Cross-border payrolling before, during and after the Corona crisis
How does that actually work? | an update
During the Covid pandemic, a temporary arrangement had been created under which cross-border workers were permitted to work from home, without this resulting in them suddenly being covered by social security in their country of residence. After the Covid pandemic, this arrangement was continued (transition period) until 30 June 2023. From a tax point of view, the Netherlands, Belgium and Germany also agreed for the time being that the withholding of wage tax/payroll tax would continue unchanged, even though the tax regulations actually gave rise to an obligation to withhold in the country of residence. This tax arrangement expired on 1 July 2022 and was not continued.
As from 1 July 2023, the usual regulations regarding social security, from before the Covid pandemic, apply once more. This means that a cross-border worker is covered by social insurance in his country of residence, as soon as they spend more than 25% of their working hours there.
Due to the massive increase in cross-border working from home, also called teleworking, an important exemption was added to the main regulation with regard to social insurance. Within the EU, a framework agreement was published that was signed by many countries (the Netherlands, Belgium and Germany, among others). Thanks to this agreement, a cross-border worker who works from home can still be covered by social insurance in the country in which his employer is based if all of the following conditions are met:
–> The cross-border worker spends less than 50% of their total working hours working from home in their country of residence over a period of 12 months; and
–> The cross-border worker and their employer have agreed jointly that the exemption applies (if they fail to do so, the employee will, based on the main regulation, be covered by social insurance in their country of residence if they spend more than 25% of their hours working there); and
–> The agreement and its subsequent approval apply for a period of 3 years (this period may be extended); and
–> An application has to be filed with the competent social insurance institution in the country in which the employer is based; and
–> The agreement has to be ratified by means of a so-called A1 certificate, which is issued by the above-mentioned social security institution if the application meets the requirements.
No, unfortunately, the aforementioned exemption only applies to social insurance. This means that the wages for the days on which employees work from home actually have to be taxed in the country of residence.
However, on 8 December 2023, an agreement was concluded between the Netherlands and Belgium containing the following arrangement for practice:
It may be assumed that the home office of an employee in one country for his employer in the other country does not constitute a permanent establishment in any case where the employee works 50% or less of his working time at home for his employer.
Read more information on this subject: Ratification double taxation treaty Belgium and the Netherlands >>
Either way, a decision to allow an employee to work partly from home is certainly not without consequences.
Because the exemption only applies to social insurance, any employment regulations in the country of residence may become mandatorily applicable to working from home. This is the case even when the law of the country of employment has expressly been declared applicable. For example, an employee who spends part of their time working from home in Belgium may be entitled to a 13th-month payment (which is usually mandatory in Belguim), even if this is not expressly stated in their (Dutch) employment contract.
Before you decide to allow your employee to work partly from home in their country of residence, we recommend that you do the following:
–> If this results in your employee being covered by social insurance in their country of residence, based on the main regulation, check whether this is desirable, and whether it may be worthwhile to maintain social insurance for this employee in the country in which you, the employer, are based, as per the exemption (insofar as you meet the aforementioned conditions, of course);
–> Consider the fiscal repercussions. The employee will partially be taxed in their country of residence, which may result in a change in their net wage;
–> Check if there are any (mandatory) provisions within employment law for the country of residence that apply (and that may “overrule” provisions of the employment contract).
If you need help, we will enable you to make a well-informed deciison by mapping out all possible scenarios for you, with all associated repercussions. Please do not hesitate to contact us for more information.
We would like to reiterate that the special Covid measures regarding taxes have long since expired. When dealing with employees who pay taxes in 2 or more countries, they will have to declare their worldwide income in their country of residence and also claim an exemption from taxes for the portion of their income that has already been taxed abroad. In this context, it is important:
(1) that the employee can prove that they have actually spent time working abroad, and
(2) that the wage taxed abroad corresponds with this.
If this cannot (sufficiently) be proven, there is a risk that the tax authorities of the country of residence will refuse to exempt the wage earned and taxed abroad from taxes, which will have repercussions (including double taxation). We therefore advise employers and their employees to provide dufficient substantiation for every employment period abroad (in concrete terms: keep a daily calendar containing the associated evidence).
If the working habits of your employees have changed permanently compared to before the Covid pandemic, we recommend that you map out the following (or commission such work) once more:
(1) In which countries your employees are covered by social insurance
(2) In which country or countries you are required to withhold wage tax/payroll tax for your employees
If you fail to do so and the payroll administration continue to make payments in the wrong country/countries, you risk administrative problems and fines.
We can imagine that it has become harder for you to see the wood for the trees. Main regulations, exemptions to main regulations, and on top of that, ensuring that social insurance contributions and tax payments are processed correctly on payslips… If you need help, we would be happy to identify and list the relevant situations arising within your personnel file, after which we will ensure that both you and your employees have a better understanding of what is happening on the payslips.
update june 2023
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Since 1972, Interfisc has offered international HR & Payroll solutions in the Netherlands, Belgium, Germany, France, the United Kingdom, and Italy. We do this from our offices in the Netherlands and Belgium, and with an international team of around 45 committed and caring employees.
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