Change to the tax treaty between the Netherlands and Germany: Cross-border workers working from home
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The tax treaty between the Netherlands and Germany will be amended to make it easier for cross-border workers (who live in one country and work in the other) to occasionally work from home.
What exactly will change for cross-border workers working from home?
Employees who work partly in their country of residence (e.g. the Netherlands) and partly in the country where their employer is based (e.g. Germany) will, in principle, pay tax on their salary in both the Netherlands and Germany in proportion to the time worked in each country (a typical salary split situation).
The newly introduced cross-border worker scheme now stipulates that, under certain conditions, employees may work from home without having to pay tax in their country of residence. Tax is therefore paid in full in the country where the employer is based.
what are the conditions?
To be exempt from paying tax in their country of residence, employees must meet the following conditions:
- The employee must reside in the Netherlands or Germany and work exclusively in the other country (Germany or the Netherlands) where the employer is also based. This means that the employee may not work in any country other than the Netherlands or Germany.
- The employee may work from home for a maximum of 34 days per year. It has been agreed that a day on which more than 30 minutes are worked from home counts as a full day of working from home.
If one or more of these conditions are not met, the employees will still have to pay part of their taxes in their country of residence as well as in the country where they work and where their employer is also established.
be aware
- The amendment will not take effect immediately but must first be submitted to the Council of State (for advice) and then approved by parliament. The latter also applies to Germany.
- We suspect that employees who work less than 34 days per year at home (and therefore, in principle, do not have to pay taxes in their country of residence) will be able to opt to pay part of their taxes in their country of residence (for example, because the tax burden is lower there). This means that they might opt out of the exemption scheme.
- The question is how the tax authorities in the country of residence will deal with the evidence. After all, the employee will have to prove in their country of residence that the conditions of the cross-border worker scheme are met in order to claim tax exemption. Employees must always declare their worldwide income in their country of residence, i.e. including income taxed abroad.
- Employers will have to make a clear distinction between their remote employees abroad:
- employees who fall under this so-called cross-border worker scheme (who only pay tax in the country where the employer is established) and
- other employees who pay tax in both countries (i.e. also in their country of residence).
This distinction also applies at the level of payroll administration (calculation and payment of income tax).
What about the social security of home-based cross-border workers?
The cross-border worker scheme is exclusively a tax scheme and therefore does not specify in which country the employee is socially insured. The social security position of home-based cross-border workers has been regulated within the EU in 2023 by a framework agreement signed by many countries (including the Netherlands, Belgium and Germany).
What rules apply to home-based cross-border workers in countries other than the Netherlands and Germany?
Unlike the social security rules that have been harmonised within the EU through the framework regulation, the tax position is still regulated on a bilateral basis, which means that one country agrees with another which country has the right to levy tax on, among other things, wages. This cross-border worker scheme currently only applies in the Dutch-German context, but other countries are expected to follow.
Do you need help?
If you can no longer see the wood for the trees due to the various recent legislative changes and have doubts about your employee’s correct tax and/or social security status? And whether it has been processed correctly in your payroll records? Then do not hesitate to contact us for an analysis.
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