EXPATRIATION COMPENSATION

TRENDS IN
INDIA AND CHINA

BY,
NIRMALA.C.
FLOW OF PRESENTATION

• INTRODUCTION.

• COMMON ELEMENTS OF COMPENSATION

PROGRAMME.

• EXPT COMPENSATION TRENDS IN CHINA.

• EXPT COMPENSATION TRENDS IN INDIA.

• CONCLUSION.
EXPATRIATION

“An expatriate is a person temporarily or

permanently residing in a country and
culture other than that of the person's
upbringing or legal residence. The word
comes from the Latin term expatriātus
from ' ("out of")”.
 COMMON ELEMENTS

• Compensating expatriates can be difficult because

there are many variables to consider

• Most compensation packages are designed around

four common elements:
Allowances Taxes

Base Salary Benefits

• Base salary

– Amount of money that an expatriate normally receives in the home

country

• Benefits

– Should host-country legislation regarding termination of employment

affects employee benefits entitlements?
– Is the home or host country responsible for the expatriates’ social security
benefits?
– Should benefits be subject to the requirements of the home or host
country?
– Which country should pay for the benefits?
– Should other benefits be used to offset any shortfall in coverage?
– Should home-country benefits programs be available to local nationals
• Allowances
– Cost-of-Living Allowance
• Payment for differences between the home country and the
overseas assignment.
• Designed to provide the expatriate the same standard of living
enjoyed in the home country
– May cover a variety of expenses, including relocation, housing,
education, and hardship
– Incentives
• A growing number of firms have replaced the ongoing premium for overseas
assignments with a one-time, lump-sum premium.

• Taxes
– Tax equalization
– An expatriate may have two tax bills for the same pay
• Host country
• U.S. Internal Revenue Service
– MNCs usually pay the extra tax burden
 COMPENSATION TRENDS IN CHINA

• QUICK LOOK

Armed with ambitious strategy and the capital to invest, most foreign
organizations are ready to capture the China market.

In 2005, almost 31 percent of expatriates were Western, whereas in 2006,

this reduced to just less than 25 percent.

Despite “localization” of compensation packages, the annual salary

increases awarded in China have been high.
Nontraditional Expatriates Lead the Pack

• The study reveals that “traditional expatriates,” or

Western expatriates, are mostly hired for the top
executive and senior manager levels.

• “nontraditional” expatriates, like China-hired

foreigners and returnees form a majority at the
lower levels.
• CHART
Higher Increase for Global
Experience and Local Skills

The overall local salary increase in China has

been the third highest in Asia at 8.3 percent.
The China Expatriate Compensation and Benefits
2006 study further revealed that expatriate salary
increases were highest among “China returnees,”
who received an average increase of 6.6 percent
CHART
Reaping the Benefits … or Not?

• Traditionally, organizations in China used to award

three types of premiums to expatriates: foreign-
service premium, hardship premium and cost-of-
living adjustment (COLA).

• COLA packages can vary, but they are offered as

a fixed percentage of base pay. COLA is the most
common expatriate premium.
• CHART
 In 2006, of those companies that offered premiums,
traditional expatriates hired with a global package
were offered 14.1 percent of base pay as COLA,
11.9 percent of base pay as hardship and 11.7
percent of base pay as a foreign-service premium.

• Expatriates on regional packages were offered 8.4

percent of base pay as COLA, 10.5 percent of base
pay as hardship and 8.5 percent of base pay as a
foreign service premium.
• Options for education for foreign children are limited,
as the Chinese public education system is quite
unfamiliar to those accustomed to the Western
education system. As a result, the majority of
organizations provide private education assistance.

• Expatriates who enjoy global packages have the

highest housing budget, ranging from $4,000 (USD) to
$7,000 (USD) (median) per month, while the housing
budget for China-hired foreigners and China returnees
ranges from $1,000 (USD) to $3,000 (USD) (median)
per month.
• CHART
COMPENSATION TRENDS IN
INDIA

• Residency in India
• Tax treatment of employee compensation
• Income tax rates and tax compliance requirements
• Social security
• Banking and remittance facilities for expatriates
• Special remittance provisions
• Visa and registration requirements for expatriates
• PIO card and dual citizenship
• Departure compliances
• Personal baggage rules
Residency in India

• An expatriate’s Indian income tax liability is inextricably

linked to his residential status.
• 182 days or more in a tax year (Indian tax year extends
from 1 April to 31 March), or
• 60 days or more in a tax year and 365 days or more
during the preceding 4 tax years.

The number of days for which an expatriate is physically

present in India in a particular tax year and in prior tax
years determines his residential status in India for that year.
Tax treatment of employee compensation

• All expatriates are taxed on any compensation

received for services rendered in India.
Compensation would include salary, fees,
commissions, profits in lieu of or in addition to
salary, advance salary, allowances and benefits in
kind.
• (CHART)
Income tax rates and tax
compliance requirements

• Indian tax law requires all employers to deduct tax

when paying salary to their employees and
deposit the same with the authorities within seven
days from the last day of the month in which such
payments are made. Any failure on the employer’s
part to do this could attract stringent fines and
penalties, in addition to the taxes not withheld.
• CHART
Social security

• Every covered employer will be required to make

a contribution towards Provident and Pension
Fund for international workers employed by it.

• Social Security Agreements have been signed

with Belgium, France and Germany, but the date
of “entry into force” is yet to be notified
• Every covered employer is required to contribute 24%
(12% each of the employer and employee’s share) of the
employee’s monthly “pay” towards the Provident and
Pension Fund. The employer has an option to recover
the employee’s share from the employee.

• Local employees drawing a monthly salary of INR6,500

or more are excluded from the purview of this legislation
but this exclusion of the minimum pay does not apply to
international workers. Therefore, in case of international
workers, the contributions to PF are required even if the
“monthly pay” of the employee exceeds INR6,500
Banking and remittance
facilities for expatriates

• Bank accounts and remittance provisions Foreign

nationals can open bank accounts in India to
credit their Indian earnings or receive funds from
abroad to meet their normal living expenses.
Under certain circumstances, expatriates can
remit their entire salary received in India.
Special remittance provisions

• Under a liberalized remittance scheme for resident

individuals, which has been notified, total
remittances of up to USD200,000 per calendar year
are allowed for permissible current-account and
permissible capital-account transactions subject to
certain exceptions. The scheme allows individuals to
acquire and hold immovable property or shares,
maintain foreign-currency accounts or other assets
outside India without RBI approval, subject to the
fulfillment of specified conditions.
Visa and registration requirements for
expatriates

• CHART
• A visa is required for all foreigners entering India
PIO card and dual citizenship

A Person of Indian Origin (PIO) card can be obtained by any

expatriate who satisfies any of the following conditions:

• The individual has held, at any time, an Indian passport,

• The individual or any of his parents, grandparents or great-grandparents

were born in and permanently resident in India,

• The individual’s spouse is a citizen of India or a person of

Indian origin. This implies that even a foreign spouse of a
citizen of India or of a person of Indian origin may apply for a
PIO card.
 PIO card holders are granted certain benefits.
• The waiver of the requirement to obtain a visa
to visit India,
• Exemption from the requirement of registration
if the Individual’s stay in India does not exceed
180 days,
• The acquisition, holding, transfer and disposal
of immovable properties in India, and
• Facilities to obtain admission to educational
institutions in India.
Personal baggage rules

An expatriate is eligible to import into

India,bonfide baggage(explained under the
Customs Act) which includes personal/ household
effects (except certain specified items including,
alcoholic liquor/wines in excess of 2 liter, music
system, color television, etc.) and jewelry up to
specified limits, free of customs duty.
 This is permitted on a bonafide transfer of
residence, subject to the satisfaction of all of the
following conditions:
 The expatriate has lived abroad for a minimum
period of 2 years immediately preceding the date
of his arrival in India.
 Short visits made by the expatriate to India during
the aforesaid period of 2 years shall be ignored if
the total duration of stay on these visits does not
exceed 6 months over the 2 year period.
 The expatriate has not availed transfer of
residence benefits in the preceding 3 years.
CONCLUSION

• A world of opportunity has opened up for talent in China and India.

• Although immediate shortages of talent pose a threat, organizations

are making continuous changes in their people processes to more
effectively attract, engage and retain talent.

• The projected economic growth is going to make overcoming

people issues even more challenging in the future if the right steps
are not immediately taken by organizations.

• The changing face of expatriate pay is a testimony to China’s and

India’s efforts in realigning current talent strategies