COVID-19: Tax and social security consequences for expats
For individuals involved in cross-border activities – whether business travel, short-term or long-term assignments, or regular activities in multiple states – it is necessary to check whether the social security or tax situation will change if a greater proportion of activities are carried out from a home office.
This article, originally published on 18 March, was updated on 3 June 2020.
For cross-border working, the state in which the social security obligation is created is generally determined by European Union law, treaty law, and national regulations.
If employees work temporarily from a home office, and a social security obligation exists in another state (within the EU/EEA/Switzerland), which is not the state of residence, the social security obligation will change to the state of residence if the proportion of activities provided from the state of residence exceeds 25%. In all cases of changes to the previous cross-border employment model, it is important to check whether a reassessment of the social security situation is required under Union law, treaty law, or national regulations.
If international employee assignments are interrupted and employees are “brought back home”, and if the interruption is only temporary (up to 2 months), no significant interruption to the period of assignment would result when the assignment is resumed. It is important to make sure that the maximum assignment period of 24 months (including the interruption) is not exceeded. If the interruption lasts longer than 2 months, a new assignment period will begin when the assignment is resumed.
Important: Do A1 certificates still reflect the current (new) circumstances? Or do they need to be amended?
Potential simplifications by the authorities:
On consultation with the Austrian Ministry of Social Affairs (BMSGPK), we received the informal – and unpublished – advice that as a result of the current COVID-19 crisis, it will not be necessary to carry out a re-evaluation of the social security situation (with potential change of social insurance obligation to the other state), if the change in the employment model can be attributed to the precautionary measures (such as an increase in home office activities). Important note: This is only the view of the Austrian authorities. Clarification is required on how authorities in other states approach this situation.
Update (May 2020):
In the meantime, the Austrian Social Insurance authority has published information on its website about COVID-19 measures in connection with cross-border working. This information corresponds to the information provided to us by telephone at the beginning of the crisis by the Austrian Ministry for Social Affairs. In accordance with this, no re-assessment of social security allocation will be made due to changed working patterns in connection with the COVID-19 measures. The example is given of cross-border workers who temporarily work from home more frequently, or who temporarily only work from home, but who are subject to social security obligations in a state other than the state of residence (and have A1 certification). Also mentioned are so-called “multi-state workers”, who are temporarily unable to complete their activities, or can only do so on a limited basis. In such cases, no notification needs to be sent to the competent social insurance provider (e.g. ÖGK, SVS). If in doubt, we recommend consulting the social insurance provider. Furthermore, valid A1 certification must have already been obtained.
From the global PwC network, we understand that some other countries share this approach and will initially refrain from re-assessing social security allocations (e.g. Germany, Denmark, France). In the case of multi-state activities within the EU/EEA/Switzerland (so-called “multi-state workers”), a future twelve-month period is in any case decisive in accordance with coordination requirements under EU law, when determining in which state a social security obligation is created. If a social security obligation is determined by way of A1 certification, this A1 certificate is valid for the stated period and is binding. Only the social insurance provider is able to withdraw an A1 certificate that has already been issued, declare it invalid, or revoke it (e.g. in the case of changes in the declared circumstances). However, a change in circumstances of this kind is not given in the case of temporary changes due to COVID-19 measures.
In the case of ongoing international employee assignments, we still recommend making contact with the competent social insurance provider in order to extend A1 certificates to a total period of 2 years, or to notify the provider of a temporary interruption of more than 2 months, in order that a new assignment of a further max. 2 years can begin.
PwC Austria would be happy to provide support obtaining clarifications from the Austrian authorities or carrying out extensions/adjustments of A1 certificates.
Income tax / wage tax
Non-resident employers who permit/require employees in Austria to work from home, must also consider the new Austrian regulations, which entered into force from January 1, 2020. Under these regulations, employers are subject to mandatory reporting (e.g. submission of pay slips, maintaining a wage account) for employees with unlimited tax liability in Austria.
Early termination of an international employee assignment could also impact on the attribution of taxation rights between two states. This applies especially in the case of assignments which have been planned for a longer period. If families move to the state of assignment, the taxpayer’s centre of vital interests is generally deemed to have been moved abroad. Pay is then normally taxed in the state of assignment. If no other forms of income in Austria exist, there is no obligation to submit an income tax return in Austria.
If a family returns to Austria early due to COVID-19, this could lead to a change in the state of domicile and/or the domicile remaining in Austria, even if the expat in question remains in the state of assignment. In these cases, it generally advisable to evaluate the taxation rights for different forms of income based on the applicable double tax convention, in order to determine the exact effects of a change in domicile for compliance obligations in Austria and abroad.
Unplanned termination of an assignment before the end of an aggregate 183-day period could mean that income tax rights remain in the state of domicile. On the other hand, in the event that an employee contracts coronavirus, the employee may be prevented from leaving the state of assignment before the aggregate 183 days are exceeded. The aggregate days include travel days (days of arrival and departure), as well as any days of annual leave or sick leave spent in the state of assignment.
An exception exists if the 183 days are only exceeded if an illness – such as coronavirus – prevents departure. From the Austrian perspective, the right to tax remains with the state of domicile (Decree of Austrian Ministry of Finance of November 18, 1991, Auslegung der 183-Tage-Klausel in Doppelbesteuerungsabkommen; Fristenberechnung, GZ 04 0610/169-IV/4/91). It would need to be clarified whether the other treaty state shares this view.
Please note that the information provided here is based on the situation as of 20 March 2020. Frequent new announcements are expected. For the latest information, please consult our website www.pwc.at.