Employing a foreigner - Legal point of view

[Reshma]

Hi,

 

Can anybody explain me the what are the things need to be taken care, from the legal point of view, while employing a foreigner in an Indian Company.

 

It's urgent......please1

 

Thanks,

Reshma

[Reshma]

The person is getting appointed as a consultant.

[Santosh]

Reshma, Ensure he is coming on a employment visa. With the extant norms becoming strict, the consultant should have an contract between the company, and should come on a employment visa to india. Hope the above clarifies. Santosh 9986635388 --- On Thu, 10/6/10, Reshma <seekr...@gmail.com> wrote:

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[ravi p]

Hi Reshma

 

I am assuming that the foreign national is coming in "indiviual" capacity (not representing any consulting firm/company)

 

You need to take care of following:

 

Under Immigration Rules:

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1.  Foreign National has to obtain "employment Visa,"  otherwise he is not eligible to work in any company in India  whether as a consultant or as an employee. (For obtaining "employment Visa, your company has to issue offer letter, give an undertaking .....etc)  You are also not supposed to employ any foreign national without valid "employment Visa"

2. If his stay in India is for more than 180 days, he has to get himself registered before 180 days with concerned Registration Officer (FRO)(Normally it is in nearest police station)

3. While him going back to his country permanently, he has to inform the FRO and you have to give an under taking

Under FEMA:

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3. If he is working as an employee, you can make payment 100% in INR. If he insist the payment in foreign currency,  then you are allowed to make payment in foreign currency upto 75% and balance in INR subject to deduction of proper taxes on salary. ( Pls refer Fema Notification no.13 & 21 dated May 2000 and Master circular no.4 dated 1st July 2009) 

Income Tax:

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4.  If you are paying him as "consultancy fee", you need to deduct tax @ 30.9% applicable for individuals  u/s195 (TDS Section 194J of Income Tax Act 1961  is not applicable for non-residents).  In my opinion you cannot avail the benefit of  Double Taxation Avoidance Agreement- Article 12 as technically he is your employee.

5. If it is being paid as "Salary" then you need to deduct tax u/s 192 of Income Tax Act 1961

Labour Laws:

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5.  The provisions of PF, Contract Labour Act, ESI,  are applicable to foreign national also

 

 

Regards

 

Ravi P

 

 

 

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From: Reshma <seekr...@gmail.com>
To: csmy...@googlegroups.com
Sent: Thu, 10 June, 2010 11:59:21 AM

Subject: [CSMysore] Fwd: Employing a foreigner - Legal point of view

[CS.Omkar]

Dear Mr. Ravi,

 

Thank you for detailed reply. I would like to add following:

 

1. If he is a consultant, whether PF & ESI is applicable? - I feel it is not!

 

2. If consultancy fee is more then 10 Lakhs PA, he has to charge Service Tax at applicable rates.

Pl. let me know if any contrary views...

 

Regards...Omkar

[sumit phadnis]

Thanks Ravi for your informative reply.

[ravi p]

Dear Omkar

 

If  PF & ESI  provisions are applicable to an unit, then the coverage under that is needed to the consultants also who working in that unit.  However in many cases, it escapes from the provision due to the amount of  consultancy fee  which is noramlly above the limit specified in respective statutes. i.e.Rs.10k pm for ESI & Rs.6500 pm for PF.  Please note that, inorder to decide on the applicability of labour laws,  you have to check who is the principal employer and the real employer. 

 

Say for example, security fees paid to XYZ Security services (wherein fees paid are less than Rs.10k pm per person), if that XYZ security is not deducting ESI & PF, as a principal employer you are supposed to contribute. Therefore many companies insist on photo copy of PF and ESI payment challan before releasing the cheque to security/housekeeping agencies. All these things will come into light during the audit by PF and ESI auditors, which happens normally once in 5~6 years!!!. 

 

Service Tax:

------------

 

If consutancy fee is more than 10Lakh per annum, consutant has to register himself with service tax authorities and pay 10.3% service tax. However when the services are rendered by a non-resident who doesn't have any business establishment in India, then these services will fall under "Import of services Rules" and the Importer i.e company who is receiving the service has to pay service tax

Regards

 

Ravi P

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From: CS.Omkar <acs....@gmail.com>
To: csmy...@googlegroups.com
Sent: Thu, 10 June, 2010 4:16:45 PM
Subject: Re: [CSMysore] Fwd: Employing a foreigner - Legal point of view

[CS.Omkar]

Dear Mr. Ravi,

 

1. PF & ESI: In the given case, the company is engaging consultant providing consultancy service, who may provide service to many companies in India, whether all companies required to make PF & ESI on consultancy fees paid to him??? I don't think so... PF & ESI will apply when employer and employee relation is established (either primary or through contractor). When he is a professional consultant, it will not apply. Pl. let me know your views...

 

2. Service tax: Yes...If Foreigner is providing service from Outside India (who is not located in India), then importer has to pay ST.

 

Regards...Omkar

[ravi p]

Dear Omkar

 

Applicability of labour laws to consultants to be decided on case to case basis.  If the unit technically  falls under the category "principal employer" not the real employer for any consutant working for that company, Labor laws are applicable.  In order to understand better,  need to check the definition of "employee" under respective statutes which normally says " directly or indirectly........"

 

Hope I have clarified.

 

Regards

---

From: CS.Omkar <acs....@gmail.com>
To: csmy...@googlegroups.com

Sent: Fri, 11 June, 2010 11:33:23 AM

[CS.Omkar]

Thank you Mr. Ravi. Yes, applicability of labour law depends on case to case depending on facts. Employment of professional consultants who are not only providing service to one company will not be "employee" indirectly as well.

 

Regards...Omkar 

[Reshma]

Dear Ravi & Omkar,

 

Thanks a heap for your valuable inputs!

 

Ravi, your assumption is correct.  He is not representing any orgainsation and is an independent consultant.

 

I visited the website of Bureau of Immigration, India.  Neither in the main section nor in the FAQ (attached) section I cound find that the engaging of a foreign consultant compulsorily requires employment visa. 

 

I would like to clarify that the consultant we are engaging is for short duration (180 days) for some crisis management and he has business visa.

 

Do you have any practical experience of not complying with what you have stated or any write-up on this.

 

Secondly, FEMA related......

I went through the reference of master circular (attached) and notification (attached) given by you but couldn't find out the limits of remittances as stated by you.  I have attached those references.  Kindly confirm whether I am referring to correct ones. If not, please provide me the right ones.

 

Thirdly, IT related....

Yes, Sec.195 gets attracted. 

Wondering about DTAA?  The consultant is of Italian origin.  Then I need to refer the agreement (attached) entered into by and between India and Italy.  I found in the agreement, in article 15 about this which says that we need not deduct tax.....i am not sure about this.  Kindly give your opinion on this.

 

Regards,

Reshma

 

 

On Thu, Jun 10, 2010 at 3:21 PM, ravi p <ravip...@yahoo.com> wrote:

[ravi p]

Hi Reshma

 

With regard to the employment Visa, pls  go thru page no. 4 and answer to Question no.6  on "who are eligible for employment visa" - which states as below:

 

 

vi. Foreign nationals coming to India as consultant on contract for whom the Indian company pays a fixed remuneration, (may not be in the form of monthly salary).

 

So it is evident that Employment Visa is mandatory for foreign nationals taking up employment in India.  You would have read in newspaper on government passing stricture on some of the companies allowing Chinese workers working in India on Business Visa

 

Inorder to circumvent the above, some of the comapnies pay the salary in Foreign Currency thru parent/subsidiary company situated abroad.  In such a case, Company will see to it that the foreign nationals  who has come to India for work on "Business Visa" stays in India for less than 180 days.  The moment his stay is more than 180 days, foreign national has to get himself registered with FRO office and he has to pay local income Taxes as per the "Resident Rule" of Section 6 of Income Tax Act 1961

 

I advise you not to employ the foreign national without valid Employment Visa.  It is not easy to get the Employment Visa.  You have to check with your travel agent on this and its requirement. 

 

FEMA Rules:

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I have attached the scanned copy of the relevant part extracted from D.T.Khilnani's FEMA Book.  Pls see the para 5.B2- Remittance of Salary. 

 

In your case it is not applicable as the foreign national will be paid a "consultancy fee" not salary

 

TDS:

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Under Section 90 of Income Tax Act, while making remittance to non-resident, you can apply the provisions of local income Tax act or DTAA whichever is more beneficial to you.

 

However in your case, my view is that TDS iof 30.9% is applicable and you cannot take shelter under Article 13-Royalties and Fees for Technical Service of DTAA with Italy.  Pls check with your tax expert by giving full particulars. I cannot give the correct opinion in your case as it has to be analysed from lots of angles like "Permanent Establishment",, Definition of Income under Section 9 of Income Tax Act., recent decided cases etc.

 

If your tax consultant views that, you can take benefit of DTAA, the taxes applicable is 10.56% u/s 115A of Income Tax Act and you have to ask the foreign national to apply for PAN to avail this concessional TDS (refer section 206AA of Income Tax Act)

 

 

 

Regards

 

Ravi P

 

 

 

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From: Reshma <seekr...@gmail.com>
To: csmy...@googlegroups.com

Sent: Fri, 11 June, 2010 2:35:50 PM
Subject: Re: [CSMysore] Fwd: Employing a foreigner - Legal point of view

[Reshma]

Ravi,

 

Thanks for the clarification.

 

Will get back with the update once the management decides about the consultant.

Regards,

Reshma