Authors: Françoise Verreux, Supervisor, Isabelle Schunck, Senior Manager BDO Tax

COVID-19 has been affecting our daily lives and disrupting our living habits for a year now. To prevent its spread, unprecedented measures have been taken all over the world such as a ban on “non-essential” travel, mandatory quarantine when returning from abroad, and of course teleworking. Many people who usually carry out (part of) their professional activities abroad are now forced to work from home with possibly major tax and social security implications on their wages. We take a look at the exceptional measures Belgium and its neighbouring countries have adopted.

To understand how teleworking may impact the social security treatment – and in particular coverage under the social security system – of remuneration, it is necessary to briefly set out the rules applicable in this area.

When a worker carries out his or her professional activities in the territory of one or more Member States of the European Economic Area and/or in Switzerland, the applicable social security legislation is determined in accordance with European Regulation no. 883/2004 on the coordination of social security systems.

Based on this Regulation, a worker is only subject to the social security legislation of a single Member State. If the worker is employed in a single Member State, he or she must, in principle, be subject to the social security system of that State, regardless of his or her State of residence. However, if the worker is employed simultaneously in several Member States, then he or she will be subject to the social security legislation of his or her State of residence if he or she carries out at least 25% of his or her working time in this State. In case he/she spends less time in his or her State of residence, the worker will be subject to the social security legislation of the Member State in which his or her employer is located.

This way, we see how increased teleworking is likely to significantly increase the worker’s working time in his or her State of residence, which may lead to a switch to the social security system of the State of residence. Of course, this switch also has practical consequences for both the worker and the employer, who could, among other things, experience an increase in wage costs.

From the start of the crisis, the European Commission has therefore issued guidelines to the Member States concerning the exercise of free movement of workers during the COVID-19 pandemic. It immediately encouraged Member States to take the necessary measures to ensure continuity in the social security legislation applicable. Belgium, Luxembourg, France, the Netherlands, Germany and other European countries immediately took action.

Belgium decided that “periods of teleworking worked on Belgian territory by cross-border workers due to the coronavirus will, on an exceptional basis, not be taken into account to determine the applicable social security legislation and will therefore not have any impact on their social security registration. These periods will be disregarded from 13 March 2020 onwards, both for employees and self-employed. The planned end date of this measure is {currently} 30 June 2021 but could be revised based on the ‘Corona’ measures.” Moreover, Belgium concluded bilateral agreements containing similar provisions with its neighbouring countries, including the Netherlands and Luxembourg. These agreements are, in principle, applicable until 30/06/2021.

Travel restrictions and teleworking can also have significant tax implications. Indeed, most bilateral double taxation conventions concluded between States (hereinafter, “the conventions”) are modelled on the double taxation agreement template established by the OECD, which provides that a worker’s remuneration is, in principle, taxable in the State in which the activity is physically carried out. It is only when certain strict conditions are met – in particular when the period spent in the State in which the activity is carried out does not exceed 183 days during a reference period and when the salary cost is still borne in the employee’s State of residence – that the State of residence retains the right to tax the remuneration paid as a result of an activity carried out in another State.

With the COVID-19 crisis and the increasing use of telework, many cross-border workers were prevented from carrying out their activity in the initial State of employment and therefore carried out more of their professional activity in their State of residence. As of April 2020, the OECD has therefore issued a number of specific recommendations concerning, among other things, cases of cross-border occupations. It immediately called on States to collaborate in order to avoid the unforeseen consequences of a change in the taxing power. In accordance with the OECD recommendations, Belgium has concluded bilateral agreements derogating from the conventions with its neighbouring countries (Germany, France, Luxembourg and the Netherlands).

Under these agreements, remuneration paid, for teleworking days worked in the State of residence, is, since 11 March 2020 – since 14 March 2020 for the agreement concluded with France -, considered as days worked in the initial State of employment. Each of these agreements was initially concluded for a relatively short period but, given the duration of the crisis, these agreements have been successively extended so that they are currently still in force with a planned expiration date of 31 March 2021. As the current health context is still very uncertain, Belgium has indicated that it plans to extend the period of application until 30 June 2021. To this end, it has already concluded agreements in principle with Luxembourg and the Netherlands and is expected to begin discussions with France and Germany in the near future.

It is important to note here that these agreements do not apply:

In order for a taxpayer resident in Belgium for tax purposes to benefit from these “COVID-19” agreements, the Belgian tax authorities require the following documents to be provided:

The certificate from the employer must include:

To this end, BDO has drawn up a “standard” certificate template that we can provide to the employers concerned.

For taxpayers resident outside Belgium, it needs to be determined on a case-by-case basis whether the neighbouring country requires a similar certificate to be provided. Based on our experience, such a certificate is not required in, for example, the Netherlands.

In conclusion, urged by the European Commission and the OECD, Belgium along with its neighbours have adopted rules to prevent any use of teleworking in a COVID-19 context substantially changing the tax and social security treatment of remuneration paid. The current state of play is therefore rather reassuring at least as regards salaried cross-border workers.

The position of self-employed workers, workers who enjoy special foreign executive status in Belgium or non-cross-border workers, i.e. those who work in (non-)European countries, remains of greater concern (see infra). In addition, even for cross-border jobs, we recommend that employers be particularly vigilant, particularly given the forthcoming expiry of agreements and exceptional measures.

With the start of vaccination campaigns, there’s newfound hope that the COVID-19 crisis will soon be behind us. However, the widespread nature of this health crisis will leave its mark and in the business world, needs/priorities will probably have changed.

It is therefore likely that teleworking will, even more than before, become the norm and the new normal – even in cross-border employment situations. Various surveys of companies and workers worldwide, including within BDO, show that many workers positively experience teleworking, even for situations requiring a certain amount of international mobility. Teleworking will therefore probably retain an important place in the new post-COVID era. That being said, this will have tax and social security implications, once the COVID-19 measures are repealed.

In practical terms cross-border workers will be taxable in two countries: the days worked in the State in which the employer is located will remain taxable in this country, while the days worked in the State of residence or in third countries (e.g. business trips) will become taxable in the State of residence. If the workers carry out 25% or more of their professional activity in their State of residence, the workers – as well as their employer – risk having to change social security system. The employer must therefore properly organise teleworking, taking into account a non-exhaustive “to-do list”: