News & Insight Open Menu

French Social Security Legislation

posted by Dan Armsden

Updated from 21 August 2017 & 15 September 2017

 

Background

In early 2017 a decree (Article L.5551-1) was introduced to close a gap in French social security legislation applicable to seafarers. This action came about following a dispute between French seafarers and a non-EU ferry company operating internationally between France and other countries.

The decree’s implementation will help to avoid a repeat of similar disputes in future, but the changes introduced have had a damaging effect on the yachting sector in France.

The Decree & Amendment

The changes initiated by the decree came into force on the 1st July 2017, with social security contribution calculations backdated to 1st January 2017.

ENIM published a news release on the 30th June 2017 which was welcomed by most of the yachting industry as pleasure yachts were excluded from the decree, unless they were voluntarily complying with the Maritime Labour Convention, 2006 (MLC). ENIM subsequently made an unexpected u-turn on this interpretation and issued a further news release on 12th September 2017 stating that pleasure yachts, as well as commercial yachts, are affected by the decree.

On the 27th October 2017 French parliament voted in favour of an amendment to Article L.5551-1 which came into force on 1st January 2018. Commercial and pleasure yachts will still be affected if specific triggers are met, but the amendment will allow seafarers to register with other systems which offer protection that is equivalent to, or greater than, that provided by the French system.

The amendment is a step forward, but the changes may not be significant enough to lure yachts back to France and subsequently restore trade to French maritime businesses.

Who does it affect?

With regards to the yachting sector, French social security legislation primarily affects:

  1. Seafarers (and their employers) working on non-EU/EEA flagged yachts operating commercially (including pleasure yachts engaged in trade) in French territorial waters that do not meet the 70% trip rule as applied under the French Commercial Exemption Rules.
  2. French resident seafarers (and their employers) working on non-EU/EEA flagged commercial and pleasure yachts.

One of the main issues affecting the yachting sector is the risk a seafarer is deemed a French resident by spending three consecutive months in French territory either on board or ashore. It is important to note the trigger is the amount of time the seafarer spends in French territory, not the yacht.

Examples of flags affected by the French legislation include:

  • The British Virgin Islands
  • The Cayman Islands
  • The Marshall Islands.

 

Who is not affected?

Seafarers working on yachts flagged in an EU country, Switzerland or a non-EU/EEA country with a reciprocal social security agreement with France are not affected by French social security legislation. In such cases the seafarers are subject to the social security legislation of the flag state of the yacht.

If a French seafarer is working on such a yacht and is not affiliated with a social security system, the French seafarer may choose to register with ENIM. The employer would then be compelled to register with ENIM or potentially face charges of “hidden employment” which can result in fines of up to €45,000, three years’ imprisonment and damages calculated on the basis of six months’ gross wages.

Examples of flags not affected by the French legislation include:

  • Malta
  • UK
  • Guernsey*
  • Jersey*
  • Isle of Man*
  • USA*

*These flags have reciprocal social security agreements with France. If the seafarers are adequately covered by the reciprocal social security legislation in place, they should not be affected by the French legislation.

What are your options?

Employers who employ seafarers subject to the French social security legislation have up to four options to consider.

Option 1: ENIM

ENIM, the French maritime social security body, has published indicative contribution rates which vary depending on the operation of the vessel and position held by the seafarer. In some cases, the combined contribution rates will be greater than 30% of gross wages.

This is the most compliant option under the French social security legislation. The system is open to all seafarers subject to the French legislation, irrespective of the seafarer's residency. Although it is a compliant option it is not a perfect solution. We have heard from non-French nationals residing in France and making contributions to ENIM who have experienced difficulties with obtaining medical care under the French national medical system. 

Option 2: Other Acceptable Systems

The seafarer may be entitled, through their nationality or residency, to make social security contributions to another EU system, or a non-EU system with a reciprocal social security agreement with France (click this link for a list of such countries).

From 1st January 2018, it will also be possible for seafarers to contribute to other systems that offer protection equivalent to, or greater than, that of the French system. We expect further clarification on this from the French authorities in due course, but understand the onus will be on the employer to ensure the protection is equivalent to that offered through the French system. This opens the door for all seafarers affected by the French social security legislation to contribute to their home system or a private insurance system if the cover is sufficient.

Option 3: Change of Flag

Changing flag to an EU country, or a country with a reciprocal social security agreement with France, may be an option to ensure French social security legislation does not apply directly to seafarers working on board. As mentioned previously, this may not remove any social security obligations, but opens up further affiliation options for the seafarers and employer.

The choice of flag is an important part of the structuring requirements for a yacht from a VAT perspective. One such example is Temporary Admission (TA) where qualifying non-VAT paid yachts can spend up to 18 months in the EU. TA is only applicable to pleasure yachts flying a non-EU flag and therefore a switch to an EU flag would not be possible as it would trigger a VAT liability for the owner.

Option 4: Manage your time in French Territory  

Seafarers at risk of being deemed French resident could, in theory, leave French territory before the end of each three-month period, stay overnight in another country, then return and reset the three-month clock. How this would stand up to challenge by the French authorities is open to debate.

What Next?

We understand the French authorities are unlikely to carry out targeted social security inspections on yachts, partly due to limited resources, but also due to much of the legislation already being in place for a number of years without triggering such inspections. The main risk for employers is not affiliating their French resident seafarers with a suitable system which offers protection that is equivalent to, or greater than, that provided by the French system.

It should be noted that this legislation is driven by the International Labour Organisation (ILO) and was introduced in France due to a legal dispute between seafarers and the operator of a passenger ship in northern France.

We expect Italy, Spain and other EU countries to introduce similar legislation in the next few years. So while this article is focused on the current situation in France, it should be expected that the same may apply in other EU countries in the not too distant future.