With the establishment of the right of free movement of persons in the European Union and the privilege of having the choice of working within different Member States within the European Union came also the question of where one employee’s contributions shall be paid. In 2012, the European Union, by realising the issue in hand, introduced the Social Security Regulations 883/2004, which were modernised by Regulations 987/2009 and 465/2012, which aimed to clarify and harmonise the Social Security Systems of the different Member States within the European Union (EU), the European Economic Community (EEA)and Switzerland.
The Regulations apply on employees or self-employed persons, family members and third country nationals who worked in one Member State and reside in a different Member State. The Regulations introduced the concept in which persons shall be subject to the legislation of merely one Member State at a time.
According to the provisions of the Regulations the following shall apply for persons working in one Member State and posted to a different one:
- Persons employed by an employer in a Member State, where he usually carries out his activities there, and is posted to another Member State, shall continue to be subject to the regulations of the Member State, in which he was employed, as long as his employment to the second Member State does not exceed 2 years and is not sent to replace another posted employee.
- A self-employed person shall be subject to the same treatment as above, as long as the duration of his activities to the second Member State does not exceed 2 years.
Cyprus Company, managed and controlled in Cyprus which carries its activities in Cyprus, has an employee who is posted to another Member State to work for no more than two years. In that case and if the posted employee has not been sent to replace another posted employee, the social insurances obligations for that employee shall continue to be paid to Cyprus, according to the provisions and the rates provided in the Republic of Cyprus. The same shall apply with self-employed persons.
In cases where a person is usually working in more than one Member State shall be subject to:
- The legislation of his residence if a substantial part of his activities are exercised in that Member State.
- If no substantial part of his activities is exercised in the Member State of his residence, then he shall be subject to:
-the legislation where the registered office or place of business of his employer is situated, in case he is employed by one employer; or
-the legislation where the registered office or place of business of his employers is situated, in case he is employed by more than one employer and their registered office or place of business is the same; or
-the legislation where the registered office or place of business of his employer is situated, in case he is employed by more than one employer and the registered office or place of business of one of the employer is the same as the Member State of his residence; or
-the legislation the Member State he is residing, in case he is employed by more than one employer and at least two of them have their registered office or place of business in different Member States other than the Member State he is residing in.
- A self-employed person shall be subject to the legislation of the Member State of his residence if a substantial part of his activities are exercised there.
- If no substantial part of his activities is exercised in the Member State of his residence, then he shall be subject to the legislation where the centre of interest of his activities is situated.
An employee is employed by a Cyprus Company and the substantial part of his activities is exercised in a MemberState other than the one of his residence. Then, the social insurance obligations of the employee shall be paid in Cyprus, where the registered office or place of business of the Cyprus Company (his only employer) is situated, according to the provisions and the rates provided in the Republic of Cyprus.
Employed persons or family members residing in a Member State but being insured in another Member State (competent State) shall receive the benefits in kind provided by the competent state from the institution of the place of residence.
In regards to unemployment benefits, the competent institution who makes the right to unemployment benefits conditional in any way, shall take into account periods of insurance, employment or self-employment completed in a different Member State. Unemployment benefits, which are calculated according to the amount of the previous income, shall take into account the income received of his last activity under the said legislation.
Among others, the Regulations on social security also provide for equal treatment and in particular:
- If under the legislation of the competent State, the receipt of any social security benefits has legal effects, then such provisions shall apply equally the same to the receipt of equivalent benefits under the legislation of another State;
- If under the legislation o the competent State legal effects are qualified subject to any effects or events, then that Member State shall take into account such events or effects occurring in a different Member state.
The European Regulations which effectively protect the social security rights come to reinforce the right to free movement of persons. They guarantee the social security rights and safeguard them in the case of movement within the European Community but they do not create in practice any new entitlements. The right to social security benefits is not lost and persons are protected from paying social security contributions to more than one country.
Social Security contributions throughout various Members of the European Union per month
*The rates specified in the above table are approximate for some countries as some countries do not have social security foundation and the contributions change according to the circumstances.
Eurofast Taxand, Cyprus
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