Brexit effects on social security

In terms of social security, what happens with postings in the case of a disorderly Brexit?

Brexit effects on social security

At the end of our previous article in which we provided a comprehensive overview of the direct and indirect effects of Brexit on taxation, we mentioned a few key factors related to Brexit effects on social security. In this article, prompted by Bill No. T/4821 submitted by the government and approved by Parliament on 19 March, we look in detail at the Brexit effects on social security that are most likely to affect postings. This law provides for legislative changes in the event of a disorderly Brexit, thus mitigating the uncertainty related to social security obligations.

Source of uncertainty regarding Brexit effects on social security

The first and most important change regarding a disorderly Brexit effects on social security is that if the withdrawal agreement is not approved, then upon leaving the European Union the United Kingdom will become a third country in terms of social security issues with immediate effect, as the social union regulations will no longer be applicable.

No social security agreement has been reached between Hungary and the United Kingdom that – similarly to the Coordination Regulation (2004/883/EC) – would provide for applicable social security rules for the contracting countries, for example rules determining the social security (contribution payment) obligations related to postings between the two countries.

This raises the question of what procedure should be applied for postings starting after Brexit, and what social security rules should be followed if a posting has started before a disorderly Brexit takes place.

Postings starting after Brexit

Since the United Kingdom would be considered a third country if it is no longer an EU Member State, the so-called two-year rule governing postings and set out in Section 11 (2) a) of Act LXXX of 1997 on the Eligibility for Social Security Benefits and Private Pensions and the Funding for these Services would need to be applied.

Namely, social security would not cover employees and they would be exempted from the social security payment obligation if the following conditions are met:

  • the employer is not registered in Hungary,
  • the employee is employed in the territory of Hungary,
  • the employee classified as a foreign employee according to the Social Security Act is a citizen of a third country (e.g. the United Kingdom),
  • the duration of the posting or employment does not exceed two years,
  • three years have elapsed from the conclusion of the previous work performed in Hungary.

Pursuant to Section 5 (2) d) of Act LII of 2018 on Social Contribution Tax, foreign employers are not obliged to pay social contribution tax.

According to the law, when assessing the three-year condition for employment in Hungary, postings that started before the Brexit date should be ignored until 31 December 2020. 

Postings already in progress

Postings that started earlier, before Brexit, either in Hungary or the United Kingdom, should be regarded as postings until the date known as of the start date, but until no later than 31 December 2020. Consequently, until the above date British employers would be exempted from the obligation to pay social security contribution for postings in progress on the day of the Brexit.

The ultimate aim of the approved law is to reduce the uncertainty related to the social security effects of a disorderly Brexit. The amendment to the Hungarian regulation ensures the governing rules in accordance with the previously applied provisions on social security systems can still be applied – temporarily, until 31 December 2020 – even if the United Kingdom leaves without a deal.

If you would like more detailed information on how the Brexit effects on social security may affect your company, please get in touch with the tax experts at WTS Klient Hungary.

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