Sending staff abroad: shadow payroll, the 183 day rule and social security
The PayLoom team3 min read
An employee sent abroad usually stays on the home payroll, but the host country can still tax their pay; shadow payroll reports and withholds that host tax without paying the salary twice, while social security agreements decide which country's scheme they pay into.
When an Indian company sends an engineer to a client in Germany for six months, or a manager to set up a Dubai office, payroll does not stop at the border. The employee is usually still paid in India, in rupees, but the country where the work is done may have the right to tax that pay, and both countries may expect social security. Getting this wrong means double tax for the employee and penalties for the employer.
A general overview as at October 2026. Tax treaties, social security agreements and residency rules differ by country pair, so take advice on each assignment.
Which country taxes the salary
As a starting point, employment income is taxed where the work is physically done. Most tax treaties, including India's, give an exception for short visits. The salary stays taxable only in the home country if all three of these hold:
- The employee is present in the host country for no more than 183 days in the relevant twelve month period or tax year, depending on the treaty.
- The salary is paid by, or on behalf of, an employer that is not resident in the host country.
- The salary is not borne by a branch or permanent establishment that the employer has in the host country.
Fail any one, for example because the host entity is recharged for the employee's cost, and the host country can tax from the first day. The 183 days count every day of presence, including weekends and holidays spent there, in most treaties.
What shadow payroll is
When the host country has the right to tax but the employee is still paid at home, the host entity runs a shadow payroll. It calculates the host country's tax on the employee's pay, reports it and pays it to the host authority, but pays no net salary, because the actual salary is still paid by the home payroll. Without it, the host tax is either missed or left to the employee to settle at the end of the year.
Social security
Social security follows its own rules. India has social security agreements with around twenty countries, including Germany, France, the Netherlands, Japan, Canada and Australia. Under them, a certificate of coverage keeps a posted employee in the Indian scheme for a set period, so they do not pay into both. Where there is no agreement, as with the United States, the employee usually pays into the host scheme as well.
Inbound, the rules are stricter than many expect. A foreign national working for an Indian establishment is treated as an international worker for PF and is covered from the first day, with no wage ceiling, unless they hold a certificate of coverage from a country that has an agreement with India.
Residency at home
A long assignment can change the employee's Indian tax residency. An Indian citizen who leaves India for employment abroad and spends less than 182 days in India in the tax year is generally non resident, and their foreign salary for work done abroad then falls outside Indian tax. Payroll in India has to know this, because it changes what TDS should be deducted on the salary still being paid in India.
Who pays the extra tax
- Tax equalisation: the employee pays what they would have paid had they stayed at home, and the employer covers the rest, in both directions.
- Tax protection: the employer covers any excess over home tax, but the employee keeps the benefit if the host country is cheaper.
- Laissez faire: the employee bears whatever tax applies. Simple, but it makes assignments to high tax countries hard to fill.
Where it usually goes wrong
- Counting working days instead of days of presence against the 183 day limit.
- Recharging the employee's cost to the host entity, which breaks the treaty exception without anyone noticing.
- Sending someone without a certificate of coverage, so social security is due in both countries.
- Leaving Indian TDS unchanged after the employee becomes non resident.
How PayLoom does it
PayLoom keeps one record per person across countries, with pay elements, policies and statutory rules set per country, so an assignee's home salary, host allowances and dates sit together rather than in two systems. One run can pay in several currencies with the rate stamped on each payslip, and reporting consolidates the cost of the assignment to your base currency.