COVID-19: unintended tax consequences for cross-border employment 

Due to the recent pandemic, most employees are not allowed to cross the border anymore and are forced to work from home. Due to these restrictions, employees can no longer work in the country where they normally physically work and are now part of a nationwide work-from-home experiment we are all currently subject to.

Double tax treaties determine which country may levy tax on the employee’s salary working abroad. Cross-border workers are typically obliged to pay income tax in the country where they earn a salary. The country where the employee physically exercises his employment is an important factor in this context.

The current change in the place of employment due to COVID-19 may result in the salary suddenly becoming taxable in the home country. This might also have implications for payroll tax withholding requirements and makes the administrative follow-up process in general more complex.

The Belgian tax authorities already confirmed in March that the current crisis will not have any negative impact on French frontier workers and the 24-day arrangement with Luxembourg. The tax authorities explicitly recognized the coronavirus as a force majeure situation.

The OECD encourages tax authorities to make additional arrangements in this context. The goal is obviously to avoid undesirable tax consequences as a result of people being forced to work from home.

Belgium is following this call and is currently negotiating agreements with the Netherlands, Germany, France (in addition to the above-mentioned frontier worker scheme) and Luxembourg. These negotiations have not yet been finalized, so we need to wait a bit more before we can tell you what the exact impact of these agreements will be.

It is also not yet clear whether these agreements will only involve our neighboring countries or will apply to all double tax treaties that are currently in force in Belgium.

If we follow the example of the agreement that has already been made between the Netherlands and Germany, the so-called ‘COVID working days’ will not be considered working days in the home country, and should therefore not have any undesired tax consequences for these cross-border workers.

We will evidently update you as soon as we know more.

Update on 4 May 2020: the tax authorities have announced they have signed an agreement with the Netherlands, whereby any working days between 11 March 2020 and 31 May 2020, will not be considered working days in the home country. This applies to Belgian residents working in the Netherlands, as well as to Dutch residents working in Belgium. The agreement (in Dutch) can be downloaded below.

Update on 13 May 2020: a similar agreement has now also been made with Germany. The agreement (in Dutch) can be downloaded below.

update on 20 May 2020: agreements both with France and Luxembourg have now been signed as well and are made available below.

On 19 May 2020, the Belgian tax authorities published a mutual agreement on the taxation of frontier workers under the Belgium – Luxembourg Income and Capital Tax Treaty (1970) (as amended in 2009).

Based on article 15 of the treaty employees are generally taxed in the country of employment. A mutual agreement of 16 March 2015 provides that for the application of this main rule employees may not work more than 24 days in the state of residence or a third country.

The agreement of 16 May 2020 provides that from 11 March 2020 until 30 June 2020, all days that employees are working from home due to the COVID-19 will not be taken into account for the calculation of the 24 days-rule. This means that such employees remain taxable in the state of employment.

From 1 July 2020 onward, the agreement will continuously be prolonged for another month as long as both countries confirm in writing 1 week before the end of the month they agree with the prolongation. The mutual agreement is a follow-up of a mutual agreement of 16 March 2020.

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