Teleworking from abroad
Tax and legal consequences and risks
Charlotte Van Braeckel, Senior Consultant BDO Legal, Nancy Slegers, Partner BDO Tax
Teleworking from abroad is becoming more and more common. However, you should ask yourself what the rules are. Can it be regulated, and what are the risks for both the employer and the employee from a tax, legal and social law perspective?
In our globalised world, ever more employees are working and living in different countries. Under pressure from the COVID-19 pandemic, employers and employees have had to organise work differently – and teleworking has become a fixed value. Now that we have the corona crisis more under control, the demand to integrate teleworking from abroad structurally in the work organisation is increasing. And why not? But… don’t take any chances!
Teleworking from abroad can have consequences in different areas, such as the applicable labour law, social security and taxation. Or, with regard to immigration and other formalities.
What does labour law say?
Agreement of the employer
As the employer, you must agree to the teleworking and the location, including when these are abroad. With structural (i.e., not occasional) teleworking, an employee makes use of information technology to work on a regular basis from his or her own place of residence or at a location of his or her choice away from the usual workplace. If both parties agree to structural teleworking, a number of compulsory elements must be set out in writing. Ideally, this document then becomes an annex to the employment contract.
In principle, the parties are free to choose which labour law applies to the employment contract and therefore also to its annexes. However, the choice of law made by the parties cannot have the effect of depriving the employee of the protection afforded to him or her according to the compulsory provisions of the law of the country from where he or she is teleworking.
If no applicable law is chosen, then the law of the country of habitual employment applies. If the employee does not always work from the same country because he or she regularly teleworks from abroad, the law of the country where the employer’s company is located applies.
“Which social security regime applies? Won’t an employee be taxed twice? What about occupational accident insurance?”
What about social security?
The social security regime that applies when an employee teleworks from multiple countries (so-called multi-country employment) depends on a number of factors and must always be considered on a case-by-case basis.
Teleworking from within Europe
Under normal circumstances, and within Europe, the employee is subject to the social security regime of one member state: the state of the employment. There are 2 exceptions to this principle: secondment, and the so-called ‘multi-country employment’ in multiple member states.
If an employee alternates between working in an office in Belgium and teleworking from his or her place of residence in another member state, the rules for multi-country employment in multiple member states apply. In that case, the basic principle is that the employee is subject to the social security regime of the country of residence if he or she works there for at least 25% of the time. If that is not so, the social security regime of the member state where his or her employer is established applies.
If an employee lives abroad, partial teleworking in his or her country of residence can also have a significant impact on the applicable social security regime. Indeed, if he or she teleworks at least 25% of the time from another country, the Belgian social security regime is no longer applicable.
However, during the COVID-19 pandemic, some exceptional measures were put in place for workers on national borders. These measures apply until 31 December 2021.
Teleworking from outside Europe
If an employee wants to telework from a country outside Europe, you must check whether there is a treaty between Belgium and that country regarding the applicable social security regime. Belgium has concluded a social security treaty with a number of countries which makes it possible, under certain conditions, to remain subject to the Belgian social security regime and to export some of the Belgian social rights abroad.
An employee who teleworks from a third country with which Belgium has not concluded a social security treaty no longer falls under the Belgian legislation. However, if the employee does not telework for longer than 6 months, he or she remains subject to the Belgian legislation, insofar as he or she has reported this to the Belgian social security authority (RSZ).
Other social security formalities
If an employee teleworks from multiple countries, he or she must request an A1 form (for multi-country employment within Europe) or a ‘Certificate of Coverage’ (for multi-country employment in Belgium and a country outside Europe) in the country of residence, which specifies the applicable social security regime.
Furthermore, depending on the situation, an employee must apply for a ‘European Health Insurance Card’ or an S1 form, which proves that he or she is entitled to healthcare if he or she does not reside in the country in which he or she is socially insured.
In addition, you must check whether specific notifications need to be made to the local authorities, such as with the Limosa notification in Belgium. Failure to report certain matters in good time can lead to sanctions, even abroad.
Does the occupational accident insurance cover teleworking?
As already mentioned, you as the employer must agree to the teleworking and the location. Therefore, before you start, be sure to check whether your occupational accident insurance covers the teleworking. Teleworking from the place of residence in Belgium is usually covered; but teleworking from abroad is often not automatically covered. So, you might have to extend your cover in this respect.
If an employee teleworks from abroad, it is best to check whether having a work permit or residence permit is required. For EU citizens within Europe, the problem does not arise. Such a permit will usually be required for ‘third-country nationals’ or for EU citizens teleworking from outside Europe.
If an employee teleworks from abroad, it is best to check whether having a work permit or residence permit is required.
What about taxation?
For the employee
If you, as the employer, give an employee living in Belgium permission to telework from abroad (according to the definition in employment labour law, see above), the duration of the teleworking will determine the tax ultimately due by that employee.
In principle, the tax is due in the country where the work is performed. However, if the employee teleworks from abroad for fewer than 183 days per year or in any not-necessarily consecutive period of 12 months (depending on the applicable double-taxation treaty), tax will usually continue to be levied in Belgium as the country of residence.
However, the duration of the teleworking is not the only condition that determines the taxation. For example, tax will continue to be levied by Belgium if the salary continues to be paid by the employer established in Belgium. Thus, it may not be borne by an employer, or a permanent establishment of the employer, in the country from which the employee teleworks.
Furthermore, it is important that the employee retains his or her tax residence in Belgium during the period of teleworking from abroad. If he or she teleworks from abroad for only short periods, then, in principle, the Belgian tax residency is not impinged.
However, if he or she teleworks from abroad for a long period, regularly or otherwise, it is best to check whether the employee is considered a tax resident according to the tax laws of the country from which he or she is teleworking. If that is the case, it might be determined that he or she has a double-tax residence, in Belgium and in the country from which he or she is teleworking. The employee then runs the risk of being taxed twice on all or part of his or her income. This certainly applies to countries with which Belgium has not concluded a double-taxation treaty.
If the employee teleworks from abroad for more than 183 days, or if the long or regular teleworking from abroad shifts the tax residence abroad, you must know that the salary you pay for those teleworking days abroad will be taxed.
For the employer
As a consequence of the long-term or regular teleworking of employees from abroad, as the employer, you run the risk that a so-called ‘permanent establishment’ of your Belgian company is created in that country. Check out this risk before giving your permission for teleworking from a foreign ‘home office’.
If such a permanent establishment is created, your Belgian company will be subject to corporate income tax in the country where the work is performed. Furthermore, this then raises the question of profit allocation and how you can prevent double-taxation. If the permanent establishment is in a country with which Belgium has not concluded a double-taxation treaty, then it can also lead to additional costs.
Even if the existence of a taxable permanent establishment is excluded by the foreign tax authorities, it is still important to verify whether or not the country where the work is performed will consider the work location to be a foreign establishment on the basis of its domestic tax legislation. If not, this need not lead to additional taxes. But there is a risk of extra formalities and costs. For example, consider the comparable obligation of foreign companies with a Belgian establishment to submit a zero corporate income tax return for non-residents or the compulsory affiliation to a social insurance fund and the payment of the annual company contribution.