When considering taxation, let us assume the following:
A Pilot lives in the Netherlands (this is his country of residence) but the Pilot works in another country for an Employer (established in that country). Cross border situations are provided for by the tax treaty between the Netherlands (the country of residence) and country of employment. Such treaties determine which country has the right to collect tax; the country of residence or the country of employment.
Tax treaties are based on the OECD Model Tax Convention, which includes an article that applies specifically to Pilots who are listed separate from other employees. The Model Tax Convention assigns taxation rights to the country where the Employer’s business is established. However, the Netherlands has also negotiated treaties (with Luxembourg, France, Italy, the Uk and Spain among others) that deviate from the Model Tax Convention and assign taxation rights to the Pilot’s country of residence. Therefore it is important to examine the terms of the relevant treaty/ies carefully.
Needless to say, the country in which tax is payable can make a big difference to the amount of tax paid. An example would be in Spain, where pilots’ salaries are largely tax-exempt.
The tax treaty between the Netherlands and Germany is also worth mentioning in this respect. The two countries started negotiating a new tax treaty in the 1980s. The treaty that eventually entered into force on 1 January 2016 assigned the right to collect tax, on income earned by pilots, to the country of residence. However, Dutch pilots employed by large German airlines found this detrimental to their interests and so they sucessfully lobbied for the treaty to be amended for pilots. The treaty now assigns the taxation right to the country of employment; i.e. in this case Germany.
Firstly, it is important to tunderstand whether the work carried out within or outside of the European Union (‘EU’).
As an example, let’s assume that the work is carried out within the EU and the Crew Member is resident in the EU. We would then need to ascertain whether there is a social security treaty between the Crew Member’s country of residence and the country of employment. Since this is not always the case, the information that follows assumes that there is no such treaty. It also assumes that the Crew Member is not substantially employed in their country of residence and works for one employer.
Under certain conditions, Crew Members can be insured under the ‘old’ applicability rules established by European Regulations 1408/71 (adopted in 1971) up to ten years after the introduction of a new Regulation (see below). The Regulation adopted in 1971 made no specific provision for pilots. Under this Regulation, pilots are subject to the same rules as other employees. These rules can continue to apply until 28 June 2022.
European Regulations 883/2004 entered into force for EU countries on 1 May 2010. This Regulation contains a separate provision on social security rules for pilots. Under this newer Regulation, many pilots are now insured in the Member State in which the Employer’s business is established, irrespective of their country of residence.
On 1 April 2012 this Regulation became applicable in Switzerland and on 1 June 2012 it became applicable in Norway, Iceland and Liechtenstein.
On 28 June 2012, the applicability rules changed; from that date on pilots are subject to the social security laws of the Member State in which the Employer’s base is located. The Employer’s base is where the Pilot generally starts and ends a duty period – in other words, it is where the Pilot takes off and lands.
On this basis, when it comes to social security, the rules that apply in a particular case depend on when the pilot started working for their Employer, where they are resident, where they work and where the Employer is located. There have been several changes in the law and there are various transitional regulations that may apply so it is important to ascertain which social security legislation applies during the period in question.
If you have EU resident crew members and are carrying out flights in Europe please contact us directly to discuss social security contributions. We can assist with understanding the rules and making social security declarations and payments in the relevant EU Member States.
Based on the crew information and the employment contracts which we will hold on our records for each Crew Member, we will prepare, on a monthly basis, a payroll funding request which is then sent to the Aircraft Owner/Operator. The funds for which will be paid into a dedicated, Maltese established aircraft bank account, which is opened when they become a client.
Upon funds being received we will ensure that payment to each individual Crew Member is made in a timely manner and a payslip is distributed. Salaries will be paid via SWIFT transfer to each Crew Member’s personal bank account.
Leveraging our close banking relationships, we can also offer the option of crew salary payments being split between multiple bank accounts. The Crew Member may also opt to have a portion of their monthly salary loaded directly onto a multi-currency prepaid card, which we are able to offer with our partner, a leading London based e-money institute.
Through our e-money partner, a Crew Member may receive their contractual salary in an alternative currency at a commercial exchange rate, rather than standard high street rates, thereby reducing FX losses.
On a monthly basis we will invoice the Aircraft Owner/Operator for our administrative fees. To this end, we ensure that our fees and all salary payments remain separate so that there is complete visibility and control over costs.
Aviation crew payroll can be complicated. As an employer you need to know and understand: Where is the individual employee resident? What are the tax and social security rules in the employee’s country of residence? What are the rules in the country within which your business has been established? What forms and documentation need to be issued? Who do you contact within the relevant countries? Are Crew Members up to date with their medicals and training, and are their licenses still valid? How much leave are they entitled to?… as well as many more questions.
Sentient Pay can relieve you of this administration headache, leaving you with just a couple of tasks: to fund the salaries upon receipt of a payroll funding request and to pay our administration fes – we will deal with the paperwork, the crew HR matters and the payment of social security contributions. We will also ensure that all reporting requirements, any tax returns etc. that are required are prepared and submitted on your behalf and on time.
When it comes to pensions, the Regulation introduced the concept of the portability of rights. This means that if a person has worked for more than one year in two or more of any EU/EEA state or in Switzerland, then the Regulation requires each of these states to pay a rate of benefit proportional to the length of insurance periods in such states.
For example, if from a total of 40 years, a person spent 20 years working in Malta, 15 years in Italy and 5 years in the United Kingdom, then this person should get a pension of not less than 20/40 years of the theoretical amount from Malta, 15/40 from Italy and 5/20 from the UK. All these states will work out the full theoretical rate of pension as if the person worked the whole 40 years there.
Where an employee is resident in and pays Social Security in Malta, the employee will be entitled to a European Health Insurance Card (EHIC). If an employee resides in an EU Member State other than Malta, the employee may benefit in the same way via the issuance of an S1 form in their EU country of residence (upon presentation of the salary slips showing the contributions made). Those insured in Malta may also claim unemployment benefits in their country of residence, by making an online request.
The process of making social security contributions in Malta is a very simple one. A registration application must be made for each employee in order to obtain a social security number. With this number in place, monthly returns can then be submitted to the Social Security Department.
Contributions are calculated based on a percentage of the weekly salary, if the latter does not exceed the threshold of €438.54. Once the weekly salary goes over this threshold, a fixed sum of contributions is payable.
Given the typical salaries earned by crew members exceeding this threshold, contributions are likely to be capped at €46.53 both for the employer and employee, resulting in a total contribution of €93.06.
In addition, a small contribution of €1.37 per week is also mandatory for contributions to Malta’s maternity fund.
* Certificate of entitlement to healthcare if you don’t live in the country where you are insured.
** The U1 form certifies your periods of insurance and employment completed in an EU country, which will be taken into account for the award of unemployment benefits.
Based on the information and SEA/CoE’s held on our records for each Seafarer, we will prepare, on a monthly basis, a payroll funding request which is then sent to the respective Yacht Owner/Manager. The funds for which will be paid by them into a dedicated, Maltese established yacht bank account, opened when the Seafarer becomes a client.
Upon funds being received we will ensure that payment to the Seafarer is made in a timely manner and a payslip is distributed in accordance with MLC requirements. Salaries will be paid via SWIFT transfer to the Seafarer’s personal bank account.
Leveraging our close banking relationships, we can also offer the option of salary payments being split between multiple bank accounts. The Seafarer may also opt to have a portion of their monthly salary loaded directly onto a multi-currency prepaid card, which we are able to offer with our partner, a leading London based e-money institute.
Through our e-money partner, a Seafarer may receive their contractual salary in an alternative currency at a commercial exchange rate, rather than standard high street rates, thereby reducing FX losses.
On a monthly basis we will invoice the Yacht Owner/Manager for our administrative fees. To this end, we ensure that our fees and all salary payments remain separate so that there is complete visibility and control over costs.