Pursuant to
Section 14 of the Labor Law (LL), posting of an employee shall mean the cases
where, in connection with the provision of international services, the employer
posts an employee to another state, if:
An employer who
posts an employee to perform work in another European Union (EU) Member State,
European Economic Area (EEA) State, irrespective of the law applicable to the
employment contract and employment relationships, has a duty to ensure for such
posted employee the fulfilment of employment provisions in compliance with the
laws and regulations of the respective state or collective agreements which
have been recognised as generally binding (Section 14
2 of the LL).
The employer has to make sure whether in the state where the employee is posted
other duties exist, for example, notifying state authorities of the posting.
SalarySalary and
mandatory elements of salary also shall be determined in line with the laws and
regulations or practice of the state where the employee is posted. Therefore,
the employer, before posting the employee to perform work to another state, has
to familiarise with the laws and regulations of employment effective in the
respective state, including regulations in regard to minimum salary
[1],
payment for overtime, vacation, etc. It should be clarified whether effective
collective agreement (for example, in the field of construction) exists that
regulates salary in entire industry. Moreover, this information should be
provided to the employee along with other essential posting information in
writing.
After assessment
of regulations of salary, it is important to assess the regulations of
application of income tax to the remuneration of employees. If the employee is
posted to a state with which Latvia has concluded the tax convention, the
provisions of tax convention concluded with the respective state should be
assessed.
The provisions
of applying income tax in regard to the remuneration of directors and similar
payments are provided in Article 16 of the Convention. The section stipulates
that to remuneration of specific positions income tax can be applied in the
other contracting state.
For example, if
the employee who performs the duties of director is posted to Norway, in line
with the tax convention, there can be a duty to pay income tax in Norway based
on the remuneration. Therefore, the laws and regulations of Norway should be
assessed. If, however, the employee in the same position is posted from a
Norwegian company to Latvia, income tax is applied to the remuneration in
Latvia regardless whether the employee would be actually in Latvia to perform
his/her duties or work would be performed remotely from Norway.
In other cases,
the conditions of applying income tax are stipulated in Article 15 of the
Convention. Pursuant to Article 15 of the Convention, income tax can be applied
in the other state (to which the employee is posted), if the work is performed
in the other state. Regardless of this condition, in line with the tax
convention, income tax will be applied to the remuneration for work performed
in other country in the first state, if all three conditions are met:
1) Receiver of the remuneration has been in the other state not more
than 183 days over any 12-month period;
2) The remuneration is paid by the employer or authorised
representative that is not a resident of the other state; and
3) The remuneration is not paid using the permanent representation or
permanent basis that the employer uses in the other state.
Travel
allowanceUpon posting an
employee to perform work in another European Union Member State or European
Economic Area State, the provisions regarding official trips, including
regarding reimbursement of expenses of an official trip, shall be applicable
accordingly, unless the Labour Law provides otherwise (Section 14
2
of the LL). The employer pays the posted employee daily allowance that amounts
to 30% of the maximum daily allowance provided in the laws and regulations
governing the compensations related to business trips.
If the
employment contract or collective agreement do not provide otherwise, the
employer is not obliged to pay daily allowance to the posted employee, if one
of the following applies:
- The employee is ensured
catering three times a day;
- The remuneration for work
payable to the employee equals the remuneration paid to comparable employee in
the state to which the employee is posted.
If the employer,
pursuant to the law, employment contract or collective agreement, pays daily
allowance to the employee, in any case it is considered compensation of
expenses rather than part of salary (Section 14
2 of the LL).
The amounts of
business trip daily allowances are stipulated in Cabinet Regulations
No. 969 “Procedures for Reimbursement of Expenses Relating to Official
Travels” dated 12 October 2010. If daily allowance is paid in line with the
limits stipulated in Cabinet Regulations No. 969, personal income tax and compulsory
state social security contributions are not payable. This is pursuant to
Article 4.1 of Cabinet Regulations No. 969 and Section 9 Paragraph One
Clause 16.1 of the Law On Personal Income Tax. However, if the amount of paid
daily allowance exceeds the limit, the difference is considered the benefit of
the employee and personal income tax and compulsory state social security
contributions are applicable.
Other expenses of the employeeIn addition to
salary and daily allowance, the duty of the employer stipulated in Section 76
of the Labour Law shall be considered, i. e., the employer has the
obligation to reimburse those expenses of an employee which, in conformity with
the provisions of the employment contract, are necessary for the performance of
work or have been incurred with the consent of the employer, especially
expenses related to the employee’s business trip. These expenses can include,
for example, travelling and accommodation expenses.
Based on the
above conditions, let’s view the following example.
Example: The
Norwegian company has a subsidiary in Latvia, SIA “A”. SIA “A” posts a
construction specialist to perform work at its parent company in Norway. SIA
“A” has concluded employment contract with the natural person and gross salary
provided in the contract is EUR 2,500. Travelling expenses and
accommodation expenses for the rent of apartment will be covered.
Based on the
available information
[2]
the minimum hourly rate of professional construction specialists in Norway
amounts to NOK 209.70 (or EUR 20.60 as at 9 March 2021). Assuming that the
employee would work 160 working hours per month, the minimum salary of the
employee should be EUR 3,296.
Consequently, as
in this case the employee is posted to work in Norway for three months, SIA “A”
will continue to pay salary to the employee, we assume that SIA “A” does not
have a permanent representation in Norway. Therefore, based on the provisions
of the tax convention, income tax applicable to the salary of the posted
employee shall be payable in Latvia.
In addition, the
employer has to pay 30% of EUR 65 that is the set limit of daily allowance
in Norway. Monthly expenses of the posted employee are summarized in the table
below, comparing expenses that SIA “A” might incur, if the employee is not
posted to Norway:
|
Expenses
of SIA “A”
|
|
Works in Latvia
|
Posted to Norway
|
Gross salary of the
employee
|
2,500
|
3,296
|
Compulsory state
social contributions
|
|
|
Employer’s part 23.59%
|
589.75
|
777.53
|
Employee’s part 10.50%
|
262.50
|
346.08
|
PIT 23% (salary register
has not been submitted)
|
522.50
|
688.86
|
Net salary
|
1,715.00
|
2,261.06
|
Daily allowance
|
0
|
585
|
Employer’s monthly expenses
|
3,089.75
|
4,658.53
|
If the employee
in the above situation would perform work in Norway for more than 183 days
over any 12-month period, SIA “A” might incur an obligation to pay salary taxes
in Norway.
[1]
https://www.eurofound.europa.eu/data/statutory-minimum-wages
[2]
https://www.arbeidstilsynet.no/en/working-conditions/pay-and-minimum-rates-of-pay/minimum-wage/?nav-veiviser=14897