New Agreement on the horizon

Hungary has recently entered into social security treaties with several countries in order to promote the movement of workers and settle insurance matters related to postings between countries. Following the agreements concluded with India and Australia, an agreement between Hungary and Japan on social security is next on the list, which was announced along with the promulgation of Act CLII of 2013.

The objective of agreements on social security is to harmonise the social security systems of the contracting parties, establishing an adequate framework for the economic players involved.  There is no need for members of the European Union to conclude such agreements, since EU legislation essentially provides for the right to free movement of persons and governs the matters arising from the movement between Member States. Agreements on social security are bilateral, which means only two contracting parties assume obligations and have reciprocal arrangements with each other.

In the absence of such conventions, the host country’s domestic legislation shall also apply regarding in which country the affected employees or persons posted are entitled to insurance, and to which states they are obliged to pay their social security contributions. In Hungary’s case, for example, persons posted from third countries shall fall under the law of the country they came from for two years after entering Hungary. The calculation of another two-year period is only permitted if at least three years have elapsed between two postings.

As a general rule, the agreement between Hungary and Japan on social security provides that the employee’s insurance obligations must fall into line with the legislation of the country in which the given person obtains their income. The agreement lists several cases that are excluded from the general rule, such as persons on postings, those employed aboard aeroplanes as well as members of diplomatic missions.

Pursuant to the agreement, employees posted by the contracting country’s employer fall under the legislation of their home state for five years, which may be prolonged for a further year based on the joint application of the employee and the employer. This rule, however, is only valid if the employee does not conclude any further agreements in the host country during the posting, or if they only do so with a domestic employer connected to the original employer.

Article 10 of the agreement permits exceptions deviating from the above rules with regard to specific persons (or certain groups of persons). This, however, requires a joint application submitted by the persons affected and the employers involved, which is assessed by the authorities of the competent state and the institutions designated by them.

A provision governing pension calculations states that periods of insurance completed under the legislation of the contracting countries may be added together if this is required for establishing old-age benefits and survivors’ pensions. This means that when the persons affected do not have a period of insurance sufficient for a pension entitlement in the given country, periods of insurance completed under the legislation of the other country may be taken into account. However, this is subject to the given terms of insurance not relating to the same period.

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