US/Czech Social Security

US / Czech Social Security Accord Ends Double-Taxation of Self-Employed, Extends coverage

NOTE: As the table indicates, a US worker employed in the Czech Republic can be covered by US Social Security only if he or she works for a US employer. A US employer includes a corporation organized under the laws of the United States or any state, a partnership if at least two thirds of the partners are US residents, a person who is a resident of the US or a trust if all the trustees are US residents. The term also includes a foreign affiliate of a US employer if the US employer has entered into an agreement with the Internal Revenue Service under section 3121(l) of the Internal Revenue Code to pay Social Security taxes for US citizens and residents employed by the affiliate.

Certificates for employees

Certificates for the self-employed
If you are self-employed, until the enactment of this treaty you needed to pay Social Security taxes to both the US and Czech systems. Now you can establish an exemption from one of the taxes. To do so, you must obtain a certificate of coverage from the program under which you are eligible and desiring to be covered. The information is nearly the same as that required of employees.

Effective date of coverage exemption
Each certificate of coverage bears the effective date of your exemption from paying Social Security taxes in the other country. This will usually be the date you began working in the other country, but no earlier than the effective date of the agreement. That means that payments made into the system before the grant of exemption will not be recoverable.

Certificates of coverage issued by one country should be retained by the employer in the second country in case of an audit by the tax service of the second country. Copies are not required to be provided in a return unless requested. Self-employed persons must attach a photocopy of the certificate to his or her tax return to the second country each year as proof of the exemption from the second country´s social insurance program. It is the responsibility of the employer and employee to present the certificate to the Czech authorities when requested to do so. To avoid complications, your employer (or the self-employed person) should request a certificate as early as possible, preferably before your work in the other country begins.

Action Steps
1. Employers and self-employed in cross-border circumstances need to evaluate whether they are eligible to obtain a certificate of coverage
2. File applications with the relevant authority to obtain certificates of coverage.
3. Evaluate any remediative steps to take from January until date of coverage.
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The comments in this article are not intended to constitute an opinion regarding any specific tax issues because additional tax issues may exist that could affect the tax treatment of the tax issues addressed in this memo.  This memorandum does not consider or reach a conclusion with respect to those additional issues and was not written and cannot be used for the purpose of avoiding penalties under law.
 
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