What are the tax consequences of working from home?
The number of people working from home continues to grow, yet many taxpayers are not aware of the different tax consequences. If you are a company manager, a freelancer, or an employee who works from home full-time or maybe even part-time, you can claim tax back on certain related expenses. On the other hand, a foreign company that has a Belgian ‘home office’ at its disposal through one of their employees, can also have adverse tax consequences.
There are several expenses you can deduct when you work from home, such as the extra cost of heating and lighting your work area at home or the cost of buying a printer, desk, and office chair. The key thing you need to figure out is what proportion of the floorspace of your house or apartment you typically use for your business. You can then figure out what according percentage of your household costs you can claim tax relief on (e.g. repairs & renovation, insurance, real estate tax, mortgage loan interest, etc.).
If you wish to claim these expenses, it is in any case recommended that you keep proof of the incurred costs related to home working. Should you be audited, the tax office will not automatically accept a business expense if there are no supporting documents available. You must also be able to show that you actually use your home as a place of business, which might not always be that easy if you also work at your employer’s office building.
On another note, when a company is making its first tentative steps abroad and decides to do so in Belgium, it often recruits one or more employees who will mostly operate from home and potentially visit clients or attend trade shows or fairs in Belgium or in neighbouring countries. The employer prefers to avoid the cost of opening an actual office until they can be reasonably confident of success in the new marketplace.
However, foreign employers might not always be aware that a ‘home office’ can also create a permanent establishment (PE) for tax purposes. The foreign company could be subject to taxation in Belgium on their unincorporated business profits. Hence, foreign enterprises should know the tax consequences when initiating business activities in Belgium 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 facts and circumstances need to be considered on a case by case basis. We can assist with optimizing your business expenses and help foreign companies to determine and better understand the tax consequences of allowing their employees to work from home.