We highlighted before that since 2020 Belgium had specific agreements in place with the Netherlands, Germany, France and Luxembourg that introduced so-called ‘COVID working days’. These agreements considered ‘forced home working days’ as having spent in the country where the cross-border worker would have normally exercised their employment in case no travel restrictions would have been imposed.
Although travel restrictions have now all been lifted, the agreements were extended several times over the past two years and most recently until 30 June 2022. It has been confirmed by the tax authorities that they will definitely come to an end now later this month.
As a result, from 1 July 2022 onwards, the traditional rules as they existed before the pandemic, will apply again. Both for income tax and social security purposes (1). This means that salary earned by Belgian, Dutch, French, Luxembourg, and German cross-border commuters will be considered taxable in the employee’s country of residence, unless the employment activity is physically performed in the country where the employer is located.
Due to the fiction of the ‘COVID working days’, teleworking from home did not have any impact on the employee’s tax and social security position over the past two years, but this will now change again on 1 July. It will therefore be important to properly monitor how the traditional rules will impact the situation of your cross-border workforce that continues to telework from Belgium, the Netherlands, France, Germany or Luxembourg.
As an exception to the general rule, it should be noted that Luxembourg has separate agreements with Belgium, France, and Germany in respect to cross-border working. These agreements continue to exist and allow cross-border commuters that work from home to benefit from a certain tolerance allowing them to work remotely. This is 34 days per year for Belgium, 29 days for France (to be increased to 34 days soon as well), and 19 days for Germany. If the above threshold is exceeded, the salary earned for the days worked outside the country of employment becomes taxable in the employee’s country of residence (including those days within the said limit).
It is clear that teleworking has become the norm in recent times and will remain widespread among businesses for the foreseeable future. This logically clashes with the traditional concept in international tax law of giving the right to tax to the country where the employment is physically exercised.
In view of the evolution of cross-border commuters working more and more from home and less often where the employer is located, Belgium has recently announced that it is looking for a more sustainable solution for cross-border workers who telework. This resulted in a proposal to increase the number of days an employee can work outside the country of employment, to 48 days per year or approx. 1 day per week. We have recently seen similar initiatives in Germany and France as well. This change in approach will hopefully become more concrete in the months to come.
(1) On an EU level it has been agreed that, until 31 December 2022, employees who reside in one country and (normally) work in another country can continue to work from home (more than 25 percent of their time) without becoming subject to social security in their country of residence. Until the end of 2022, the social security position of cross-border commuters will therefore not change.