Simplifying rules for payment of insurance premiums for cross-border workers at home offices
To avoid discrimination against cross-border workers, the European Commission has introduced a framework agreement that allows working from home (teleworking) from abroad to a larger extent without employers having to register and pay insurance premiums abroad, i.e., in their employees' state of residence. The Czech Republic was one of the first member states to sign the agreement.
As the place of the physical performance of work is often the decisive criterion for determining the applicable social security legislation, teleworking (working from home) from abroad can lead to a change in one’s social security jurisdiction. This has an impact not only on employees but also on their employers. Under the basic coordination rules for employees working in several member states, the extent to which they work from their place of residence is decisive: if they carry out at least 25% of their activities (in terms of working hours or remuneration) in their country of residence, they are subject to the social security system of their country of residence.
The framework agreement increases this limit to up to 49.9% of the working hours and provides for a simplified exemption procedure whereby requests for exemptions will be approved automatically without the consent of the other member state if prescribed conditions are met.
The framework agreement will apply as early as 1 July 2023 when the no-impact policy introduced in connection with the COVID-19 pandemic expires. At the same time, this new framework agreement will replace the bilateral agreements concluded between the Czech Republic and Austria/Germany, discussed in the April issue of Tax and Legal Update.
To qualify for an exemption under the framework agreement, the following conditions will have to be met:
- the employee carries out telework (usually from home) in the country of residence different from the member state in which the employer has its registered office
- the type of work carried out from home and using information technology is the same as if it were carried out at the employer's registered office
- the work of the employee is not carried out in any member state other than that of their residence and that of the employer's registered office
- the employee works more than 50% of their working hours in the country of their employer’s registered office (while spending no more than 49.9% of working hours in the country of their residence)
- the employee has an employer (one or more) in only one member state
- the employee and the employer jointly apply for a special exemption under the framework agreement
- both the country of residence and the country of the employer’s registered office have signed the framework agreement.
On the closing date of this issue of Tax and Legal Update, the framework agreement had been signed by the following states:
- Belgium
- Czech Republic
- Finland
- Liechtenstein
- Luxembourg
- Germany
- Netherlands
- Norway
- Portugal
- Austria
- Slovakia
- Switzerland.
A complete and regularly updated list of states that have acceded to the framework agreement can be found on the website of the Belgian Social Administration, the depository of the signed agreements.
As member states may accede to the agreement subsequently (i.e., after 1 July 2023), we recommend that you always check the current list of member states when dealing with a specific case.
The framework agreement does not apply to manual work or self-employed persons.
The framework agreement will not be applicable in situations where the employee performs manual labour, works in several member states (or third countries outside the EU/EEA), is self-employed, or works from a branch of their employer or business partner/client in the country of residence. In such situations, an individual exemption may be requested under Article 16(1) of Regulation (EC), the granting of which is subject to approval by the institutions of the states concerned.
An exemption under the framework agreement may be requested for up to three subsequent years, even repeatedly. Retroactivity will only be possible under certain conditions. The application is submitted in the state where the employee wants to be insured (i.e., in the state of the employer's registered office).
If no request for exemption is filed, the employee's applicable social security legislation will be determined in accordance with the EU basic coordination rules. However, employees working in two or more countries (including cross-border teleworking) should not forget their notification obligation to the social security institution in their country of residence. Also, the tax implications for both employee and employer in the employee's country of residence where the activity is carried out should not be neglected.