What will change for teleworking cross-border workers after the Covid crisis?
Due to the Covid pandemic, many employees worked from home in 2020 and 2021. Teleworking is expected to stay popular in the future as well. This may require employers to adapt their payroll and administrative processes to accommodate teleworking employees who live abroad. We are happy to offer advice.
Home working agreements
To alleviate the effects of the Covid crisis, Belgium has concluded cross-border teleworking agreements with France, the Netherlands, Germany and Luxembourg. Under these agreements, time spent teleworking in an employee’s country of residence due to the Covid crisis is treated as fictitiously taking place in the original State of employment for both social security and tax purposes. In other words, working from home due to Covid has no tax or social security implications.
The social security agreements will remain in force until 30 June 2022. While the current tax agreements end on 31 March 2022, four countries have already agreed to extend these until 30 June 2022. The extension agreement concluded with Germany on 22 March 2022 states explicitly that this is the final extension. This means that soon, the exceptional circumstances due to Covid will cease to apply and the usual social security and tax rules will be back in force.
Within the European Union, employees may only be covered under one country’s social security system at a time. For cross-border workers living in a different country from their country of employment, Regulation (EC) 883/2004 determines which social security system is applicable. According to this Regulation, the following rules apply to employees with a single employer:
- +If an employee spends 25% or more of their working time working in their country of residence, they will be covered by that country’s social security legislation.
- +If an employee spends less than 25% of their working time working in their country of residence, they will be covered by the social security legislation for the country in which their employer is located.
We will illustrate this with an example.
A Belgian resident has a Dutch employer. Before the Covid crisis, the employee physically carried out their work in the Netherlands and was therefore covered by Dutch social security. When they were obliged to work from home due to Covid, they remained covered by Dutch social security due to the home working agreement. If this employee subsequently decides to continue teleworking two days a week (40%) even after the agreement ceases to apply, they will become subject to Belgian social security legislation.
The opposite applies as well, if a resident of the Netherlands were to work for a Belgian company for instance. This example is equally applicable to employment in France, Germany or Luxembourg.
Tax rules are slightly different. An employee’s remuneration may in fact be subject to taxation in multiple countries, the so-called salary split. In cases of cross-border employment, the relevant double taxation treaty determines in which country the remuneration will be taxed. Generally speaking, remuneration is taxable in the country of employment. However, various exceptions to this rule may lead the country of residence to tax a portion of the remuneration after all.
Let us reconsider our previous example from a tax perspective.
Before the crisis, the Belgian resident worked in the Netherlands exclusively and consequently, their entire salary was taxable in the Netherlands. When they were obliged to work from home during the crisis, this Dutch taxation remained unchanged thanks to the agreement with the Netherlands. If this employee subsequently decides to continue teleworking two days a week (40%) even after the agreement ceases to apply, 40% of their salary will become taxable in Belgium and 60% in the Netherlands. This example is equally applicable to employment in France, Germany or Luxembourg.
A salary split can be beneficial to employees, as this will put them in a lower tax band in both countries.
The implications of the above go beyond the employee’s own personal taxes. Their employer will also need to take these circumstances into account in their payroll processing. Requirements can include a separate salary administration, an adapted employment contract, etc. Furthermore, depending on the employee’s job, teleworking may affect the employer’s obligations regarding corporate income tax in the employee’s country of residence. Preliminary analysis is absolutely essential!
Do you require further information about the implications of cross-border teleworking? Please do not hesitate to contact one of our experts at firstname.lastname@example.org.
We base our advice on current legislation, interpretations and legal doctrine. This does not prevent the administration from being able to challenge it or to change existing interpretations.