Social security cost has been an important consideration when evaluating an overseas assignment. For example, Indian employees travelling to overseas countries on an assignment would be required to contribute towards Indian social security (Provident Fund) as well as overseas social security programme during the assignment period.
Social Security Agreements.In order to reduce the burden of double social security liability, the Government of India has entered into Social Security Agreements (SSA) with various countries. An SSA is a bi-lateral instrument to protect the interests of employees in the host country. It is a reciprocal arrangement which generally provides for avoidance of no coverage or double coverage. Currently, India has operational SSAs with 18 countries. As per the Provident Fund (PF) regulations, if an Indian employee is travelling on an assignment to a country with which India has entered into an SSA, the employee can obtain a Certificate of Coverage (CoC) from the Indian PF Authorities, subject to certain conditions. CoC allows employees to remain covered under the home country social security legislation (India) and claim an exemption from the host country social security legislation. As per the current process, an application for CoC is required to be submitted with the PF authorities along with necessary documents. Normally, the CoC is issued for an assignment duration and the same can be extended, subject to approvals from the competent authorities.
Review of SSAs
The ministry of external affairs recently conducted a review meeting regarding working of some of the SSAs. During the review, some discrepancies have been observed regarding the process for issuance of CoCs. For example, CoCs were issued for a period much later than the date of posting of Indian employee in the host country, CoC coverage period was more than the period mentioned in the SSA, etc. In order to mitigate the discrepancies, the PF authorities issued directions to be followed by both employers and regional PF offices for making an application and for issuing CoC.
These directions require, to the extent possible:
*Employer to submit an application for CoC one month prior to the start of employee’s overseas assignment
*Regional PF Office to issue CoC prior to the departure of the employee from India
*The period of CoC should not exceed the specified period mentioned in the SSA without an approval from the competent authority of the other country.
*The said directions issued by the PF authorities is a welcome move and it ensures smooth processing of CoC applications.
Employers would be required to track the employee movement in a more efficient manner in order to file a CoC application one month prior to the employee’s move (to the extent possible). However, there could be some instances where the application for CoC may not be made one month prior to the start of the overseas assignment due to urgent business requirements.While the directions from the PF authorities clearly bring out the measures taken by them to ensure compliance with SSA provisions, it is now the responsibility of employers and respective field offices to ensure compliance with the said directions. At a time when managing cost is a critical element of overseas assignments, social security planning is an essential tool which every global mobility team should leverage to the best.
The writer is tax partner & India mobility leader, EY India. With inputs from Sreenivasulu Reddy of EY. Views expressed are personal