As a result of the COVID measures, frontier workers were suddenly no longer able to work at their employer’s business site and were obliged to work from home. The Belgian and European authorities took measures in 2020 to neutralise the impact of teleworking as a result of the COVID measures with regard to taxation and social security. These measures were extended repeatedly but expired yesterday. As of today, the normal tax rules apply again. Regarding social security, the COVID measures ended yesterday, but a transitional period was recently announced for teleworking frontier workers (until 31 December 2022).
Teleworking abroad can have an impact on an employee’s income tax. When an employee has his or her tax residence abroad, the employee will be taxed abroad for the days he or she teleworked abroad.
However, due to the COVID measures, employees were obliged to telework from their residence as of March 2020.
Belgium concluded several bilateral agreement with its neighbouring countries (the Netherlands, France, Germany and Luxembourg) to neutralise these teleworking periods from a tax point of view. These agreements stipulated that the days during which the work was carried out at home were still taxable in the working country despite the fact that the employee did not perform such professional services physically in that state. However, these tax neutralisation measures expired yesterday.
If a frontier worker performs services at home in his or her residence state, this will have an impact on his or her income tax as of today. For example, a frontier worker who lives abroad and works in Belgium will be taxable in the residence state for the days he or she teleworks there and in Belgium for the services performed in Belgium and are remunerated by his/her Belgian employer.
This may result in employers having to deduct foreign withholding tax from the income taxable in that state. In addition, under certain circumstances, the employee’s home office may be considered a permanent establishment, which would lead to a portion of the profit becoming taxable in the corporate taxation of that country.
The basic principle in the European context is that only one social security system can apply (that of the working country). In the event of simultaneous employment in more than one Member State, the employee will be subject to the social security of the Member State of residence if he or she works there for at least 25% of the working time. For example, if a frontier worker works 25% or more from home, he or she will consequently be subject to the social security of the Member State of residence and the social security system of the Member State where the employer’s registered office is located will no longer apply.
However, for the past 2 years, COVID measures have been in effect whereby European social security administrations did not take the periods of telework in other Member States as a result of COVID measures into account when determining the applicable social security system. These neutralisation measures expired yesterday.
The Administrative Commission for the Coordination of Social Security Systems reached an agreement on 14 June 2022, to provide a transitional social security period for teleworking frontier workers until 31 December 2022. As a result of this transitional period, the teleworking of frontier workers in their residence state does not trigger a shift of the applicable social security system.
Therefore, from a social security perspective, there will be no change for the time being for teleworking frontier workers. Employees who do not qualify as frontier workers could feel the impact of the expiry of the COVID measures.
As of today, teleworking abroad will again have important tax consequences as the COVID measures expired. With regard to social security, there will still be a transitional period with neutralisation measures for teleworking frontier workers until 31 December 2022.
It is important to make clear agreements with employees regarding telework abroad. It could possibly even be necessary to impose restrictions on the number of days employees may telework abroad. Furthermore, it is also important that the days on which the employee works abroad are accurately recorded (tracking).