Telecommuting and international mobility: what taxation applies?

The current pandemic has shaken up professional codes and habits. International telecommuting has become the norm, and everyone organizes their activity at home, trying to combine technical constraints and family obligations. However, the current situation has brought to the forefront social and fiscal issues, which were previously rather rare but have become relatively common in recent times, related to international telecommuting situations.

International mobility has grown considerably in recent years, and the pandemic has not delayed the phenomenon, especially in France. We are contacted every day by people who have come to live in France, but also to telework. As common as they may be, these situations actually raise many social and fiscal issues.

Telecommuting : I work in France, do I have to contribute in France?

Social security rules are territorial, which means that the employee depends on the social security system of the country in which he/she works.

Thus, a German employee who decides to come and live in France in order to work here, is in theory subject to the French social security system. It is sometimes possible to claim a temporary secondment, in which case the foreign employee working in France continues to be attached to the social security system of the country of origin. However, this possibility seems difficult to apply, especially when the employee decides to move to France, as foreign companies can only second their employees to France if they are in one of the following situations:

• The employee will provide a service in France for a client of the company
• The employee is going to work in a French-based entity of the group to which the company belongs
• The employee is going to work as a temporary employee for a user company in France
• The employee will work in France for the development of the foreign company’s activities in France.

Apart from these specific situations, it is not possible to apply the secondment procedure and the employee must be declared to the French social security authorities. The employer is also subject to the provisions of French labor law.

However, it should be noted that in the context of the pandemic and in order to overcome the difficulties of the containment measures still in force in some countries, the member states of the European Union have agreed to neutralize the effects of the change of workplace during the period. A temporary tolerance is thus granted, thus avoiding the sometimes complex procedures for employers.

Outside of this tolerance period, here is the procedure to be followed by an employer of an employee domiciled in France.

Telecommuting : What are the steps to be taken by the employer?

• Registration with social security organizations

First of all, the employer domiciled abroad must register with the various social organizations in France: social security organization (called URSSAF), pension organizations, provident fund, mutual health insurance, etc…

• Declaration of the employee

Once the company has been duly registered, it must declare the employee by means of a declaration entitled “DUE” (unique declaration of employment). Thanks to this declaration, the employee’s social rights are opened and he will be given a social identification number.

• Drawing up monthly pay slips and payment of social security contributions

The pay slips will have to be established in France, according to the legislation. Social security charges for employees represent approximately 22% of the gross salary, while employer’s charges are generally between 25 and 40% of the gross salary. Social charges are declared and paid each month through the “DSN” Nominative Social Declaration.

Tax consequences for the employee as well

An employee who lives permanently in France is generally considered to be domiciled in France for tax purposes, in accordance with the provisions of article 4B of the General Tax Code.

In the case of international mobility, the analysis of the bilateral tax treaty signed with the “source” country of the income remains essential. France has concluded such agreements with many countries (see list on the official website impots.gouv.fr) and their objective is to avoid “double taxation” situations.

Nevertheless, new work methods complicate the analysis of the taxation of salaried income. Indeed, international conventions, generally drafted under the OECD model, do not explicitly include telework in their drafting. However, an analysis of these conventions leads logically to the following conclusion: when the professional activity is carried out by teleworking, the corresponding remuneration is in principle taxable in the state where this activity is physically carried out.

For example, if a U.S. citizen moves to France with his family, while continuing to work remotely for a U.S.-based company, his compensation will be taxable in France.

In any case, any international mobility project must be analyzed by specialists in order to measure the social and tax impacts of these changes.