Since the start of the coronavirus pandemic, most of the companies have urged their employees to work from home in order to comply with social distancing measures. Some companies have even suggested that work from home might become ‘the new normal’ whilst work at the office might turn into an option.
Op-ed by Andreea Suciu, Managing Partner of Suciu | The Employment Law Firm
So if employees are getting bored with the same four walls, are they allowed to work remotely from another country? Although “Work from Anywhere” might become part of the retention policy of many companies in the near future, employers may want to clarify beforehand what additional legal and fiscal obligations might remote work from abroad trigger for the company and the remote worker.
- Legal implications
Immigration formalities in the host country
Romanian citizens can enter and remain in the territory of any EU / EEA / Swiss Confederation according to the right to free movement and residence granted in accordance with European provisions. If the employees’ stay extends for a period longer than 3 months, they will have to register their residence (to obtain a registration certificate) in the host country.
If an employee wishes to work in a non-EEA country, restrictions imposed by the host country (e.g. obtaining a visa, work permit and / or residence permit) will have to be taken into account.
In the context of the current pandemic, some states have implemented a simplified procedure for the stay and performance of remote work on their territory. Among the states that today facilitate the immigration process for this purpose are Barbados, Bermuda, Estonia, Georgia, Mexico, Germany and the Czech Republic.
Employees who work remotely abroad, even for short periods, may be subject to local regulations on working conditions and employment in the host country (for example, on maximum working hours and minimum rest periods, minimum duration of paid annual leave, minimum wage, etc.)
As regards the European Posting of Workers Directive (‘the Directive’), it was not designed to cover the situation of employees working remotely in another EU / EEA country. Thus, the Directive usually applies to employees temporarily seconded to another EU / EEA country (to a group company or to a customer) in the framework of the transnational provision of services. However, there are EU / EEA countries which expressly provide that the Directive, as implemented in that state, shall apply from day one to any employee temporarily working in that country (e.g. Belgium, France).
Health and safety
The employer has the duty to protect the health and safety of its employees regardless of where they work. Thus, in addition to the specific obligations regarding occupational health and safety regulated by Law 81/2018 on telework and by Law no. 319/2016 on Occupational Health and Safety, the employer must ensure that it complies with any local requirements of the host country.
In the context of the current pandemic, employers will also have to take into account the applicable travel restrictions (for example, quarantine periods) both in the host country and upon their return to Romania.
Remote work can also raise data security issues. Mobile devices, wireless networks and even accidental disclosure of data in public spaces can expose the employer to unwanted vulnerabilities. Thus, the employer must ensure that it has security policies and instructions in place to prevent data loss.
In addition, if the role of an employee involves the processing of personal data, this could give rise to data protection issues, especially if the employee intends to work from a non-EU/ EEA country which is not covered by the General Data Protection Regulation (GDPR) and other EU data privacy laws. Careful analysis of a possible transfer of data to the US is also recommended, in particular following the invalidation of the ‘Privacy Shield’ by the Court of Justice of the European Union, as it is no longer considered a valid mechanism for meeting the legal requirements of EU/ EEA when transferring personal data from the European Union to the United States.
- Fiscal and social security implications
As a rule, the host country has primary tax rights on the income that the employee earns while physically working in that country. However, if there is a double taxation treaty (DTT) between Romania and the host country, the employee may be exempt from income tax in the host country if certain conditions are met, including the fact that the employee is not a tax resident in the host country.
The tax residency status of the employee is determined in accordance with the DTT in consonance with personal circumstances and whether the number of days he/she is present in the host country over a period of 12 months exceeds 183 days.
In practice, this means that a short stay in the countries with which Romania has concluded a DTT, will not, as a rule, incur the payment of the employee’s income tax in the host country.
The general rule is that the social security obligations of the employee and the employer are born in the country where the employee physically performs his/ her duties.
In the European Economic Area (EEA) and Switzerland, there are currently exceptions to this general rule that allow a Romanian employee and their employer to continue to pay social security contributions in Romania and not to pay social security contributions in the host country, based on the A1 certificate. However, in order to obtain the A1 certificate and thus continue to pay social contributions in Romania, a number of conditions expressly regulated by European Regulation 883/2004 must be met.
Outside the EEA and Switzerland, the applicable treatment will depend on the existence of a mutual agreement between Romania and the host country. In countries where there is a mutual agreement, it is possible for an employee to remain in the Romanian system (and not to pay social security contributions in the host country) for a certain period of time.
In some cases, there will be a risk that the employee’s activities or presence in the host country create a permanent establishment for the employer in that country. This would be the case if, for example, the employee has a sales or business development role and usually exercises the authority to conclude contracts on behalf of the employer while in the host country.
Also, a permanent establishment must have a certain degree of permanence and the employer must be able to dispose of it, so that the place in question can be considered a permanent place of activity in which the business of the company is carried out in whole or in part. The mere fact that part of the business is carried out remotely in the host country should not automatically mean that a permanent establishment is established in that country.
Assuming that remote work in the host country will only take place for a short period of time, it would be difficult for the tax authorities in the host country to claim that a permanent establishment has been set up. On the contrary, the longer the period of remote work, the greater the risk of creating a permanent establishment.
If a permanent establishment is created, the profits attributable to it will be subject to corporate tax in that country.
Considering the issues presented above, we can conclude that it is advisable for the periods when employees work remotely abroad be as short as possible, whilst the countries where they work be limited to those that involve reduced formalities (preferably those in the EU/ EEA), so that the fiscal and legal risks are minimal.