Cross-border payrolling before, during and after the Corona crisis
How does that actually work?
During the Coronavirus crisis, a temporary rule applied under which cross-border workers were permitted to work from home during Covid-19, without this resulting in their suddenly being covered by social insurance in their country of residence. 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 without changes, even though the tax rules in this situation would actually give rise to an obligation to withhold in the country of residence.
Temporary arrangement extended until 1 January 2023 for social security, but not for taxes
For social security, the temporary arrangement would expire on 1 July 2022, but on 14 June 2022 the European member states mutually agreed that at least until 1 January 2023, working from home would, as far as social security was concerned, not result in the country of residence becoming the country of employment. In the meantime, efforts are made to reach a new solution for such situations, since working from home is regarded as “the new normal” at this point.
As mentioned above, for the tax consequences of this situation the Netherlands, Belgium and Germany also temporarily agreed that cross-border workers working from home during the Coronavirus crisis would not be taxed in the country of residence. On the condition, though, that the relevant cross-border workers were already taxed in their country of employment since before the Coronavirus crisis.
This temporary tax arrangement did expire on 1 July 2022, and from now on every cross-border situation will therefore have to be re-examined. From 1 July 2022, the “usual” rules have to be observed again: an employee pays taxes over his work in the country in which he works (click here for the general rules).
Consequences for cross-border workers and salary-splitters
The above-mentioned temporary arrangements for cross-border workers also had an impact on the so-called “salary-splitters”, who work in two or more countries. During the Coronavirus crisis, compulsory working from home would not have had any consequences for the payment of taxes and social insurance contributions for them either, provided that these were properly substantiated (see our comments on this below in this article under “Things you have to pay attention to”).
And just like for cross-border workers, for salary-splitters the temporary arrangement for social security also continues to apply until 1 January 2023, whereas the regular tax rules apply again from 1 July 2022.
Things you have to pay attention to
We emphasise that anyway, both before and after the Coronavirus crisis, it was and is important to ensure a proper substantiation of the salary-split payrolling, demonstrating among other things that:
- the employee can prove that he has actually worked abroad and
- the wage taxed abroad corresponds with this.
If this proof cannot or cannot sufficiently be provided, 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, with all the associated consequences (including double taxation). In that case, such taxation may also extend to the aforementioned crisis period. We therefore recommend that employers and their employees, now maybe more than ever, provide every period of employment abroad with adequate substantiation.
What does this mean for your payroll administration?
If the working pattern of your employees has also changed permanently after 1 July 2022 compared to the period before the start of the Coronavirus crisis, we recommend that you re-establish a clear overview of the following:
- In which country are your employees covered by social insurance?
- In which country or countries do you have to withhold wage tax/payroll tax for your employees?
If you fail to do this and the payroll administration continues to make payments in the wrong country, you will risk administrative problems and fines.
Click here to read the general rules regarding cross-border employment again at your convenience:
If you doubt whether your payroll administration is still correct,
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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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