The Recovery Package in the context of tax changes
Following the Government announcement on the Recovery Package, the related amendment to the tax regulations was published. Below we summarise a selection of the most important changes in this area.
Do you know what remote work is? Do different rules apply to remote work from the Czech Republic and from abroad? And what regulations apply to foreign employees carrying out remote work from the Czech Republic?
Thanks to COVID-19, we were able to try a new style of work, new “remote” team management, we verified that we can trust our employees, and we discovered the magic of new communication applications with video. Computer literacy of a wide range of employees (as well as employers) has increased significantly in just a few days. If the employer has set fixed working hours for work from home, e.g. for virtual meetings with the team, in combination with flexible working hours for daily work tasks, it turns out that teams can also work remotely without negatively affecting the efficiency of their work. In a number of cases, more frequent and regular contact with team leaders has even shown to improve communication and leads to increased employee engagement.
After a short summer’s reflection on whether to keep remote work in a limited form as a popular benefit, all of a sudden, we understood that remote work will remain the “new normal” so we cannot content ourselves with a short-term solution.
Many employers have realised that for long-term success, it is necessary to implement remote work in a structured way so that the new rules meet the requirements of the employer, employee’s ideas and labour regulations.
Some employers consider remote work as an integral part of the continued company’s operation, as they consider the introduction of this concept as an occasion for significant savings resulting from the use of smaller office space as well as lower costs of related services.
Our clients often ask what to do if employees have stayed abroad, because of government measures and/or for family reasons, and would like to work there. In this regard, it should be noted that in the case of foreign employees, processes and rules can (and often have to) be significantly more complex as it is necessary to consider whether foreign legislation will have to be applied to employees and employers. Given the long-standing situation with COVID-19, some countries have opened a debate on reducing the bureaucratic burden on employers concerning remote work. Nevertheless, few have agreed to the OECD’s recommendation to mitigate the tax impact of remote work carried out from another state.
So what is to be considered?
- HR strategy includes mainly the basic philosophy and business strategy, which aims for a high-performance team operating in a virtual environment.
- Define the basic roles, responsibilities, processes and tools, but also the basic communication rules necessary for the effectiveness of teams.
Technology, data protection, intellectual property protection
- You need to set up technologies and rules for their use by employees so that they cannot be misused.
And what not to forget?
Labour law documents
- These documents should reflect the possibility/necessity of remote working and define in detail the rights and obligations of both parties, i.e. employer and employee, to show that it is not a business trip with associated costs paid by the employer. It must also be taken into account that, even in the case of remote work, the employer is responsible for safety and health at work. In the case of work from abroad, the potential risk of application of local labour laws must also be taken into consideration.
- The employer should compensate the employee for the costs incurred in connection with remote work. In the case of an employee working abroad, it is also necessary to assess the application of the local legal regulations related to possible compensation.
Reporting obligation within the European Union
- Within the EU, an employer may be required to report employee’s work to local authorities under the so-called Posted Workers Directive (PWD).
Taxation of employee income, social security and health insurance
- In the case of remote work, it should also be considered to what tax system the employee will be subject to and which social security and health insurance system he/she will fall into, as in the event of non-compliance with legal procedures, employees and/or employers may be subject to substantial sanctions and unpleasant reputational risks.
Tax impacts on the employer
- Cross-border remote work can also have implications for corporate taxation, such as the risk of a permanent establishment or transfer pricing.
In the course of the exercise of the profession, we may encounter situations where a foreign employee will not be employed in a place that he/she has reported to the Czech authorities as part of his/her reporting obligation for whatever reason. In this situation, we should follow the recommendations, which we will divide according to the relationship with the Czech employer and according to the place of work.
1. Foreign employees from EU and non-EU countries employed by an employer in the Czech Republic and located in the Czech Republic
If the foreigner works outside the place of work agreed in the employment contract, it depends whether it is remote work, temporary assignment of an employee to another employer pursuant to Section 43a of the Labour Code, or posting on a business trip. We will discuss this issue in more detail in Place of work of a foreign employee.
2. Foreign employees from EU and non-EU countries employed by an employer outside the Czech Republic and located in the Czech Republic
Even in this case, we recommend informing the relevant Labour Office about the ongoing employment in the Czech Republic as part of the reporting obligation.
As an example, we can cite the current pandemic situation that will affect a German citizen in the Czech Republic and who, as part of cross-border measures, will not be able to return to his homeland and will start working remotely from the Czech Republic for his parent (German) employer – so the reporting obligation applies as well.
As mentioned in the preceding paragraphs, it is necessary to equip the parties of the employment relationship with adequate documentation where remote work will be stipulated in a contract, including the place of work.
In general, foreign employees can carry out remote work in the Czech Republic. However, it is always necessary to think about the obligations that are related to the Employment Act, in particular Section 87 of the above mentioned Act, and to verify whether the foreigner needs a special or regular residence permit.
Did you know that… from 1 January 2021, the British people assigned to the Czech Republic will newly need a work permit. What residence permits should UK citizens procure by the end of the year and what impact will Brexit have on social security and health insurance? We will bring the answers in the next edition of dReport.
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