On 1 July 2017, the new French Social Security laws will be implemented. This will impact yacht crew who spend over 183 days within a 365-day period in France, as long as they are not already paying social security to any European Economic Area (EEA) state or any state that has a bilateral social security treaty with France. (While the USA and Canada do hold a bilateral social security treaty with France, it is worth noting that Australia and New Zealand do not.)
As such, below is a short and succinct summary of the social security requirements in some of the most popular employment origins of superyacht crew.
Taxes under the Federal Insurance Contributions Act (FICA) are split into two contributions. The first, social security, is paid as a percentage of earnings up to $127,200 for 2017 income (this figure changes each year). The current percentages for social security are 6.2 per cent paid by both the employer and the employee, or 12.4 per cent paid by self-employed individuals. The second, Medicare tax, is paid at a rate of 1.45 per cent by both the employer and the employee, or 2.9 per cent paid by self-employed individuals. However, once an individual reaches earnings of $200,000, the employer is responsible for withholding an Additional Medicare Tax of 0.9 per cent. In the case of a married couple filing jointly, the Additional Medicare Tax is owed after a cumulative earning of $250,000 or $125,000 if filing separately; for self-employed individuals the Additional Medicare Tax is also 0.9 per cent.
The US has entered into totalisation agreements with several countries in order to avoid double taxation of income (in respect to social security taxes). This means that when a US citizen or resident is working in one of these countries, they may be given ‘credit’ towards their future US social security payments for the amounts they contributed to the other countries’ systems. However, if they work in a country not entered into a totalisation agreement with the US and they are not eligible for Foreign Earned Income Exclusion, they will likely owe FICA taxes on any income
Under Australia’s superannuation system, employers have to contribute 9.5 per cent of wages (with plans to increase the contributions gradually up to 12 per cent between 2021 and 2025) into the employee’s chosen superannuation fund. Employees may then voluntarily contribute further to their fund, with possible tax benefits for doing so.
A non-resident may contribute to a superannuation fund at 15 per cent income as long as they have a Tax File Number (TFN) – without a quoted TFN they will be taxed at 49 per cent.
KiwiSaver takes a minimum 3 per cent of gross income from employees, with employers contributing the same amount on top. If the employee is a resident of New Zealand, the government will make additional contributions to the account. After 12 months of contributions, an employee may choose to take a ‘contribution holiday’, lasting up to 5 years, which exempts them from contributions for the duration of the ‘holiday’. During this time employers are not required to make compulsory contributions, but employees may still choose to make voluntary contributions.
In regards to National Insurance (NI), crew will first need to identify whether you are liable to pay class 1 NI. HMRC’s Mariner’s National Insurance questionnaire is used to determine whether you should be paying class 1 or if you are entitled to pay class 2 (at the reduced rate). You are liable for class 1 NI if either of the following apply to you: you work for or are paid by a company based in the UK; you work on a vessel registered in the UK or the Isle of Man, for an employer based in the EEA or in a country that has a reciprocal agreement with the UK.
If you are not liable to pay class 1 NI, there are two possible voluntary classes that you may be eligible to pay: class 2, under Mariners’ contributions, which is £2.80 per week, or class 3, at the higher rate of £14.10 per week. Both of these allow you benefits such as access to the National Health Service and State Pension.
However, there are provisions within the new decree, which allow for seafarers to opt out of making contributions in France providing this is implemented before the 1st July. These exemptions are based on whether the seafarer is already making contributions to another country’s social security agency. The decree highlights the following territories and countries as qualifying for such an exemption: EU, EEA, Switzerland and countries with which France has a bilateral social security agreement. Australia and New Zealand do not have a bi-lateral agreement with France. (The information in this paragraph has been provided by John Cook of Lesia Employment Services ICC Limited.)
Some Australian and New Zealand seafarers may have dual nationality with the UK, which may give them the right to make social security contributions. Such a right will only be granted where there is a connection to the UK such as ‘domicile of origin’ as published by HMRC. At this moment in time, ENIM, the French social security agency for seafarers, is yet to complete its ‘implementation’ meetings, where they will decide on exactly how to operate the decree, so there may well be further clarification on contributions made to countries that are not on the list published in the decree.
Any advice in this publication is not intended or written by Marine Accounts to be used by a client or entity for the purpose of (i) avoiding penalties that may be imposed on any taxpayer or (ii) promoting, marketing or recommending to another party matters herein.