Global mobility: postings from Hungary
The next part of our series of employee mobility newsletters will cover the most important labour, tax and social security information that a Hungarian company posting employees abroad should be aware of before the posting starts.
As we mentioned in our previous newsletter, in the life of every company there are events such as a business meeting abroad, a conference or a short study trip, which are typically trips of shorter duration. It is recommended to prepare an internal assignment policy on reimbursements and settlements related to these shorter trips, so the process is clear for both the employees and the employer.
On the other hand, more complicated and longer preparation is required if the employees travel abroad for a longer period of time within a given company group as part of a project (e.g.: learning how to use a new machine, joint development project, etc.) and do their work there. It is advisable to prepare for these postings in advance from a tax and social security perspective.
It is definitely recommended to draw up an assignment contract, in which the parties agree on relevant information in connection with the assignment:
- the planned time of the assignment,
- place of assignment,
- tasks during the assignment,
- reimbursement of expenses related to the assignment and its financing method,
- the specific conditions of each benefit (including their type and amount).
If the assignment takes place within the group of companies (and it is not a foreign project run by a client), it is worth concluding a tripartite contract and fixing the responsibilities in it.
It is also important to review the tax residency status before assignment, as the change in the place of work is within the employer's interests, so it is primarily the employer’s responsibility to clarify the tax rules affecting the employee, because an employee cannot be expected to be aware of the tax rules of another country. In addition, it is important for the employer to prepare for the level of tax burdens in terms of cost planning of the assignment.
The examination of the tax status of assigned employees is unique in each case, so it is definitely recommended to use the services of a tax specialist to define the correct taxation method.
During the determination of the tax residency, in addition to the double tax treaty in force between the countries involved, the personal circumstances of the assigned employee (e.g.: marital status, whether the family moves together, how often the employee visits home, etc.) must also be examined. Determining tax residency is a priority because it determines which country is entitled to tax the expatriate's worldwide income.
After determining the tax residency, the taxation of the specific income (mainly income from employment, but also investment income, income from real estate, etc.) of the assigned employee should be examined. There may be cases where the tax residency of an employee remains Hungarian, meaning that the taxation of interest income and income from investments remains unchanged, but the employment income becomes taxable in the country of assignment.
In many cases, the issue of the economic employer must also be examined, therefore the agreement related to the assignment between the members of the group of companies should be reviewed. Should the employee be entitled to various tax benefits, it is recommended to separately examine whether he/she remains entitled to them during the assignment period.
Before the assignment, the social security status must also be clarified. In case of assignment within the European Economic Community, an A1 certificate can be requested from the Hungarian Social Security Authority for 24 months. This certificate proves that the assigned workers are covered by the Hungarian social security system, therefore, if other conditions for employment are also met during the posting, social security contributions must still be paid in Hungary, and there is no obligation to pay them in the country of posting. If the assignment is extended, the certificate can be extended once for another 24 or 36 months. In the case of a third-country assignment, social security issues may require a more complex and unique solution.
In summary, it can be said that with informed planning and the involvement of an expert, any tax and social security risk related to cross-border work can be completely eliminated or significantly reduced. To this end, VGD Hungary renders a comprehensive service, including the involvement of our foreign partner firm members of Nexia, the global network of consultancy firms, which provide all the necessary support in understanding the provisions of national law and in completing the required administrative tasks.
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Should you have any questions regarding this newsletter,
the tax experts of VGD Hungary will be pleased to assist you.
This newsletter provides general information and does not constitute tax advice.
