International tax implications remote working

03/10/23

On September 26, the Working Where You Want Bill (“Werken waar je wilt”) was rejected in the Senate (Eerste Kamer) and a motion was passed to resolve the tax implications for cross-border workers who work from home as soon as possible. Under the bill, an employee's request to work more from home (or from the office) could no longer be readily refused by the employer. However, approving a request for remote work can lead to complex tax, labor law, and social security consequences in international situations. This is one of the reasons why the Senate did not agree to the Working Where You Want Bill.

International tax implications

Suppose your employee makes a request to work more from home in another EU country. You will then need to decide whether to grant or to refuse the request based on your and your employee's best interests. However, if you do grant the request to work from home, there may be consequences for the tax and social security position of your employee and the applicable (labour) law in the employment contract. It may also lead to other obligations for you, such as an obligation to register for social security in the employee’s country of residence. We will discuss this briefly below.

Tax liability

It could happen that your employees from Germany or Belgium request to work from home. In the current situation, it may be the case that your employee performs physical labour entirely in the country of employment (i.e. the Netherlands). In this case, your employee is fully taxed in the Netherlands for this income. However, if your employee were to work from home more often, or even completely, the tax on the earned income would also be levied partially or even entirely in the country of residence (Germany or Belgium). In short: working from home can affect your employee's tax position.

This may be undesirable. During the COVID-19 crisis, the Netherlands made separate agreements with Germany and Belgium to prevent the tax liability from shifting from the country of work to the country of residence as a result of working from home. These agreements also applied to employees who live in the Netherlands, but work in Germany or Belgium. These agreements expired on 30 June 2022. Earlier it was announced that the Netherlands is discussing with Belgium and Germany to make new agreements in the context of working from home in the bilateral tax treaties that the Netherlands has agreed upon with these countries. However, introducing a 'working from home arrangement' into a tax treaty is not easy, and the new tax treaty with Belgium does not yet include such a provision.

Applicable (labour) law

Although this is currently still under debate, the law of the country where the work is performed may (also) apply to employees who start working from home from abroad. Despite the choice of law in the employment contract, European legislation may not deviate from the mandatory provisions that apply in the country where the employee 'usually’' performs his/her work. The country where the employee usually works is the country where he/she performs the main part of his/her activities. This would mean that in addition to the Dutch terms and conditions of employment (which apply based on the choice of law), employees can also claim foreign terms and conditions of employment (based on the 'usual country of work' criterion) if these are more favourable.

Moreover, employers must also fulfil their duty of care regarding working conditions for workplaces abroad. For example, a workplace must be provided that is ergonomically sound.

Social security

There can also be consequences from a social security perspective if your employee works from home. If an employee who would normally work in the Netherlands will work more from home, there is a chance that the employee, based on EU law, will also become socially insured in the country of residence. This does not only have consequences for the employee, the employer may also have to register in the employee's country of residence in order to pay the contributions.

Contrary to the tax obligation, there is a framework agreement at EU level for social security. This agreement meets the desires of employees and employers to be able to work partially from home without the mentioned consequences. Currently, nineteen member states have signed the agreement, and only the United Kingdom has indicated that it will not. Based on the agreement, cross-border workers can work from home for up to 50% of their time without being subject to the social security regime of that country.

Corporate tax

If an employee works from home, it can create a permanent establishment for the employer in the employee's country of residence. This can have implications for the assessment of corporate tax in the employee's country of residence. In general, an employee who works from home a few days a week will not quickly result in a permanent establishment if the employee also has a workplace at the employer's office. However, if the employee, for example, can enter into contracts with clients from home due to their business development role, the risk of a permanent establishment increases. This will need to be assessed on a case-by-case basis because some countries are quicker to establish a permanent establishment for remote work than others.

What does this mean for your organisation/company?

By adopting the motion regarding the resolution of tax implications for cross-border workers working from home, a solution may be in sight. Until then, we advise you to have clear policies and insights regarding remote work for your cross-border workers to avoid any unwanted consequences in terms of international taxation, applicable (employment) law, or social security.