Expatriates working in India are required to contribute to Indian social security system and similarly Indians going abroad are required to contribute overseas. These contributions are in addition to the contribution in the home country. As contributions are made in both the countries, it impacts business and creates a challenge in managing employee costs.
A social security agreement (SSA) is a bilateral treaty designed for protection of workers? interest in the host country and provides for avoidance of double social security coverage on same earnings. In simple words, a SSA helps in avoiding contribution in the host country.
India has till date signed 11 agreements. Agreements with eight countries are effective, which include Belgium, Germany, France, Switzerland, Luxembourg, Denmark, Korea and the Netherlands. The agreements with Hungary, Czech Republic and Norway are signed but are not yet effective. SSA generally provides for the following benefits if a detachment certificate, also known as certificate of coverage (COC), is obtained.
For avoidance of double coverage, an employee can obtain a COC from the home country social security agency and avail an exemption from contributing social security in the host country. For example, if an individual is employed in India and sent to Germany, the individual/employer will make an application to the Indian regional provident fund office and obtain a COC. This COC will help the individual/employer in not paying social security in Germany. Similar example will apply for a German coming to India.
Exportability of benefits: It means that any benefit in one country will be transferred to the other country. For example, earlier the benefits under Belgium social security system were not payable even after somebody had left Belgium. An Indian who had worked in Belgium was at a loss for not being able to get the due benefits on his relocation back to India. Now, under the India- Belgium SSA, the benefit will be paid irrespective of whether the individual lives in Belgium or India.
Totalisation of contribution: The period of service rendered by an employee in the home country as well host country will be considered for determining eligibility for payment of benefits. For example, an employee may have contributed to the social security system in both India and France but may not be eligible for the benefit if both service periods are not added. The SSA makes it easier by allowing totalisation of contributory periods in both countries. India is gradually signing agreements with other countries. It will always be better if more number of countries sign these agreements as it will reduce the cost of employee movements and increase global movement of employees.
Benefits of SSA
* SSA provides for avoidance of double social security coverage on the same earning
* To avoid double coverage, an employee can obtain a certificate of coverage from the home country
* SSAs with eight countries are effective and agreements with Hungary, Czech Republic and Norway are signed but not yet effective
* The period of service rendered in home and host country will be considered for determining eligibility for the payment of benefits
* The author is director, tax & regulatory services, KPMG. Views are personal