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French Social Security Legislation

posted by Dan Armsden

Updated from 7 February 2018

 

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 & Amendments

The changes initiated by the decree came into force on 1 July 2017.

ENIM (the French social security department for seafarers) subsequently released a number of instructions (written statements) regarding their interpretation of the decree and application to all vessels, including yachts. Many questions remained unanswered and due to this uncertainty, a large number of yachts chose to leave French waters. This in turn had a damaging effect on French businesses and French seafarers.

Fortunately, after considerable pressure from professional yachting associations, on 2 May 2018 ENIM released an instruction which provides much greater clarity regarding the application of the decree to seafarers working on-board yachts. Details of this instruction can be found on ENIM's website or by clicking this link.

Who does it affect?

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

  1. French resident* seafarers (and their employers) working on non-EU/EEA flagged commercial and pleasure yachts.
  2. 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, and;

*One of the main issues affecting the yachting sector is the risk a seafarer is deemed a French resident by spending six (6) months or more in French territory during any twelve (12) month period 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.

Time spent working on an ‘immobilised’ yacht in French territory does not count towards any French residency test. Immobilised works includes time spent in a shipyard or port if the maintenance or repair work is serious enough to disable the use of 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 who can verify residency in France.

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 State 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).

Following the instruction from ENIM on the 2 May 2018, a seafarer may also make social security contributions to any other system which provides the same eight (of nine) social security branches as ENIM. The one branch not provided by ENIM being unemployment benefit.

Option 3: Private Systems

Private systems, often insurance products, are acceptable if they offer cover for the same eight (of nine) social security branches as ENIM.

The level of cover under each branch does not need to be equivalent or similar to the cover available through ENIM, there simply needs to be reasonable cover under each branch.

Option 4: 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 5: Manage your time in French Territory 

Seafarers who are not resident in France, may be able to manage the amount of time they spend in French territory to ensure it is never more than six months in any twelve month period.

It is important to remember that any time spent working on an immobilised yacht in French territory does not count towards this six month deemed resident test.

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.

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 similar changes may apply in other EU countries in the not too distant future.