The moment a company’s people start working in another European country, a set of obligations activates that has nothing to do with the company’s tax structure and everything to do with employment, social security and immigration law. A group that has carefully built its corporate and tax architecture, and then sends employees to work across borders without addressing these rules, has left a gap that surfaces as fines, back-contributions and, in the worst case, a taxable presence it never intended to create.
The posted worker rules
When an employer sends an employee to work temporarily in another member state, the posted worker rules apply, and they are protective of the host country’s labour standards. The posted worker is generally entitled to the host country’s core employment conditions, minimum pay, working time, holidays, and the employer must usually notify the host authorities before the posting and comply with local requirements. These rules are enforced, and enforcement has tightened, because they exist to prevent the undercutting of local labour through cheaper foreign postings.
Social security and the A1 certificate
Separately from tax and from employment law sits social security: which country’s social security system the worker remains in while abroad. The default is the country where work is performed, but a genuine temporary posting can keep the worker in the home-country system, evidenced by an A1 certificate obtained in advance. A worker abroad without an A1 is exposed to a claim for social contributions in the host country, and the certificate cannot be conjured retrospectively with the same ease it is obtained in advance.
The corporate structure and the payroll obligations are different problems. A group can get the first perfect and still be fined for the second, because the people crossed a border the structure did not.
When local payroll becomes unavoidable
A short, genuine posting can often be run from the home payroll with the right certificates. A longer or more permanent presence, an employee who relocates, a local hire, a team that becomes established, generally requires a local payroll, local withholding and local social contributions. The point at which a posting becomes a local employment is a judgement with real consequences, and getting it wrong in either direction, running local payroll unnecessarily or failing to run it when required, is costly.
The permanent establishment trap
The gravest risk is that people working in another country create a taxable presence for the company itself. An employee with authority to conclude contracts, or a fixed place of business, can constitute a permanent establishment, bringing the company within the host country’s corporate tax net for the profits attributable to that presence. This is the point where an employment question becomes a corporate tax question, and we deal with it in our note on permanent establishment. A group can create a permanent establishment through its people long before it intended to establish anything.
The 30 percent ruling and inbound talent
The flow runs the other way too. A company bringing talent into the Netherlands can, in defined circumstances, access the favourable regime for incoming employees, which we cover in our note on hiring your first employee in the Netherlands and the 30 percent ruling. Inbound and outbound mobility are two sides of the same discipline: people crossing borders carry obligations that have to be planned, not discovered.
Building it into the plan
The lesson is that workforce mobility is a structuring question in its own right, parallel to the corporate and tax structure rather than subordinate to it. A group expanding across Europe should map, in advance, where its people will work, under whose employment law, in whose social security system, and with what risk of creating a taxable presence. Done in advance it is administration; discovered later it is liability.
Montclare builds and operates European structures with the substance and documentation that these rules require. Our services are set out on our services page.
This article is informational and does not constitute tax or legal advice. Rules of this kind evolve and their application depends on the facts of each structure. Each engagement is subject to scope and applicable regulation.