Social security tax register and payment abroad

[Arsenal88]

Hi guys,

I have been doing a lot of thinking on that, how could I reduce the measure of social security tax. If I create an offshore company, in that case, is there any way to register our employees from our domestic company to the new established offshore company (headquarters would be abroad, its branch would be here)? Of course, the employees would work physically here, not abroad. And would they be entitled to get the pension from the country where the offshore company works, and they are registered to?

Thanks for answering these questions!

 

[Tax Cow]

Unfortunately, a branch is classified as a PE. Your employees will be taxable according to local laws.

Depending on the country of HQ and place of work, their employment could be arranged into a "temporary assignment abroad" which will help move SS payable on salary to another country.

Where is the HQ, the branch and place of work?

 

[Arsenal88]

Hi,

First of all, I would like to thank you for your answer.

Our company categorized into small and medium-sized enterprises. We can call it a family company too. Our country is Hungary (which is an EU member state).

The current situation is the following: the industrial site, the HQ and the place of work are in the same settlement in Hungary. The branch (a shop) is located in another street.

What I deliberate: we create a new offshore company in Cyprus (this will be the new place of HQ), the branch will be in Hungary (where it is now), and the place of work stay here too.

 

[Tax Cow]

If you can employ your employees to first work in Cyprus HQ, and then send them on a "temporary mission in Hungary", you can move their social security contributions payable on salary from Hungary to Cyprus. But to cover a possible tax dispute, each of your employees should get a A1 (e101) certificate from Cyprus.

Pretty much every workforce lease agency in EU will convert their sub-contractors, no matter where they are from, into a worker from a country that has low payroll taxes.

The thing is that countries generally do want to issue A1 certificates, because it gives them rights to receive tax revenue. If for whatever reason your employees are not eligible, the officials will be glad to tell you what exactly would help change the situation. Some EU countries hand out A1 certificates as if they were adds to a strip club, free welcome drink included.

This will work for up to 2 years (as opposed to 5 years previously) according to new EU legislation. You can have an indefinite work contract, but after 2 years, the mission is no longer classified as "temporary" under EU-wide rules, and all payroll taxes are payable in Hungary. You can also just replace your employees every 2 years

 

[Tax Cow]

After having a look at tax rates, Hungary -> Cyprus migration does not make sense for you. Unless you have other incentives, it's too much hassle for too little gain.

PIT is lower in Hungary. The overall payroll tax difference is not as significant. It's worth looking into other options, but there aren't many good legit ones available.

Maybe some of your best employees can become shareholders, so you can do dividend split method? Pay them a small salary, but a sizable dividend. Dividends are exempt from SS contributions.

 

[Arsenal88]

Hi,

I got it. I did some research about the PIT rates because I was curious. Not only do not the PIT rates vary from country to country, but they also vary by annual incomes in every country. I calculated with our wages, and I noticed that our gross wages belong to the first brackets in Cyprus. In the US, this belongs to the second brackets. What do you think about it? Is it worth looking after it? Because, in this case, the difference would be significant. Our gross wages do not exceed 18000 € (I know, it is some kind of shame on us L). Here are the links below. What is your opinion about it?

Income tax

http://taxsummaries.pwc.com/ID/United-States-Individual-Taxes-on-personal-income

 

[Tax Cow]

You do have a bounty that makes it worthwhile then. Do it gracefully, and keep some employees (at least a quarter of your workforce) on Hungary payroll.

If all of a sudden every employee that works in your Hungarian office becomes a seconded employee from Cyprus HQ, there is a high risk of your local tax office getting involved. If they really want, they can find a reason to impose fines. Nobody likes to see their dairy cattle wander off to other pastures.

 

[Arsenal88]

Hi,

Thanks your help and I wish you all the best!

Bye