Brexit: A Very European Affair or Is It?

    

Brexit

In late December, the United Kingdom (UK) and the European Union (EU) finally reached a Brexit agreement. This agreement, called the EU-UK Trade and Cooperation Agreement (TCA), was approved on December 24, 2020 and is awaiting full ratification.

While at first glance Brexit could be considered just a European affair, it will impact mobility programs on a global scale in the form of policy and process changes, employee tracking, and cost management, which should not escape the attention of mobility leaders. In this article we will look at headline changes and what a mobility leader should consider as next steps.

Main considerations as of January 2021

Immigration

A key point for mobility programs is that, as of January 1, 2021, UK citizens are no longer automatically given the right to live and work in the EU. For this reason, it is critical to consult with an immigration attorney to confirm that proper immigration status and documentation is in place for the locations, employment duration, and work activities for mobile employees with UK citizenship.

Other key immigration changes include:

  • UK citizens who moved to an EU member state before December 31, 2020 can carry on living and working there but must register as a resident in the country where they live by June 30, 2021.
  • UK passport holders can spend up to 90 days in a series of short visits or one long visit in the Schengen zone during any 180-day period. This applies to all EU countries with the exception of the non-Schengen countries (i.e., Bulgaria, Croatia, Cyprus, and Romania), all of which allow unrestricted travel from the UK.
  • From 2022 (exact date to be confirmed), a visa waiver program for vacations and short stays will apply, similar to the ESTA permit currently required to visit the US. British nationals who have exceeded their 90 days will be able to apply for a visa to stay longer.
  • Two last points to note:
    • each EU country has the right to set its own entry terms
    • a person visiting an EU country may be required to have at least 6 months remaining on their passport, show a return ticket, and show they have monetary means to stay in the EU country

As reflected above, travel and immigration considerations are now much more complicated for Britons who live in the UK but spend time working in the EU.

Social Security

The main takeaway is that we now have clarity. The TCA largely replicates the legislation that was in place when the UK was part of the EU. This will make it easier to follow for mobility managers. However, there are some changes which include:

  • Pre-January 1, 2021 grandfathering applies (including applying for backdated A1s). Essentially this means that workers posted prior to January 1, 2021 will still be protected if they continue, without interruption, to be in the situation that they first entered into between the member state and the UK.
  • The agreement ensures individuals who move between the UK and the EU after January 1 will have access to reciprocal healthcare coverage (through the provisions of a Global Health Insurance Card) and ensures that cross-border workers and their employers are only liable to pay social security contributions in one state at a time.
  • Generally, an employee will pay social security taxes in the country where work is undertaken; however there are also provisions for coverage governing multi-state workers and detached workers (employees who are sent by their employer to work temporarily in another country) posted for up to 24 months.
  • According to the TCA, it should be possible to obtain a certificate confirming the country of liability for multi-state workers and detached workers, although in the latter case this is normally only possible where the EU member state has agreed to apply the “detached worker” rules. Countries that have signed up to the EU social security regulations detached worker rules can be found here.

Detached workers – EU (up to 24 months)

Starting January 1, 2021 onwards:

    • UK workers sent to work temporarily in an EU member state which has agreed to apply the “detached worker” rules will pay social security contributions in the UK for the period of work in that EU member state.
    • Similarly, an EU worker sent to work temporarily in the UK from an EU member state applying the “detached worker” rules will remain liable to only pay contributions in that EU member state.
    • These rules are aligned to the “detached worker” rules in the EU social security regulations covering postings up to 24 months, such that similar conditions must be met.

Detached workers – non-EU

    • The detached worker rules only cover EU member states. The previous EU social security regulations also covered Iceland, Liechtenstein, Norway, and Switzerland, but no longer. These will need to be checked separately.

Multi-state workers

    • The TCA also covers rules for multi-state workers, which are aligned to the existing rules for multi-state workers in the EU social security regulations. This clause does not cover Iceland, Liechtenstein, Norway, and Switzerland. These will need to be checked separately.

Other considerations

    • An exceptions clause is absent from the TCA, meaning that extending A1 certificates beyond 24 months for detached workers is not an option for new moves commencing from January 1, 2021.
  • The TCA mandates employer social security obligations in the same way as the current EU social security regulations. This means that for individuals covered by the TCA, both employee and employer contributions will be due, and the employer has an obligation to register with the relevant authorities and remit monthly employee and employer contributions according to domestic legislation.
  • EU Posted Worker Directive requirements remain unchanged.

Personal Income Tax

  • There are already income tax treaties between European countries, which have not changed due to Brexit. In considering the application of tax rules for mobile employees, the default starting point will continue to be each location’s domestic tax rules, with availability for any potential exemptions through treaty provisions then needing consideration.

Payroll

  • No change, with domestic payroll tax rules continuing to apply.

Equity

  • No immediate changes.

Health Insurance

  • European health insurance cards remain valid in the EU until they expire (they last for five years, with the expiration date noted on the front of the card).
  • However, a replacement insurance card is being developed called the global health insurance card (GHIC). Other than its development, there are few details for GHIC available at this time.
  • Travel insurance will be required.

Remote Workers

Traditional Secondments

  • Generally, movement between the UK and the EU will be covered under the Intra-Company Transfer arrangements and a work permit will be applied for where an individual is required to work longer than three months up to a maximum of three years in EU member states.
  • Managers, specialists, and trainees are also covered by the TCA, but there are different requirements with regards to the number of years of employment in the company, qualifications, and experience that these individuals have.

Business Travelers

A most welcome area of clarity has to do with business travelers, a complex area for companies. While the advice doesn’t truly solve the tax reporting requirements for business travelers, it does provide guidance to mobility managers who need to track and understand what activities their business travelers are doing to manage company risk and compliance.

Key business traveler changes include:

  • Short-term business visitors from the UK to the EU can enter visa-free for up to 90 days in any given six-month period provided that the business visitor does not do any of the following activities:
    • sell goods or supply services to the general public;
    • receive remuneration from within the country where they are staying temporarily; and
    • supply services in the framework of a contract concluded between a company not established in the Host country and a consumer there.
  • For immigration purposes, if the visit is not for longer than 90 days in any six-month period, a work permit is not required, and the presence won’t imply that there is an establishment of an entity. This applies for employees meeting all of the following conditions:
    • the employee is considered as working in a senior position in a company in the UK;
    • the employee would be setting up an entity in the EU and will not provide other services or engage in economic activity; and
    • the employee will not receive remuneration in the EU.
  • A full list of permitted activities can be found in the TCA.

Other

  • Pensions: Pensions can still be received in the EU. Guidance explaining the rights of UK nationals in the EU, the European Economic Area, or Switzerland for benefits and pensions can be found here.
  • Bank accounts: Some UK banks are closing their banking operations in EU countries and this will impact expats.

What does this mean and what are the actions for mobility leaders? 

There is no doubt that the TCA is welcome news on several fronts. First, a “hard Brexit” would have been significantly more difficult to manage from a compliance perspective. Second, the fact that the EU has created a list (albeit open to interpretation by the EU member states) of commonly permitted activities (with respect to business travelers without the need for a work permit) will also make it easier for mobility managers to know what compliance requirements are necessary. Finally, the rules provide more certainty on what is possible when doing business in the EU.

Mobility leaders will need to consider the robustness of their operations in the following areas:

Policy:

  • Do policies for business travelers and inter-company transfers meet the new TCA requirements?
  • Are HR business partners aware of these changes?        

Process:

  • Are internal approval processes aligned to the new requirements?
  • Have you assessed the impact on your operations of these new rules?
  • Will you be able to continue to deploy resources effectively and efficiently?
  • How will your existing processes manage your risk?
  • Are you meeting EU Posted Worker Directive requirements within the EU?

Tracking:

  • Do you know where your employees are located?
  • Have they acquired the correct documentation to be able to work in the EU?
  • Do you know what activities your employees are undertaking as business travelers?
  • Can your employees carry out their activities in their respective EU member state(s) and what are the implications?

Cost Management:

  • Have you considered all the additional costs associated with increased immigration requirements?
  • Have you explored the availability of cost-saving opportunities?
  • Have you addressed your social security compliance costs for mobile employees?
  • Have you thought about the timing and duration of your mobility types and the impact these will have on your business?
  • Have you considered the possibility of new mobility types to meet your strategic business needs—e.g., remote workers, virtual workers?

US and Canadian headquartered businesses with European operations will be impacted by these changes and will potentially need resources and support in meeting these new demands. Some companies have undertaken a risk assessment of their current state and compared this to their future needs to determine necessary changes to their policies and processes. Mobility specialists in the UK, EU, and North America (and globally) will soon be involved in managing these issues, focusing on cost and compliance. The prediction for the future: these new immigration, tax, and social security EU rules will be applied to any country wanting to send employees to work in the EU.

There is a significant amount of detail to consider, and it is ever-evolving, especially as EU member states consider their individual approach. Talk to GTN about how we can help you navigate the risks and identify opportunities in this ever-changing landscape.

Mobility tax specialists

Author David Livitt

 
David Livitt is National Practice Leader, Business Traveler Services at GTN. He has over 18 years of experience in the area of mobility tax working with multinational companies of all sizes, assisting them and their employees to navigate the complexities that come with global mobility programs. With a view to managing corporate and employee individual tax compliance, there has been a growing trend to assist companies with their short-term business traveler populations to develop global governance structures, policy design, process management, and technology enabled solutions. David has successfully led and implemented a number of such global business traveler projects. +1.646.915.3301 | dlivitt@gtn.com
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