With the extension of Regulation No. 1408/71, non-EU nationals who live in a member state and work in another state can stay in their "home" state's social insurance system. Connie Smit of Loyens & Loeff explains.

In order to guarantee the free movement of employees within the EU/EEA, (EC) Regulation no. 1408/71 coordinates the applicable social security legislation.

The Regulation applies to employees, self-employed persons, civil servants, students, family members and survivors of all those "moving" within the EU/EEA as well as stateless persons and refugees.

The general rule is that those who are not nationals of an EU/EEA member state, referred to as third-country nationals, and who reside within the EU/EEA area, are not covered by this Regulation.

Pursuant to (EC) Regulation no. 1408/71, a Dutch employee (who works and resides in the Netherlands and has Dutch nationality) can – for instance, when sent to work in Germany – remain covered by Dutch social security.

To this purpose, a request for a "secondment certificate" containing the relevant facts can be submitted with the Sociale Verzekeringsbank (SVB – Social Insurance Bank). This statement is also referred to as an E 101-form. Do keep in mind that this form has no bearing on where income tax or wage tax are due. The Regulation covers only social security.

Due to the many nationals of third countries present in the EU/EEA (including the addition of 10 member states in May 2004) and the desire to improve their circumstances, the European Council has decided to extend the scope of (EC) Regulation no. 1408/71 and (EC) Regulation no. 574/72.

Not all third-country nationals eligible

This extension of the co-ordination rules contained in these two regulations has consequences for third-country nationals who, due to their nationality, were not covered by the scope of these regulations, as well as for family members and survivors, if they are legally residing in a member state and are in a situation in which the work activities do not (only) take place within this member state.

This means that (EC) Regulation no. 1408/71 will not apply to third-country nationals who merely have ties to one third country and one member state.

For instance, a third country national – say, a Canadian – is (legally) residing in the Netherlands for a longer period of time. He legally carries out his work solely in the Netherlands and not in another member state. (EC)

Regulation no. 1408/71 does not apply to his situation, nor will it after the extension. For the Regulation to apply there must be work carried out across borders.

With "legally residing" we mean that the person in question must either have a visa or a valid residence permit (Germany and Austria have additional rules regarding families), entitling him to either temporary or permanent residence.

In the Netherlands, the title of residence will be judged based on the rules given in the Aliens Act 2000 (Vreemdelingenwet).

The European Council points out that the application of the two regulations to the persons in question will not grant them the right the enter, stay or reside in any of the member states, or to work there. The Regulation only applies to situations in which the employee is legally permitted to carry out work across borders.

The extension entered into force on 1 June 2003.

Denmark does not participate in the regulation that has resulted in the extension.

Consequently, if a Canadian who is legally residing in the Netherlands were to be sent to Denmark to work, he would not be issued a secondment certificate (an E 101-form) by the Social Insurance Bank. In other words, during his period of work in Denmark, Dutch social insurances will not remain applicable.

Advantages and disadvantages for third-country nationals

There are advantages and disadvantages to the extension of (EC) Regulation no. 1408/71, allowing it to cover third-country nationals.

The advantage is that these nationals — as of 1 June 2003 — can make use of the Regulation and can therefore make use of the secondment conditions contained therein, allowing them to remain covered by the social insurance system of the member state they are being sent from when sent to work in another member state.

Consequently, they remain only covered by the social security system of one single (member) state.

The disadvantage of the extension is that employers may be faced with an insurance obligation in another member state, with the accompanying contribution payment obligation.

July 2003

Connie Smit is a tax adviser with Loyens & Loeff in Rotterdam.