Coronavirus (COVID-19) – International tax and social security consequences
The Coronavirus affects us all. It has a global impact on personal and family life, governments, businesses and the economy in general. Various measures have been taken, with homeworking being one of the measures in several countries. But what is the impact of this homeworking from a tax and social security perspective in an international employment environment?
Because of the seriousness of the virus and the speed with which it spreads, a measure of social distance was introduced. The most obvious measure to respect this for employees, is (in so far this is possible), switch to homeworking. In a cross-border situation, homeworking might however have some important impacts.
Impact from a tax perspective
Based on several principles in the double tax treaties Belgium has with foreign countries, a person is in principle taxable in his home country, but can also be taxable in the working country if some conditions are fulfilled. The measures taken to force people to work from home, will of course have a very important impact from a tax perspective. A person that is normally spending a lot of days in his working country and is taxable over there, will at once become taxable in his residency state on all days spent at home. Up till now, the Belgian tax authorities are of the opinion that no tolerance will be applied in this respect. Considering the taxation right is based on double tax treaties, both countries should agree with some special measures, before these could be applicable.
Belgium already concluded agreements with France and Luxembourg in this respect.
As from March 14th 2020 until further notice, when a French frontier worker (which is a French resident working in the Belgian border region), is working from home, i.e. France, these home working days will not be taken into account for the 30-day period for the calculation of physical presence allowed for working days outside the border area.
An agreement has also been reached between Belgium and Luxembourg. The homeworking days for a Belgian resident, normally working on the territory of Luxembourg, will not be taken into account during this Corona-period for the limit of the 24-days rule.
For other cross-border employment situations, like for example for salary split situations, no measures have been taken till now. This means that the normal double tax treaty rules are applicable. For employees, this means that each day spent in his home country, is taxable in the home country.
Expatriates in Belgium
Also for employees benefiting from the special taxation regime for expatriates in Belgium (Tax Circular letter of 8/8/1983), the home working regime might have an important impact on their personal income tax situation. As for many of the expatriates this will have an impact on their business travel pattern, their travel exclusion will decrease significantly. For now, no measures have been taken by the Belgian government in this respect.
Impact for social security
Based on EU Regulation 883/2004 on the coordination of social security, cross border workers are in principle subject to the social security of the country where they work. However, if they spend a substantial activity in their residency state (which is a least 25% of their activity), they are subject to the social security scheme of their residency state. You can imagine that the measures of home working also have a big impact on this, as a person who is normally subject to the social security in his working state, can now become subject to social security in his residency state.
The Belgian social security authorities confirmed in this respect that the periods of home working in Belgium by persons in a cross-border employment situation will exceptionally not be taken into account to determine which social security scheme is applicable. This rule is to avoid that cross-border workers become subject to Belgian social security, while in a normal situation they have no substantial activity in Belgium.
We think it is very important that the Belgian authorities take decisions as the one they took for social security purposes, this to avoid complex situations in this Corona-crisis. However, we would like to emphasize that in a cross-border situation, several countries are involved and therefore, it is important that all countries involved agree with the taken measures. As such, the determination of the country which is entitled to apply social security is determined based on EU Regulation and therefore, we are of the opinion that the Belgian authorities can’t take such measures without consulting the other European countries. However, based on a communication from the social security authorities, it seems as though the same position would be taken in several other European countries.
We expect however, that Belgium will have the necessary discussions with several foreign countries, in order to limit the impact of home working on cross-border employment. We are closely following-up on all decisions taken in this respect by the Belgian authorities and will keep you updated.