Working from home – 183 days rule – Corona Covid 19 measures – working cross-border
For employees working cross-border, the measures related to the corona crisis can cause a shift in the taxation of (part of) their income from the state of employment to the state of residence. This is the case, for example, if they work from home (out of necessity) on days that they would normally be in the other member state.
Below we will discuss the possible cross-border tax consequences of working from home for both companies and their employees.
Tax consequences of working from home in cross-border situations
Employer located in the Netherlands
Situation: The employee usually works in the Netherlands, and the Netherlands is also his fiscal tax residence. Employee now works temporarily from home in his country of origin.
When the Netherlands has concluded a tax treaty with the country of origin, the so-called 183-day rule generally applies. Under this scheme, the employee’s salary is only allocated to the original home country for tax purposes if the employee stays in that country for more than 183 days.
Depending on the applicable tax treaty, the 183 days are counted for a calendar year, for a tax year, or for a continuous 12-month period. If the stay in the original home country does not exceed more than 183 days in one of the aforementioned periods, there are in principle no tax consequences of working from home out of necessity.
It is advisable to consider whether the employer must comply with tax obligations in the employee’s original home country. The employer may have a registration obligation in the concerned country. Also, when the employee will earn a significant part of the turnover in his original home country, it is important to check if the employer risks a permanent establishment there.
Situation: The employee normally works in the Netherlands while the Netherlands is not his fiscal tax residence. The employee now works temporarily from home which is also his fiscal residence.
In principle, an employee who does not live in the Netherlands is taxed in the Netherlands for the earned income that relates to the Dutch working days, provided that the Netherlands has concluded a tax treaty with the country of residence and the employee is considered to be a tax resident of that country. As a rule, based on the applicable tax treaty, that part of the salary is allocated to the Netherlands for tax purposes that is attributable to days actually worked in the Netherlands. The 183-day rule does not apply. Employees who do not live in the Netherlands and who suddenly work from home in their country of fiscal residence or who work from home much more frequently, will therefore owe less tax on their total salary in the Netherlands, while they will owe more tax on income in their country of residence.
Employer is established abroad
Situation: Employee is tax resident of the Netherlands. Employee normally works abroad. Employee now works temporarily from home in the Netherlands.
The employee living in the Netherlands is in principle taxed in the country of employment for the earned income that relates to the working days in the country of employment, provided that the Netherlands has concluded a tax treaty with the country of employment and the employee is considered to be a resident of the Netherlands. As a rule, that part of the salary is taxable in the country of employment, which is attributable to days actually worked in the country of employment
Employees living in the Netherlands, who suddenly or much more frequently work from home in the Netherlands, will owe more tax on their total salary in the Netherlands, while their total salary will be taxed for a relatively smaller part in the country of employment (and exempted from tax in the Netherlands).
It is important to consider whether the employer runs a risk of establishing a permanent establishment in the Netherlands.
Situation: Employee is tax resident abroad. Employee normally works abroad. The employee now works temporarily from home in his country of origin, namely the Netherlands
This is where the 183-day scheme comes into play. Working from home for a short period of time will not immediately lead to the conclusion that the employee is again qualified as a resident of the Netherlands. If the stay in the Netherlands doesn’t exceed the period of 183 days, counted in a tax year, 12-month period or calendar year, depending on the content of the applicable tax treaty, the employees’ wages will generally be taxed in the country of employment. In this situation, the employer must be aware of the possible risk of a permanent establishment.
In some situations, a home office can constitute a permanent establishment. This is generally only applicable if the home office is used regularly and continuously for business activities and in a situation where it is clear that the company requires the person to work from home. As a result, there is a chance that several tax obligations will come up for companies and employees.
From the above it appears that it is quite possible that the tax liability and / or withholding obligation will shift to the home-work country in a number of cases. This problem is recognized by many countries and in a number of cases bilateral agreements have already been made (for example between NL and Germany and NL and Belgium). It is important to use work calendars to keep track of the location of employees.
Questions or in need of advice regarding the above? You can contact MFFA Tax Advice using our contact form.