New tax treaty between Belgium and the Netherlands
A new tax treaty between the Netherlands and Belgium: what will change?
Recently, the Netherlands and Belgium signed a new double taxation treaty, replacing the 2001 treaty. The new treaty has yet to be ratified and will not become effective until later (at the earliest on 1 January 2024 but more likely not until 1 January 2025).
The following is a summary of the main changes to the Belgian-Dutch Tax Treaty.
Every tax treaty defines when a company’s activities abroad result in tax liability, and thus a permanent establishment in that country.
The new tax treaty contains several changes that result in a permanent establishment (and tax liability) in the other country, sooner and more frequently than under the previous treaty:
- Article 5 of the new treaty sets out an anti-fragmentation provision for building, construction and installation work. This means that a permanent establishment can no longer be avoided by splitting up contracts.
- Also, the definition of a permanent representative in the other country was expanded.
- Accommodating auxiliary and preparatory activities in different group companies no longer prevents a permanent establishment from being created.
- Building, construction and installation work often consists of various components that require specific skills and knowledge to perform. Having sister companies carry out such activities can no longer prevent being defined as a permanent establishment.
- In the previous treaty, Article 5(4) listed a number of activities that are not considered to result in a permanent establishment. For example, maintaining a fixed place of business solely for the purpose of purchasing goods or merchandise or collecting information for the business, or maintaining a permanent establishment, solely for the purpose of conducting other activities of a preparatory or auxiliary character.
Under the new treaty, such activities are not simply exempted from permanent establishment status. Instead, these must be assessed to determine if this actually concerns preparatory or auxiliary activities.
The new treaty now draws a clear distinction concerning the nature of the work performed in the context of taxation of executive remuneration (Article 16 of the previous treaty). The country in which a company is established is entitled to taxation of its executive remuneration, regardless of where the work takes place. Remuneration that cannot be classified as executive remuneration may be taxed in accordance with (the previous) Article 15 (non-self-employment).
Artists, athletes, teachers and professors
The specific Articles 17 and 20 from the previous treaty are abolished. The taxation of cross-border teachers and professors is classified the same as regular employees. Athletes and artists do not pay taxes for a short-term work assignments in the other country, instead paying tax in their country of residence.
Off topic, cross-border workers working remotely from home
In the area of social insurance, a regulation will apply as of 1 July 2023 that sets out an exception to EU Regulation 883/2004, allowing the remote worker to retain social insurance in the employer’s country of residence. To provide complete information, please note that not every remote worker is eligible. For example, application is subject to the condition that the remote worker works only in the employer’s country and at home, and the latter for less than 50%. Moreover, remote work must be an actual reality at home.
Following the ‘solution’ to the social insurance position of cross-border workers, despite the amendment of the tax treaty, it was not immediate possible to match the tax rules to the new social insurance rules. As a result, it was and still is quite complicated for cross-border remote workers (as well as their employers) to correctly implement payroll administration and tax contributions; after all, different rules apply for social insurance contributions than for payroll taxes.
We already know that a tax scheme is being worked out, but it is certainly not final yet.
Rather suddenly, an agreement between the Netherlands and Belgium on the tax implications of home-based workers in the Netherlands and Belgium was nevertheless published on 8 December 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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