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Social Costs & Benefits For the Self-Employed Expat
If you do secure a normal paid job, and assuming you’re working legally, your employer should deal with all formalities regarding the payment of your social dues.
Your benefits, if needed, should come more or less automatically.
Getting a job though in any non-English speaking country is by definition going to be tricky. Unless one is fluent, or at least passable, in the local language then the obstacles are severe. In tough times when jobs are scarce, many local employers will not have the time to coach someone who can’t speak their language so they’ll naturally tend to give priority to local applicants.
That’s why a large percentage of expats end up starting businesses and working for themselves on a self-employed basis.
That’s great and many people dream of being their own boss, but the complexity of tax and social payment systems can be a nightmare. This short article cannot hope to explore all the expat issues covering every country but it may be useful to examine a situation in a little detail using France as a general example. Although this information is specific to a single country, the broad principles will apply to many EU destinations, and for the sake of simplicity we will include health cover in the term ‘social benefits’.
The first thing you need to do is ‘forget’ everything you think you know about being self-employed based on previous UK experience. To consider some general issues:
1. You can’t just ‘start-up’ a business to see how it goes and if you like it. Technically that’s illegal and yes, that law is enforced. If you engage in any commercial activity, however trivial by UK standards, you must formally register your business beforehand. This is not expensive and can be done for you by your local chamber of commerce.
2. You can’t just decide you’re going to open say a plumber’s business or anything else that takes your fancy. In France as in many countries, some business registrations for things such as trades and certain professions mean you must have a formal and locally recognised qualification. The chamber of commerce will advise.
3. Get a good local accountant. Do note that in France and some other countries the accountant, unlike the UK, functions not as your business partner but instead as someone rather more mechanical who checks your books and certifies to the authorities that ‘these are the figures’. This is a HUGE difference to the UK and you should not make the mistake of assuming that your accountant will think-through and deal with all the issues to do with social security payments for you.
4. As part of steps 1 & 2 above, the social security authorities will suddenly see you spring into existence. You will probably need to make the effort to find out yourself what’s involved in making social payments and what benefits you may be entitled to. Your local chamber of commerce will help, your accountant MAY help, but be prepared to do a fair bit of work yourself here by contacting your local office of RSI (Régime Social des Independents).
RSI is similar to the UK DSS in that they are responsible for getting social payments (‘cotisations socials’ in French – similar to NI payments in the UK) and paying some social benefits when needed. They will advise you how much you’re going to need to pay and when and what benefits you are entitled to for that.
The good news is that social benefits in France are widely accepted as being superior to those in the UK.
The health service is considered to be the best in the world, pensions are much higher as are maternity advantages, and many other forms of benefits and grants are way ahead of UK norms.
The downside and bad news here is that all these things have to be paid for and as a result French social contributions are massively higher than those in the UK.
As a self-employed person you will have to pay each month or quarter, some VERY large amounts for things such as your health cover and pension contributions to the state. These payments are mandatory. You can’t ‘opt out’ or find a cheaper private solution. As a very rough guide, you can expect to pay around 40% of your net profits – it is a chunky amount!
Although the system has changed in 2008, it is still generally the case that an expat arriving in France, and who is below retirement age, normally will have one of 2-3 different ‘E’ forms that will allow them to receive health treatment free-of-charge. Eventually the French authorities will re-charge any costs for treatment back to the UK.
This system normally lasts for around 2 years, after which time the UK and French authorities will assume you’re making your own arrangements via the French system.
As a self-employed person paying RSI contributions each month, you’ll receive the ‘Carte Vitale’ - which is a health and benefits cover card for you and your family. This means RSI will pay up to 70% of your health costs. The remaining 30% is paid back to you via private ‘top-up’ health insurance that almost everyone in France has, and yes, the cost of this insurance is paid by you monthly and is additional to the 40%. Currently a good family policy will cost around 1200euros or say 1000pounds per annum.
Once you’re paying into the system, you and your family’s needs for health and other benefits will be covered – at least for the most part as cover for some things such as glasses and dental costs are limited.
You will be eligible for a state pension at retirement age providing you have made sufficient contributions over several years. You will be eligible also for most other state benefits but a word of caution for self-employed people – your rights to unemployment benefit are limited or non-existent as RSI payments do not include unemployment cover.
Most child benefits are in fact paid separately and automatically and are not related to RSI payments.
So, at this stage you’re in the local system and eligible for most social benefits and are the proud possessor of a French social security number. It’s easy and helps you feel integrated into local life and a little more secure.
Due to the high cost of the social contributions outlined above, some British expats think they can be ‘smart’ and save money. They live in France yet get ongoing French health cover benefits through an ‘E’ form issued by the UK DSS. They may obtain their income from the UK and France, the UK only, or in some cases all from France.
They obtain their ‘E’ form by claiming that they are ‘normally resident’ in the UK and their French address is only their temporary or perhaps just a ‘family’ residence. They thereby operate as a British registered company and continue to pay British lower-cost NI contributions in the UK sometimes even via a dummy company.
It is necessary to say a few words about this because it is not uncommon – but it certainly is risky!
European law is clear on this point – people pay taxes and mandatory social contributions based upon their place of normal residence. So if you live in France, and are not retired, under normal circumstances you must pay taxes and contributions in France at French rates even if you obtain your income from the UK.
It is a fact that the UK DSS in conjunction with other EU authorities is now clamping down on abuses of the system including the fraudulent use of UK addresses as ‘place of normal residence’. In France and other countries, the penalties for falsely declaring your normal place of residence to avoid tax and social payments are severe.
There are of course some special cases such as overseas offices of UK companies, or workers who do not have a recognised country of domicile, but these are rare and complicated situations – they cannot easily be applied to ordinary self-employed people living in France even if obtaining their income via distance working in the UK.
Rather than thinking of the risks, it may be preferable to think instead about integration. If you’re determined to make a success of life in your new country, and ensure that you can access their care and social services without difficulties when needed, then you will need to integrate and pay into their systems.
In the long run it will be in your interest and that of your family.
Expat Health Insurance Partners
At Bupa we have been helping individuals and families live longer, healthier, happier lives for over 60 years. We are trusted by expats in 190 different countries and have links with healthcare organisations throughout the world. So whether you're moving abroad for a change of career or a change of scene, with our international private health insurance you will always be in safe hands.
Cigna has worked in international health insurance for more than 30 years. Today, Cigna has over 71 million customer relationships around the world. Looking after them is an international workforce of 31,000 people, plus a network of over 1 million hospitals, physicians, clinics and health and wellness specialists worldwide, meaning you have easy access to treatment.