In order to restrain the spread of the coronavirus, various EU Member States introduced social distancing measures among which the increased teleworking.
In cross border situations, where the applicable social security system and applicable taxes depend on the place where the professional activities are actually carried out, this telework could lead to a change in applicable social security legislation and taxes.
Impact on social security?
The EU regulation 883/2004 on the coordination of social security systems within the EU, EEA and Switzerland stipulates that when an employee residing in one State works in another State, the social security system of the working state applies. If however, the employee’s activity in the residence state exceeds 25%, it is the residence state that can levy social security contributions.
Following the increased teleworking, it is not excluded that the activities of an employee in his home country which under normal circumstances would not exceed the 25%, actually do.
A Dutch resident works 80% of his time in Belgium and 20% in the Netherlands. As he works less than 25% in his home country, Belgian social security contributions will be due.
In case the employee works more from home and therefore exceeds the 25% limit, he will become subject to Dutch social security.
To remedy a possible switch in the applicable social security system, the Belgian government decided that the temporary telework in the home country following the corona crisis, will not be taken into account to determine which social security system applies. This measure entered into force on March 13, 2020.
In our example, this means that the employee can stay subject to Belgian social security contributions.
The Netherlands has taken a similar position. It is however not yet clear whether other EU countries will adopt the same position.
What about the tax implications?
Also for tax purposes, the physical presence in the working state can have an impact on the applicable taxes.
Until further notice, the normal principles remain in force.
There are only two exceptions that apply as from March 14, 2020:
For frontier workers in Belgium and Luxembourg who stay taxable in their work state if their activities outside the work state do not exceed 24 days, the telework following the corona crisis in their residence state will not be taken into account to calculate the 24 days limit.
For French frontier workers in Belgium who stay taxable in France provided their activities outside the Belgian border region do not exceed 30 days, the telework following the corona crisis in their residence state will not be taken into account to calculate the 30 days limit.
The authorities of both countries consider the actual corona crisis as a case of ‘force majeure’ as mentioned in the respective double tax treaties.
In all other cross border situations, the day count as foreseen in the double tax treaties stays applicable. This is the case in case of split taxation (employee working for one employer in different countries) or secondment. Therefore the increased telework can lead to a shift in the applicable taxes.
On the other hand, in case of salary split (employee working for various employers in different countries with a contract in each country), the temporary absence in one or the other country because of ‘force majeure’ does not have an impact on the taxation.
For employees that can benefit from the special tax regime for expats in Belgium, the normal rules apply. As their travel percentage will probably go down, they will in principle need to pay more taxes. In case they have a net guaranteed salary, the employers’ cost will therefore increase.
What you should do as HR professional?
To manage the situation:
Monitor the number of days spent abroad by your employees and compare with the planned situation.
Verify whether a deviation triggers a shift in social security and/or tax system.
Adjust the payroll accordingly during the year.