The number of people working from home continues to grow, yet many taxpayers are not aware of the tax consequences. There are some important considerations to take into account, especially if you work in a different country than where your employer is located.
Your home office can create a so-called ‘Permanent Establishment’ (PE) for corporate tax purposes for the employer. The foreign company could be subject to taxation in Belgium on their (unincorporated) business profits. Hence, foreign enterprises should properly understand the tax implications when initiating business activities abroad using a home office.
The key question in assessing if there is a PE, is whether the home office represents a ‘fixed place of business, through which the industrial or commercial business is wholly or partly carried out’. A determining factor is whether the home office is at the disposal of the foreign company. Also relevant are the type of work that is performed there, the degree of permanency, and what the employment contract allows the employee in this respect.
The PE risk for the employer is often overlooked when an employee moves abroad, for example, for personal reasons. It requires a thorough analysis of all the facts and circumstances. For those employees teleworking from the Netherlands for a Belgian employer or vice-versa, the relevant authorities have issued some further guidelines on this topic.
Belgian-Dutch Tax Treaty
In November 2023, Belgium and the Netherlands signed an agreement that addresses the complexities of cross-border teleworking. The agreement is a so-called ‘interpretive statement’ which is issued to eliminate certain doubts around treaty application. While its legal value is questionable, they provide valuable insights in complicated matters.
The agreement outlines in detail when the tax authorities of both countries consider a home office, used by an employee residing across the border, to constitute a place of business at the disposal of the foreign employer, thereby triggering the existence of a (material) PE.
The relevance of this clarification extends to both corporate and personal (payroll) income tax, and it creates an important precedent for other agreements between Belgium and other countries.
As mentioned, the presence of a PE in the employee’s home country depends on the facts and circumstances. Generally, it has been argued that a home office cannot be at the employer’s disposal if its only occasionally and not continuously used. However, if there is an uninterrupted use of the home office and if the facts and circumstances clearly show that the same place is effectively used by the employee, it can be said to be at the disposal of the employer. Whether the employer intervenes in the home office expenses (e.g. electricity, heating, internet, etc.) is not always considered relevant. In our opinion, it should indeed be taken into account to assess whether the home office is at the disposal of the company.
In the case of employees working from home, the key question is whether this ‘fixed place of business’ is available to the employer in the other country. The BE-NL agreement includes important criteria to determine when telecommuting establishes a fixed establishment under the tax treaty:
- Occasional Teleworking: when employees work sporadically/occasionally from home and telework is not part of the regular work pattern. This could be the case if there is nothing explicitly stipulated for this in the employment contract and/or there is no existing telework policy in the company. In this scenario, there is not sufficient continuity to establish a fixed place of business.
- Structural Teleworking, with the option to work on site: when employees regularly work from home but can also choose to work at the employer’s premises. In this case, there should normally not be a fixed establishment either. However, if the home office is consistently used for business activities and if the employer explicitly requests work to be done from home, the home office may be at the disposal of the employer. This situation depends on the specific circumstances.
- Structural and Mandatory Teleworking: when employees are required to work from home. If the home office is at the disposal of the company, it can be deemed to create a fixed establishment. Again, this is a factual matter, depending on whether the employer has actual control over the workspace and can determine the business activities performed there. It does not require the employer to be the legal owner or tenant of the premises. Indicators may include contractual requirements for remote work or the absence of a workplace for the employee at the employer’s premises. The employee’s inability to unilaterally terminate the use of the home office is also a relevant factor.
While each case is different and requires a thorough analysis, the above should always be assessed at the level of each individual employee.
For this reason, it is irrelevant how many employees work from home within the same company and whether each employee has a workplace available to them at the employer’s premises (e.g. structurally less than one workplace per FTE). Also irrelevant is whether the employer has made certain resources (e.g. financial, ICT or other) available to set up the home office or has specific health and safety/welfare requirements in place in respect to the home office.
As a general rule, if an employee (resident of one country) telecommutes for the employer (based in the other country) for 50% or less of their working time within a 12-month period, it can be assumed that the home office is not a fixed establishment for the employer.
This is in line with the social security agreement made last year whereby the EU Member States facilitate homeworking by cross-border workers up to 50 pct. of their working time without any impact on their social security position.
Preparatory or Auxiliary Activities
Reference can be made to the exception in the tax treaty for so-called ‘Preparatory or Auxiliary Activities’ when defining a PE. This implies that if certain activities at the home office are solely for the preparation or support of the main business activities of the foreign company, it cannot be considered a fixed establishment. This may include tasks such as, for example, secretarial, general support or accounting activities. In this case, these activities cannot be sufficiently associated with the actual realization of the company’s profits.
However, if the activities of the fixed place of business are in themselves an essential and important part of the activities of the company, they can never be of a preparatory nature and are not auxiliary activities.
It should be noted that the Belgian Tax Authorities have stated before that the presence for more than 30 days of an employee performing only internal services in Belgium (i.e. no customer-oriented/project-driven activities) is not considered a Belgian establishment under Belgian domestic tax law. Creating a Belgian fixed establishment is generally the starting point for foreign companies to file a tax return in Belgium, pay an annual social security contribution, pay withholding tax on salaries taxable in Belgium and so on.
While the agreement has been concluded by the Belgian and Dutch Tax Authorities in respect to the bilateral tax treaty between the two countries, there is a general understanding in the Benelux and Germany that similar guidelines are needed beyond the BE-NL treaty alone.
Since the Netherlands has now officially agreed to this position, it is likely that other neighbouring countries will follow as well and that the Belgian Tax Authorities will apply these principles to other double tax treaties that we have agreed to.
The Belgian Minster of Finance has already confirmed that for an employee residing in Belgium, engaged in regular activities in Germany, France, Luxembourg, or the Netherlands, the home office can only be considered at the disposal of the employer if the employee consistently works from home (more than 50% of their working time) and does not have the option to work from another office abroad, or in case he does have it, rarely uses it in practice (Parliamentary Question Nr. 1498 of 26 May 2023, Mr VAN DER DONCKT).