Cross-border working from home

The COVID-19 pandemic forced many people to work from home for a long period of time and with that came a host of challenges. That said, there were major benefits too: people did not have to commute and their work-life balance improved. Many of them are reluctant to return to the office full-time and employers are happy to offer hybrid working as an additional employment benefit. Some employers are even letting their employees work from home full-time.

But what if your organisation has cross-border workers? If they work from home, they will work in a different country part of the time and that can have tax and insurance consequences.

In the context of COVID-related working from home, the Dutch government has agreed with the governments of Belgium and Germany that there will be no tax consequences until 31 December 2021. Within the European Union, it has been agreed that COVID-related working from home will not have an impact on social security (at least until 31 December 2021).

But what if your employees continue to work from home part of the time after the pandemic has ended?

Social insurance

Within the European Union, it has been agreed that employees are covered by social insurance in their country of residence if they perform at least 25% of their duties in their country of residence. If one of the employees of your Dutch-based company lives in Germany and works from home two days a week, they qualify for social insurance coverage in Germany, even if your company only operates in the Netherlands.

You can apply for a certificate of coverage (in Dutch: A1-verklaring), which issues a binding opinion on the country of coverage. A certificate of coverage is binding on both countries. If you have already been issued a certificate of coverage, but the ratio between working from the office and working from home has changed substantially, you are expected to report this to the issuing authority.

Taxes

If employees are working entirely in the country of residence  they are subject to tax in that country. If employees are working in their country of residence part of the time and in their employer’s country of residence the rest of the time, you are typically expected to apply a salary split for tax purposes.

Example

Henry is an IT officer. He lives in Belgium and works in the Netherlands for his Dutch employer for five days a week. Because of the pandemic, he worked from his Belgian home full-time. Since he liked working from home, his employment contract was amended on 1 September to the effect that Henry now has the right to work from home for three days a week going forward. This formalises the arrangement that he will work in Belgium for 60% of the time and in the Netherlands for 40% of the time. As a result, 60% of Henry’s salary will be taxable in Belgium and 40% will be taxable in the Netherlands. Henry will be covered by Belgian rather than Dutch social security.

In most European countries, the employer is responsible for remitting the correct tax and employee insurance contributions. For that reason alone, it is worth having an expert look at these aspects.

Please do not hesitate to contact your Accon International adviser if you have any questions or require more information.