It is possible that the UK could leave the EU on 31 December with no deal in place. Employers with employees overseas need to consider the implications if a deal is not reached, given there is now limited time to put plans in place.
With the freedom to move around and work anywhere in the EU likely to end as a result of a no deal Brexit, there would be an immediate impact on workers overseas.
To continue working overseas, employees will need to ensure they are entitled to work under the local legislation of the country in question – this will typically require them to have dual nationality (so holding a passport from another EU member state) or obtaining legal residency through another route such as a temporary residence permit.
HM Revenue & Customs (HMRC) has provided a hub for advice on employees remaining overseas from 1 January that gives advice on a country by country basis: www.gov.uk/uk-nationals-living-eu.
The current rules that ensure employees only pay social security in one EU member state are enshrined in EU legislation and with a hard Brexit these will cease to apply from 1 January.
In many instances the UK does have reciprocal agreements with EU member states, albeit that these have not been used since EU legislation started to apply from the 1970s. As such, these agreements are quite old and not reflective of modern work patterns and so will not cover instances where employees work regularly in more than one country.
Existing A1 certificates will cease to apply from 1 January and a local social security liability is likely to apply unless separate agreement is sought. By example, the UK-France Social Security Agreement from 1970 only allows for employees to remain in their home country scheme for up to six months. Contrast this with the five years possible under current EU legislation.
Many EU countries have much higher social security contribution rates (eg France, Italy and Belgium) with employer rates exceeding 35% in some instances, so this could have a significant cost impact for some employers.
The social security rules also include benefits and access to medical treatment for employees working in another country. Employers should ensure that their employees will retain access to necessary medical treatment post-31 December, either through the social security system or private coverage.
Fortunately, the tax system is not driven by EU legislation but separate double tax treaties between the UK and EU member states. These agreements allocate taxing rights between countries and eliminate double taxation by ensuring that either only one country can tax employment income or, where both countries have taxing rights, that the country in which the employee lives will give relief for the tax paid in the country where you work.
While a worker’s entitlement to work overseas will be impacted and may require remedial action, the double tax treaties will remain unchanged as a result of Brexit.
Workers coming to the UK
The situation is similar to that for workers overseas and similar action plans should be considered for such employees.