As the landscape of employment continues to evolve, with an increasing number of individuals working remotely across borders, it becomes imperative for businesses to understand and navigate the tax and social security obligations associated with such arrangements. Particularly, for Hungarian limited liability companies employing individuals residing abroad as teleworkers, several considerations come into play regarding VAT, social security contributions, and other related obligations.
Personal Income Tax Considerations
Determining personal income tax liabilities for remote workers residing abroad involves assessing their tax residency status and the location of their employment. The tax residency status can be established through obtaining a certificate of residence from the foreign tax authority. Based on the Double Taxation Convention applicable in countries such as France, Spain, and the United Arab Emirates, income earned by individuals is generally taxable in their country of residence or the place of work.
For instance, in the case of the Hungarian limited liability company employing individuals residing in France, Spain, and the United Arab Emirates, income earned for days worked in the respective countries would be subject to taxation therein. However, wages earned for days worked in Hungary would be taxable within Hungary. To fulfil tax reporting requirements, obtaining tax identification numbers for individuals is necessary.
Social Security Obligations
Under Regulation (EC) No 883/2004, the principle of the single State jurisdiction applies, whereby the right to be insured is established in the state where the gainful activity is pursued. However, certain exceptions may apply, as seen in the framework agreement on cross-border telework within the EU, allowing for derogation from the single State principle under specific conditions.
In the context of Spain, the insurance relationship is established therein due to the habitual nature of telework within the state of residence. Similarly, in France, individuals working remotely are subject to French social security obligations.
For individuals residing in the United Arab Emirates, where no social security convention exists with Hungary, the insurance relationship is deemed to be established in Hungary, given that the employer is a Hungarian company and the work is performed both in Hungary and in the United Arab Emirates. Thus, individuals in the UAE are required to obtain Hungarian tax identification numbers, register as insured persons, and fulfil social security contribution obligations accordingly.
Our take
Navigating tax and social security obligations for Hungarian employers with remote workers abroad necessitates a comprehensive understanding of international agreements, tax treaties, and relevant regulations. By ensuring compliance with the applicable laws and regulations in both the home country and the countries of residence of remote workers, businesses can effectively manage their obligations while fostering remote work arrangements in a globalized workforce landscape.