Getting these EU-wide statements right can be a challenge for even the most experienced HR managers. By Blair Curtis

Many expats on secondment to a European country choose to remain covered by their own social security system.

Crucial to ensuring the procedure is as smooth as possible is the E101 statement that enables EU and EEA nationals working abroad through an international company to do just that.

The purpose of the E101

E101 statements are in place to ensure that expatriates on secondment in another European country are eligible for social security payments from their home country, and to show the authorities in the new country of residence that they don't have to contribute to their national scheme.

Employees can choose if they want to remain covered in the country in which they live, or if they want to retain home cover.

Not surprisingly, many opt for their home country social security because they know what they're getting, which has added benefits for the company because it is easy to execute.

Those who are eligible to remain covered by their home social security are employees who have been seconded to The Netherlands, usually for one or two years (although it can be applicable for up to five) provided the conditions of their home social security treaty with The Netherlands are met.

The time period attached to the E101

Frederic Barge, of KPMG Amsterdam, says if an employee was working in one member state and was being seconded to another for no longer than 12 months, then by default the home country social security remained applicable.

"The home country can issue the E101 statement without having to get approval from the work state," said Barge.

"If the situation of 12 months needs to be extended due to unforeseen reasons then the E102 comes into effect. The home country needs to consult with the host country and an agreement needs to be reached."

Barge says that if the company knows up-front that the secondment will take longer than 12 months, then on the basis of Article 17 of the EU directive, the home and host countries, upon mutual agreement, can apply for up to five years on the E101 statement. Barge says there are some situations when an employee has work in two or more home member states, when the E101 could be applied.

"If an employee is working in Belgium, The Netherlands and Germany, but lives in Germany, then German social security becomes applicable," says Barge.

"This is applicable by default and is not limited in time and the home country issues the E101 - but it still has to be renewed annually.

"If a person is not performing in their home state then the social security of the work state becomes applicable."

E101 only for EC/EEA nationals

But only employees who have the nationality of one of the EC or EEA countries can obtain an E101 statement.

Huub Kapel, a tax lawyer for Dutch tax advisory group Accountants en belastingadviseurs Berk, said for the statement to be in effect, the expatriate must retain a formal link with the assigning company, and the overseas company must be represented in that country. This helps prevent the formation of 'shell companies' which take advantage of less costly social security systems in one European country, and enjoy low taxes in another, says Kapel.

Kapel says the E101 Statement is covered by Articles 13-17 of EU Regulations, and a recent court case resolved that the E101 statement is valid unless proved otherwise. But Dutch authorities will scrutinise the E101 statements of workers moving to The Netherlands, and if anything is amiss will question its validity.

"If you have an E101 statement, Dutch authorities will follow it," says Kapel.

"Don't lie - if it is granted the Dutch authorities can go back to the home country and question it," he says.

Kapel says that employers should be aware of the lifespan of the E101 statement, and if they want to continue an employees social security arrangement into another year they must reapply. Reapplying before the E101 statement expires ensures that potential problems with social security claims can be avoided.

Tricks and traps

The E101 statement can be quite formidable to the newcomer. There are a lot of questions, some that might not seem so useful, others that aimed to weed out unsuitable applications.

There are a few areas in the E101 statement to be closely considered.

Firstly, expats should be aware they must be insured in their home country before being seconded abroad to be eligible to remain covered by the home social security system.

Secondly, on lending, a situation where a company may send an expat abroad, then the overseas company sends the expat to a third company and asks for a fee, may also prohibit the granting of an E101 statement, or can make the already issued form invalid.

Double coverage, where an expat is covered by the social security system of more than one country, is in principle, not possible.

E101 forms can be obtained by the employer and employee with the competent institutions in the home country. Just ask your Ministry of Social Affairs who either issues the forms, or will be able to put you in touch with who does.