Expat taxation

Mcneil

Ooooo - deep breath - cos I hate this stuff, but;

I'm afraid I have a query about expat taxation. I know it's dull and I should ask expert advice - I have got an accountant on the case and I'll post back with his advice once paid for - but in the meantime I would appeal to anyone 'in the know' for help;

I'm a UK national, registered as non resident for tax purposes in UK (P85 form..) and working in Mumbai, with E visa and PRRO card. No PAN card yet, but working on it.

I'm employed with an Indian firm, as a retainer agreement. Let's assume my salary is $100k. I'll be here over 182 days per year.

My query is whether I am liable for the 33.99% tax on everything over 5 lakh, or whether I can pay 10.3% service tax as a consultant? If I do the latter, would I have a further tax liability in India (or the UK).

And finally I've read that I can only take 75% of the money home. What happens to the other 25%, do I have to leave it behind?! I plan to be here 2 - 3 years.

Thanks and regards, N

Haylo

Won't you be living on it? There are not many people who can save 75% of their salary.

Good luck finding answers to your tax questions, it may be worth doing a forum search, as these questions have been asked before, though I don't recall the details.

__________________
The world is mud-luscious and puddle-wonderful - E.E. Cummings, poet (1894-1962)

Mcneil

Hi, yes I tried a search but couldn't find anything specifically regarding a retainer agreement vs. full time employee.

Living expenses - mmm I guess you're right. My apartment and car are paid for, so I was hoping to live a humble existence and save like crazy! If it's 75% of your gross then I should be able to avoid being forced blowing the money in downtown Bombay!

Any thoughts on the tax issue welcome,

EJS

Based on my limited knowledge / advice given before I moved, I think you have to be out of the UK for a full tax year to make sure you aren't hit by double taxation. So, assuming you move in the next couple of months, you need to be non resident in the UK till April 2011 and then they won't count any of your earnings for UK tax - I think i completed a form confirming my intention to stay away to make sure I didn't pay UK tax for the 6 months leading up to the start of the next tax year and assuming I don't go back (except on vacation), I should be ok...

Not sure how that works with 10.3% versus 33.99%. It would also be worth checking the position on provident fund as a service consultant - international employees are supposed to pay PF and then this can be claimed back when you leave.

thejag

whats applicable to you would depend on the provisions in the uk/india tax treaty. my understanding is that indias double taxation avoidance laws with all/most countries are similar. if tax is deducted at source (as it should be, the company paying your salary/retainer is responsible for making sure they do so) then that can be claimed as a deduction where ever you are to be taxed.

depending on the exact provisions you will be taxable in either the UK or india, not both. if per chance you pay tax in the other country you can use that payment as deduction in the country where you are supposed to pay your taxes.

again this is what i remember. maybe possible that i understood wrong.

KABAARY

Aah ! A tax question !

But wait ! Did you say dull ?

Nick-H

What thejag says makes sense to me. You should not be taxed twice on your income, but you (I was told by an accountant friend in UK a while back, informally) should expect to pay, in total, the percentage which the highest of the two countries. Given that India's "personal allowance" is so much lower than UK, that is probably India's rate.

If you are not resident in UK, then the UK tax authorities are not terribly interested in your income in the country of your residence, unless you try and spend it in UK, in which case they will be very interested.

Anyway, I'm about to do my UK tax return, and I have to read some publications first...

curtdfw

This was my experience while in India working for a US company.

__________________
"Consistency is the last refuge of the unimaginative" Oscar Wilde

KABAARY

(i) There is a double taxation avoidance agreement (DTAA) between India & UK which shall govern your taxability :
(a) If the income you are earning from the Indian firm is salary, by virtue of Article 16 of the DTAA (Dependent Personal Services), you can be taxed in India if you are in India for more than 183 days during the relevant fiscal year, etc.
(b) If the income you get can be treated as independent personal services in respect of professional services or other independent activities of a similar character, you would be taxed in India if you are present in India for a period or periods aggregating 90 days or more, etc. (refer Article 15 of the DTAA).
(c) Article 24 provides for elimination of double taxation and Indian tax payable under the laws of India and in accordance with the provisions of the DTAA, whether directly or by deduction, on profits, income or chargeable gains from sources within India (excluding, in the case of a dividend, tax payable in respect of the profits out of which the dividend is paid) shall be allowed as a credit against any United Kingdom tax computed by reference to the same profits, income or chargeable gains by reference to which the Indian tax is computed.

Payment of service tax will not necessarily save you from Indian income tax. Income Tax & Service Tax are two different & independent taxes governed by seperate tax statutes. So assuming that you are providing services to the Indian firm which are exigible to service tax (in which case, the income you earn would not be salary income), there would be a service tax on the services which you charge the Indian firm - this is not really a cost to you as you would be charging the Indian firm for the service tax (unless, of course, the total amount you charge is fixed).

However, for income tax purposes, this would be income from business/profession and you could claim deduction of various business expenses incurred for earning this income while calculating your tax liability. This gives greater scope to reduce your effective tax rate to well below 33.99% (the highest slab rate) as in case of salary income at a high range there are very few deductions you can claim (almost insignificant).

Refer points (i)(b) & (c) above.

I understand that under the Foreign Exchange Management Act (FEMA), subject to discharge of Indian income-taxes, a national of foreign state, employee of foreign company resident in India or citizen of India employed by a foreign company outside India, and on deputation to India may maintain a foreign currency account with a bank outside India and receive upto 75% of salary by credit to such account outside India, and balance 25% of the salary is compulsorily required to be received in Indian Rupees in India. I cannot comment further as I am not too familiar with FEMA.

Nick-H

Wow




.

thejag

http://www.financialexpress.com/news...india/184431/2


http://www.thehindubusinessline.com/...s/210864kr.htm


these are very old articles but i would think that the info is still valid as they talk about fema (new act) and not fera (old act). do check with the accountant though...

and the definition for resident but not permanently resident is there in the article as well. im sure there is an other category titled permanently resident and it may have different rules...

there were another couple of threads on im which said exactly the same....

wonderwomanusa

Hah! Don't let him get away with that statement!

__________________
The map is not the territory. --Alfred Korzybski

capt_mahajan

kabaary, remind me never to read your tax posts when I am sober.

Great answer, btw.

__________________
.
Outside the machine

Haylo

KABAARY - you wrote all that for him after he said taxes were dull?

I thought he'd totally blown it, what's this, the all new forgiving you?

KABAARY

Wait and watch...the trap has been laid..
(it's just that only thejag seems to have fallen for it so far )

Hey ! Whaddya mean ? I'm so forgiving I shall be beautified one day....till that day, I remain beautiful...

And as for the rest...??