A large number of companies send their employees abroad to gain experience, to help out at the company or group, or to provide services abroad through these employees. For the same reasons, many foreign employees work in the Czech Republic.

Depending on who manages the employee, who is in charge of his work and other parameters, there is a distinction in practice between international hiring-out of labour and cross-border provision of services. 

International hiring-out of labour

International hiring-out of labour is a situation, when a company hires employees from a provider residing abroad. The provider may be a classic labour agency, the aim of which is to achieve profit, but it can also be a company within the group, which does not profit from the hiring-out of the employee, but is led to it by other reasons (utilisation of the employee, the employee gaining new experience, participation in a specific foreign project etc.). Employees often relocate abroad for a longer period of time with their entire family.

Cross-border provision of services 

In the case of cross-border provision of services, there is a provision of services by a company (through an employee), which does not reside in the country, where it provides the service. The nature of the work activities of the employee abroad is temporary. In such a case, the employee usually does not transfer his social links etc. abroad. Although there are exceptions in this case, too, for example the provision of managerial services may be of longer-term nature.

Performance of activities abroad carries with it the necessity of resolving the effects on income taxes and social and health insurance payment.

Tax liability

The form and place of taxation of income from employment in case of international posting is influenced by a number of factors – the length of performance of activities abroad, the entity paying the income, the specific posting structure. The key is the determination of tax residency of the employee. Personal ties of the employee are also of great importance for determining tax residency. 

Very often, tax liabilities arise for the posted employee in several countries at the same time. In some cases, the income of an employee abroad is taxed through the payroll agenda from the first day of work, in other cases the employee needs to tax the income by submitting tax return and there are also cases, when there are no foreign tax effects. Every case needs to be assessed individually. The search for a tax solution needs to be based both on local legislations and on the respective double tax treaties, which are superior to local legislations.

Insurance 

The individual situation also influences participation of the employee in systems of Czech or foreign health insurance or social insurance. In this area, it is necessary to observe local regulations as well as decrees on social security coordination (within the EU), or bilateral treaties on social insurance concluded with countries outside the EU (if existing). 

According to EU regulation, the basic rule is that the employee is subject to the social security system (and health insurance) in one country only, usually in the country, where he performs his work. This is a fundamental difference from the tax effects. 

If want to find out more, we would like to invite you to a seminar entitled „Vysílání pracovníků do zahraniční a zaměstnávání cizinců v ČR z pohledu daní z příjmů a sociálního a zdravotního pojištění“ (“The posting of employees abroad and employment of foreigners in the Czech Republic from the perspective of income taxes and social and health insurance”), which takes place on June 9, 2016. The aim of the seminar is to summarise the basic issues of posting employees abroad or from abroad from the perspective of these areas, especially within the EU. You will find out here, what documentation needs to be prepared, when a shadow payroll agenda needs to be kept and how to face the payroll agenda of a posted employee, how to determine the applicability of the insurance system for a posted employee, when and how to arrange the A1 form and what it actually serves for, etc.  

The seminar is mainly intended for employees of human resources departments of companies, which post their workers internationally. You can apply for this seminar at the following website: http://www.fucik.cz/seminare-a-akce/vysilani-pracovniku-do-zahranicni-a-zamestnavani-cizincu-v-cr-z-pohledu-dani-z-prijmu-a-socialniho-a-zdravotniho-pojisteni/.

In case you are interested, we are available for individual consultation on this subject matter.