Czech Republic-Japan Totalization Agreement in Practice

Czech Republic Japan Totalization Agreement in Practice

Czech Republic-Japan Totalization Agreement in Practice

Under the social security agreement concluded between the Czech Republic and Japan, which came into effect on 1 June 2009, an employee is subject to the social insurance system (social security and health insurance) of the contracting country where the work is performed.

There is an exception to this basic rule: Japanese employees sent by their Japanese employers to work in the Czech Republic can remain subject to the Japanese social insurance system, but only for a maximum period of five years from the date they are sent to the Czech Republic.

A J/CZ 101 form issued by the Japanese social security administration is submitted to the relevant Czech social security administration office by the Japanese employee as proof that he or she remains subject to the Japanese social insurance system. If Japanese employees submit the form, the Czech employer will not pay contributions for them to the Czech social insurance system.

If an employee sent from Japan is a managing director of a Czech company, a member of the company statutory body, or the head of a branch recorded in the Czech Commercial Register, the Czech Social Security Administration will not permit such exceptions. It will argue that this is not a case of an employee being sent to a Czech company and therefore a contribution to the Czech social insurance system must be made from the remuneration paid by a Czech company/branch.

KPMG Note

According to information obtained from the Czech Social Security Administration1, the Japanese side, on the basis of the agreement, has applied for a group exemption for approximately 470 Japanese employees with J/CZ 101 forms, who work in the Czech Republic as statutory representatives of a limited liability company, heads of branches, or members of statutory bodies, based on a mandate agreement or employment contracts.

The Czech Social Security Administration and the Centre for International Reimbursement representing Czech health insurance companies have allegedly not reached an agreement. The final decision will now have to be taken by the Ministry of Labour and Social Affairs and the Ministry of Health. If the ministries grant the exception, the Japanese employees listed in the group request will not have to pay social and health insurance contributions to the Czech insurance system.

The Japanese side allegedly referred to the Czech Social Security Administration with a request for similar treatment in relation to Japanese employees sent to the Czech Republic in the future. That would mean that the general exemption from the Czech insurance system would apply, pursuant to article 10 of the Agreement, for Japanese employees working in the Czech Republic as managing directors, heads of branches, or members of statutory bodies.

Source: KPMG

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