by the employee. Under the EPF Act the employee contributes 12% of his/her salary, with the employer making a matching contribution. Further, the employer is required to comply with certain other procedural formalities such as filing of return in the prescribed format – giving details of international worker ‐ including their nationality, basic wages, etc. The employer is obliged to file a NIL return, even in case there are no international workers.

The Social security contributions would also have to be made in cases where the expatriate is contributing to a Social security scheme in his home country. However, such dual contributions may be done away with if India has a social security agreement with the overseas country. As of today, India has entered into social security agreements with Belgium, France and Germany; however, they are yet to be notified. Negotiations are at various stages with Netherlands, Czech Republic, Hungary, Norway, Switzerland, Sweden, Luxembourg, USA and Australia.

The above amendment is effective for international workers from 1st November, 2008. Currently, in the absence of signed social security agreement, all expatriate employees would be required to be enrolled with the social security / EPF scheme in India and make contributions accordingly.

However, there are many open issues. For instance, there is no clarity in cases where the employee is paid outside India and the amounts are not charged back to the Indian entity? Given such a situation, one can contend that the employee is on the payroll of the foreign company, and if the foreign company does not have 20 employees in India – the EPF scheme would not be applicable. However, while planning such a move one has to consider other aspects such as the international tax implications of constituting a Permanent Establishment in India. Nevertheless some planning may be done, based on the specific facts of each case, to relieve international employees from the burden of additional compliances.