Volume 1, Issue 1


16th August, 2009


Business Alert
India Signs Social Security Agreement with Belgium

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 in India. This amendment resulted in additional hardships for the international workers in as much as the contributions were required to be made in both host and home country in many of the cases.

In order to avoid nondiscrimination and treat the international workers at par, Social Security Agreements (SSA) were signed by India with Belgium, France and Germany. However, the date of entry into force was not notified. In its first ever Social Security
Agreement, the Government of India has notified its SSA with Belgium and the same would be effective from 1st September 2009. The concept of SSA is similar to that of Double Tax Avoidance Agreements which India has signed with various countries for avoidance of double taxation in home and host country.

With the SSA with Belgium in place, the situations relating to either no coverage under social security scheme or double coverage under social security in host and home countries would be avoided. Similarly, it would be possible to export the benefits from one country to other country, depending upon the ultimate place of residence of the employee. Further, the period of services in both the countries – host and home country would be considered to be counted for determining the eligibility of benefits under the SSA.

In accordance with SSA between India and Belgium , broadly, the employee would be required to make contributions to Indian and Belgium Social Security Scheme on the basis of following parameters:

Indian National deputed to Belgium
Contributions to
Indian Social Security
Scheme
Contributions to
Belgium Social
Security Scheme
By an Indian employer
Short Term Assignments up to 60
months (5 years)
Yes
No
Long Term Assignments for more
than 60 months (5 years)
No
Yes
Local Employment in Belgium –
By an Indian or non-Indian employer
No
Yes
 
Belgian National
deputed to India
Contributions
to Indian
Social Security
Scheme
Contributions
to Belgium
Social Security
Scheme
By an Belgian
employer
Short Term
Assignments up to
60 months (5
years)
No
Yes
Long Term
Assignments for
more than 60
months (5 years)
Yes
No
Local
Employment in
India– By a
Belgian or non-
Belgian employer
Yes
No
  A detachment Certificate would have to be obtained in cases of short term assignments (not more than 60 months) to host county. The employer and employee can apply to appropriate social security authority in the home country for claiming exemption from social security taxes in the host country in such cases.

The employees sent on a short term deputation prior to deputation on 1st September 2009 can apply for Certificate from 1st September 2009 to the date of completion of deputation. Similarly, for short term deputations on or after 1st September 2009, the Certificate could be procured for the entire period of deputation.

The Government of India has issued Handbook and Frequently Asked Questions (FAQs) dealing with various aspects and procedural formalities relating to implementation of SSA between India and Belgium.

Negotiations for similar SSAs are at various stages with The Netherlands, Czech Republic, Hungary, Norway, Switzerland, Sweden, Luxembourg, USA and Australia and may be notified in the near future.

While the SSA may increase the procedural compliances by employers and employees, the SSA regime would go a long way in eliminating the ill effects of dual contributions to be made in home and host countries.

We believe that the SSA can be an effective international tax planning tool, and if used with the help of expert professionals, could result in minimization of the overall international assignment costs and maximize expatriate’s after tax take‐home salary – a win‐win situation for the organization as well as the expatriate!