Perspectives

Cross-border personal income tax

COVID-19 Workforce measures and insights

The COVID-19 pandemic and its consequent travel restrictions forced many cross-border workers to shift their working habits with related unforeseen tax consequences potentially affecting both employers and employees.

In line with the recommendations made by the OECD secretariat, Belgium concluded a series of mutual agreements with neighboring countries allowing employers to assimilate days teleworked from the home office to days worked from the (foreign state) location, where the worker would have normally carried out their activity if COVID-19 travel restrictions were not imposed by authorities.

Impact on expatriate tax regime

Due to travel restrictions, business travel patterns of executives have been impacted and will possibly remain so in the near future. Consequently, foreign executives benefitting from the special tax status may be affected, as foreign working days are within the concept of such special tax status exempt from taxation in Belgium. COVID-19 may thus result in an important additional cost for the employer (depending on the arrangement in place).

It will be important for organisations to assess and budget for such possible additional cost. Additionally, there is no administrative “force majeure” tolerance foreseen by the Belgian authorities. As it stands today, increased presence in Belgium solely because of COVID-19 measures will be considered as Belgian working days. Moreover, extended stay outside of Belgium solely because of COVID-19 measures will also be considered as Belgian days.

Cross border workers

Extension of temporary mutual agreements

Update | Belgium’s mutual agreements with Luxembourg, France, Germany and the Netherlands, in place to address cross-border worker taxation during pandemic driven restrictions, have recently been extended further until 31 March 2021.

More information is available in our individual tax alert : “Mutual agreements for cross-border workers extended until 31 December 2020(2 September 2020), ”Mutual agreements for cross-border workers with France and Luxembourg extended further” (11 December 2020) and “Mutual agreements for cross-border workers with Germany and the Netherlands extended further” (5 January 2021).

 

How can employees opt-in to benefit from the temporary mutual agreements?

17 June 2020 | To benefit from the COVID-driven temporary mutual agreements, employees should keep an employer certificate that they can show to the tax authorities upon request, indicating their days worked from home due solely to COVID-19 measures. They will also need proof that their remuneration derived from days worked in the other contracting state, where activities would normally be carried out in the absence of COVID-19 measures, was effectively taxed.

The employer certificate should contain the following information:

  • The employee’s personal information (first and last name, address, date of birth);
  • The nature of the function performed by the employee;
  • A list of homeworking days as a result of COVID-19 measures;
  • A list of homeworking days foreseen in the employment contract;
  • A list of sick days, vacation days, and/or compensation days (i.e., granted leave days in consideration of overtime performed) (if any);
  • A sworn statement that the attestation is genuine; and
  • The date and signature of both employer and employee.

 

Impact of quarantine / home teleworking days on personal income tax?

In principle, taxation is based on physical presence. Hence, an increased activity in the country of residence (due to quarantine or home teleworking) would in principle lead to increased taxation in the home country. Consequently, with respect to Belgian employees with a split salary arrangement, an adjustment of payroll tax withholdings (to align with increased physical presence in Belgium) should be considered. This might also lead to a potential additional tax burden for employers (due to increased home country taxation) in the event of guaranteed travel/net guarantee arrangement with the concerned workforce. Currently, the Belgian authorities do not seem ready to admit or recognise the possibility of invoking ‘force majeure’.

 

French-Belgium Tax treaty: French border workers can work outside Belgian border zone

On 13 March 2020, the Minister of Finance confirmed that from Saturday 14 March 2020, teleworking activities (from French domicile) are considered as a consequence of ‘Force Majeure’, hence not taken into account while assessing the 30 day rule. This is a welcome clarification given the severe consequences faced by French border workers and their Belgian employers after excessive activities outside the Belgian border zone (i.e. beyond 30 days / year). For periods running before 14 March 2020 however, the consideration of “Force Majeure” requires a case-by-case assessment to correctly determine the number of days worked outside the Belgian border zone, for the purpose of the 30-day rule.

Link: French

 

Luxembourg-Belgium Tax treaty: cross-border workers can work from home

On 17 March 2020, the Belgian government confirmed that also as from 14 March 2020, current circumstances may be regarded as a ‘force majeure’ event for the purposes of the Belgium-Luxembourg treaty. Consequently, teleworking activities performed in Belgium by a Belgian resident employed in Luxembourg by a Luxembourg employer are not taken into account while assessing the 24-day rule for maximum period of activity allowed outside Luxembourg, while remaining exclusively taxable in Luxembourg. Similarly, Luxembourg residents employed in Belgium by Belgian companies who would normally and exclusively pay their taxes in Belgium, provided that they do not work for more than 24 days in the year outside Belgium, may now work from their home in Luxembourg without becoming liable to Luxembourg tax.

Link: Dutch | French

 

French-Belgium and Luxembourg-Belgium Tax treaty: cross-border workers can work from home

Belgium concluded agreements regarding teleworking activities with France (in French only) and Luxembourg on 19 May 2020 (in French only) to address the impact of COVID-19 on cross-border workers. The Belgium-French and Luxembourg- Belgium agreement respectively apply from 14 March 2020 to 30 June 2020 and 11 March 2020 to 30 June 2020. Both agreements may be extended beyond 30 June if the respective competent authorities agree.

 

Belgian agreements with the Netherlands and Germany to manage COVID-19 impact on cross-border workers

2 June 2020 | these agreements have been extended and remain valid until 1 July 2020

Belgium concluded agreements regarding teleworking activities with the Netherlands (in Dutch only) on 30 April 2020 and with Germany on 6 May 2020 to address the impact of COVID-19 on cross-border workers. The Belgium-Netherlands and Belgium-Germany agreements apply from 11 March 2020 to 31 May 2020. Both agreements may be extended beyond 31 May if the respective competent authorities agree.

Provisions common to both agreements – Days physically working from home
  • Days physically working from home are defined as workdays completed in the country where the cross-border worker would normally have exercised employment activities had COVID-19 measures not been in place.
  • This definition does not apply to workdays that would have been home office-days or days worked in a third state independent of COVID-19 measures.
  • This definition should be applied in each of the countries (i.e., Belgium, Germany, and the Netherlands) and the wages paid for days physically working from home should effectively be taxed in the state where the cross-border worker would have normally exercised employment activities without the COVID-19 measures.
  • The cross-border commuter should keep appropriate records (i.e., written documentation from the employer confirming which days the employee worked from home solely due to COVID-19 measures).
  • The cross-border commuter should use this definition in Belgian, Dutch, or German income tax returns.
  • In principle, the employer is not required to change its payroll setup.
Provisions specific to the Belgium-Netherlands agreement – Days spent in the home country
  • The same definition as above applies to employees who stay at home without working while receiving a salary. Such days may thus be treated as days when work was performed in the country where the cross-border worker would have normally exercised employment activities had COVID-19 measures not been in place.
  • In principle, the employer is not required to change its payroll setup.
Comments

The provisions discussed above are in line with the OECD recommendations on the treatment of international tax treaties during the COVID-19 crisis.

Agreements regarding cross-border workers may help the international mobile workforce and their employers mitigate the additional complexities and administrative burdens brought on by lockdown measures. A similar systematic approach with all of Belgium’s tax treaty partners could prove beneficial.

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