Stranded H-1B Workers Telecommuting from India Could Trigger Major Tax Liabilities, Experts Warn

With the surge in H-1B employees opting to work remotely from India amidst global uncertainties, companies must navigate a complex web of tax implications. KPMG warns that such arrangements might inadvertently establish a “permanent establishment” (PE) in India under Indian tax laws. This status could subject foreign firms to local corporate income tax on their Indian-sourced profits, stemming from the sustained presence or activities of their H-1B staff. Key factors influencing PE risk include:

• Duration and continuity of employee presence
• Nature of work performed and authority exercised
• Existence of dependent agent activities

This evolving landscape means companies must proactively assess their remote work policies and implement robust compliance strategies. Ignoring these risks could result in unexpected tax audits, penalties, and increased compliance costs. Legal counsel and tax advisors recommend review and realignment of contracts and workplace practices to mitigate the likelihood of India taxing profits linked to remote H-1B operations. The situation underscores the need for global employers to carefully balance workforce flexibility with international tax obligations.

KPMG has issued a cautionary statement regarding the growing trend of allowing stranded H-1B visa holders to continue working remotely from India. With many companies opting for this arrangement amid travel restrictions, there is an increased risk that such cross-border employment could inadvertently create a permanent establishment (PE) under international tax laws. This scenario potentially exposes US-based businesses to unexpected tax liabilities, as foreign tax authorities may interpret the remote work setup as the creation of a taxable presence in India.

Key risks highlighted by KPMG include:

• Scrutiny over the physical presence of employees working remotely outside the US
• Possible attribution of profits to the Indian jurisdiction based on employee activities
• Complexities around compliance with local tax and social security regulations
• Heightened risk of double taxation without adequate treaty protections

Corporations are urged to conduct thorough reviews of their global employment structures and consult tax experts to mitigate exposure. Failure to address these issues proactively could result in significant and unexpected financial penalties down the line.

Employers navigating the complexities of remote work, especially when staff are operating internationally from locations such as India, must adopt proactive measures to prevent unintended tax liabilities stemming from permanent establishment (PE) risks. One critical strategy involves conducting thorough tax residency assessments and mapping employee work patterns meticulously to identify exposure points early. Establishing clear policies on remote work locations, supported by robust documentation and frequent compliance reviews, remains essential. Additionally, coordinating with local tax advisors ensures timely adaptation to jurisdiction-specific regulations that could trigger PE status.

Further risk mitigation can be achieved through operational realignments. Employers are advised to:

• Limit decision-making authority and contractual negotiations conducted by employees abroad to reduce PE risk.
• Implement structured remote work agreements that specify liability boundaries and tax responsibilities.
• Leverage technology to monitor and report work locations transparently.

These approaches not only help contain potential tax exposure but also protect organizational reputation by demonstrating a commitment to global tax compliance amid the evolving remote work landscape.