As a result of the corona measures, many expats have to take into account the possibility that another country will levy tax on their wages than expected. In principle, however, the situation does not change for social security.
In cases of cross-border work, there are often two or sometimes even more countries that want to levy tax on wages under their national laws. After all, many countries tax the worldwide income on their residents. In addition, it is common for a work state to levy tax on income that a foreign taxpayer earns in that work state. To prevent double taxation, tax treaties contain rules on the distribution of the right to levy tax between the State of residence and the State of employment. According to many tax treaties, a resident’s wages are taxed in the State of residence, but the State of employment may also levy tax. The State of residence will then provide a compensation.
As a result of the current crisis, many employees are working from home. If the work is normally carried out in another country, working from home means that a larger part of the wages are also taxed in the country of residence, instead of in the country of employment.
Update: Agreement between Germany and the Netherlands about home working days
Germany and the Netherlands have agreed that for cross border employees the home working days may be treated as days worked in the country where the cross border employee would have worked under normal conditions, provided that these home working days are taxed in the other country.
One does not have to opt for this alternative treatment. The home working days can continue to be treated as days actually worked. This choice can be incorporated in the 2020 income tax return. This agreement is valid from March 11, 2020 to April 30, 2020 and is extended monthly, until either the Netherlands or Germany cancels the agreement. Consultations with Belgium about the treatment of home working days are still ongoing.
Update 6 May 2020: Agreement between Belgium and the Netherlands about home working days
Belgium and the Netherlands have agreed that for cross border employees the home working days are taxed in the country where the employer is established, if the employee would normally not work from home. This is decided to prevent that the tax position changes due to corona measures. This agreement is valid till 31 May 2020 and can be extended.
Update 24 August 2020: The Netherlands and Belgium agree that the application of the agreement will be extended a third time until 31 December 2020.
183 days scheme
Various tax treaties between the Netherlands and other countries contain the so-called 183-day scheme. Under this scheme, the State of residence may only levy tax on wages if:
- the employee spends a maximum of 183 days in the State of employment in a period of one (calendar) year,
- no permanent establishment in the State of employment could deduct the wages from its result.
It is possible that, due to a work pattern which is changed due to the corona crisis, the employee may spend more than 183 days in a year or a period of 12 months in a third country (not being the country where the employer is located or where the employee lives). is staying. This may lead to wages relating to working days practiced in the third country being taxable in that country.
Working from home can therefore have consequences for determining in which country tax must be paid. The same would apply to social security. However, the Ministry of Social Affairs and Employment says that the corona measures have no consequences for social security. That is, if the employee normally lives or works across the border in the EU, EEA or Switzerland. He doesn’t even have to arrange anything.
When does social insurance change
Social insurance does change if the employee:
- did not have an employer, but start working for an employer in another Member State, or
- had an employer, but starts working for a new employer established in another Member State.
The employee is then insured (even while working from home) in the Member State where he will normally work for the new employer, once the employee is no longer obliged to work from home because of the corona virus.
What if the international transfer is delayed?
If the employee is going to move because of a posting to the Netherlands, postponing the move may also have consequences for his tax position. Suppose the intention was to move to the Netherlands on April 1, 2020 to work for a Dutch employer. The move to the Netherlands has been delayed due to the coronavirus, but the activities for the Dutch employer will start on 1 April 2020. For the time being, the employee carries out his activities remotely from his country of residence. In this situation, this would mean that the wages which are paid by the Dutch employer, until the employee actually moves to the Netherlands, are probably taxed in the country of residence and not in the Netherlands.
The same applies in the opposite situation where the employee is living in the Netherlands and is supposed to start working in another country. If the activities for the foreign employer already start but the employee has not yet moved abroad, the wages are taxed in the Netherlands and the foreign employer must in principle set up a payroll administration in the Netherlands for this employee.
Due to global measures against the spread of the corona virus, employees may not be able to move to or work in the country of the employer. If work is done from home and wages are paid, these wages may be taxed in the country of residence. Review the tax consequences per situation. The consequences for social security may be limited by agreements made within the EU.