The ZUS blues
These new changes to the Polish social security legislation brought on by EU accession have been covered profusely by the daily press, specialized publications and numerous conferences. This week's Tax Eye takes a selective look at the sea of information on the topic with the aim of presenting it in a more digestible form.
Having read the answers to questions (1) and (2), you should have a rough idea of whether you need to rush to the bank this week to pay ZUS, and getting through to (4) will practically make you an expert on the subject.
Who should be concerned?
According to EEC Regulation 1408/71 (which is now part of the Polish legal system), EU citizens are subject to the social security legislation in the EU member state where they work. So, if you are an EU national assigned to work in Poland by your EU employer, this regulation applies to you.
The Regulation also applies in the case of third country (non-EU) nationals working in the EU, for example in the case of a U.S. national employed in Poland by a UK company. Situations where a non-EU employer is involved are more difficult to resolve, although theoretically EU citizens employed, for instance, by a U.S. company to work in various EU countries are also covered by Regulation 1408/71.
Who is subject to Polish social security?
Another fundamental rule of European social security law is that EU citizens can be subject to the social security legislation of only one EU member state at a time. Therefore, Polish citizens employed by Polish employers to work in Poland can only benefit from Polish ZUS, although most, if given the choice, would opt for receipt of cash benefits under the Danish or the Finnish system. But then, who wouldn't?
The same unfortunately applies to all EU citizens, including Danes working in Poland. Under the general rules of EEC Regulation 1408/71, they would be covered by the Polish social security system. So, those Danes, Belgians, etc. who can live rather comfortably under the Spanish sun off of their home unemployment benefits should probably reconsider working in Poland, at least for the time being.
If you have nevertheless decided to start or to continue work in Poland, you may wonder what part of your income will be subject to social security. Under the current legislation, all of your employment income, regardless of where it is paid from (Poland or abroad), will attract Polish social security. Contributions are not due on other types of income you earn, such as director (board) fees, capital gains, dividends or rental income.
Who qualifies for an exemption?
The aforementioned EEC Regulation 1408/71 provides for exceptions to the general 'pay-where-you-work' rule. Thus, making contributions to the Polish social security system can be avoided, if:
1. Your employer assigns you to Poland for a period of less than 12 months;
2. Your employer assigns you to work in more than one EU country, e.g. in the new EU member states;
3. Your employer sends you to Poland on a longer-term assignment (normally not exceeding five years), upon bilateral approval.
Avoiding Polish contributions for EU nationals moving within the single European market normally implies payment of contributions in another EU member state where they reside or where their employer is seated.
For example, if you are a Dutch national living in the Netherlands who has been assigned to Poland for eight months from May 1, 2004 until December 31, 2004, you can remain covered by the Dutch social security system for the period of your Polish assignment, since it is less than 12 months. This means that you will continue to make Dutch social security contributions and will not, therefore, be required to pay Polish ZUS.
What are the reporting requirements?
Individuals who are covered by the social security system of another EU member state (see (a) through (c) above) need to have E101 forms issued by the competent authorities of that state certifying their coverage. The Polish ZUS Office is required to respect them and not seek to collect Polish social security from EU nationals working in Poland in possession of these certificates.
Where individuals do not qualify for social security coverage in another EU state, Polish social security kicks in. The compliance requirements include monthly payments of employer and employee social security contributions as well as the monthly filing of appropriate social security forms.
For instance, a UK employer would be required to register in Poland for social security purposes. This is preceded by a Polish tax registration, unless the company has already obtained an EU VAT number. Having registered, the UK company will have to remit the social security contributions to the ZUS Office on a monthly basis along with filing monthly ZUS forms, which - surprise - are only available in Polish.
Alternatively, the UK employer can avoid the registration process by transferring its payment and reporting obligations to the expatriate employee. Such transfer of obligations can only be legally affected by way of written contract between the UK employer and the employee concluded to this effect. It will then be the UK expatriate who will need to register for social security purposes and will be made responsible, on the basis of the above contract (which has to be filed with the ZUS Office) for calculating the contributions (the employer and the employee portion), filling in the ZUS forms and meeting the payment and filing deadlines.
If you are lucky enough to qualify for an exemption from ZUS, feel no anxiety over compliance with the Polish requirements. If it turns out that you have to pay and file ZUS forms, you or your employer may be better off hiring a local practiced guide to lead you through the labyrinth.
Donka Darpatova is a tax manager in the Warsaw office of Ernst & Young.
Having read the answers to questions (1) and (2), you should have a rough idea of whether you need to rush to the bank this week to pay ZUS, and getting through to (4) will practically make you an expert on the subject.
Who should be concerned?
According to EEC Regulation 1408/71 (which is now part of the Polish legal system), EU citizens are subject to the social security legislation in the EU member state where they work. So, if you are an EU national assigned to work in Poland by your EU employer, this regulation applies to you.
The Regulation also applies in the case of third country (non-EU) nationals working in the EU, for example in the case of a U.S. national employed in Poland by a UK company. Situations where a non-EU employer is involved are more difficult to resolve, although theoretically EU citizens employed, for instance, by a U.S. company to work in various EU countries are also covered by Regulation 1408/71.
Who is subject to Polish social security?
Another fundamental rule of European social security law is that EU citizens can be subject to the social security legislation of only one EU member state at a time. Therefore, Polish citizens employed by Polish employers to work in Poland can only benefit from Polish ZUS, although most, if given the choice, would opt for receipt of cash benefits under the Danish or the Finnish system. But then, who wouldn't?
The same unfortunately applies to all EU citizens, including Danes working in Poland. Under the general rules of EEC Regulation 1408/71, they would be covered by the Polish social security system. So, those Danes, Belgians, etc. who can live rather comfortably under the Spanish sun off of their home unemployment benefits should probably reconsider working in Poland, at least for the time being.
If you have nevertheless decided to start or to continue work in Poland, you may wonder what part of your income will be subject to social security. Under the current legislation, all of your employment income, regardless of where it is paid from (Poland or abroad), will attract Polish social security. Contributions are not due on other types of income you earn, such as director (board) fees, capital gains, dividends or rental income.
Who qualifies for an exemption?
The aforementioned EEC Regulation 1408/71 provides for exceptions to the general 'pay-where-you-work' rule. Thus, making contributions to the Polish social security system can be avoided, if:
1. Your employer assigns you to Poland for a period of less than 12 months;
2. Your employer assigns you to work in more than one EU country, e.g. in the new EU member states;
3. Your employer sends you to Poland on a longer-term assignment (normally not exceeding five years), upon bilateral approval.
Avoiding Polish contributions for EU nationals moving within the single European market normally implies payment of contributions in another EU member state where they reside or where their employer is seated.
For example, if you are a Dutch national living in the Netherlands who has been assigned to Poland for eight months from May 1, 2004 until December 31, 2004, you can remain covered by the Dutch social security system for the period of your Polish assignment, since it is less than 12 months. This means that you will continue to make Dutch social security contributions and will not, therefore, be required to pay Polish ZUS.
What are the reporting requirements?
Individuals who are covered by the social security system of another EU member state (see (a) through (c) above) need to have E101 forms issued by the competent authorities of that state certifying their coverage. The Polish ZUS Office is required to respect them and not seek to collect Polish social security from EU nationals working in Poland in possession of these certificates.
Where individuals do not qualify for social security coverage in another EU state, Polish social security kicks in. The compliance requirements include monthly payments of employer and employee social security contributions as well as the monthly filing of appropriate social security forms.
For instance, a UK employer would be required to register in Poland for social security purposes. This is preceded by a Polish tax registration, unless the company has already obtained an EU VAT number. Having registered, the UK company will have to remit the social security contributions to the ZUS Office on a monthly basis along with filing monthly ZUS forms, which - surprise - are only available in Polish.
Alternatively, the UK employer can avoid the registration process by transferring its payment and reporting obligations to the expatriate employee. Such transfer of obligations can only be legally affected by way of written contract between the UK employer and the employee concluded to this effect. It will then be the UK expatriate who will need to register for social security purposes and will be made responsible, on the basis of the above contract (which has to be filed with the ZUS Office) for calculating the contributions (the employer and the employee portion), filling in the ZUS forms and meeting the payment and filing deadlines.
If you are lucky enough to qualify for an exemption from ZUS, feel no anxiety over compliance with the Polish requirements. If it turns out that you have to pay and file ZUS forms, you or your employer may be better off hiring a local practiced guide to lead you through the labyrinth.
Donka Darpatova is a tax manager in the Warsaw office of Ernst & Young.
