The spread of the coronavirus has a far-reaching impact on business and society all over the world. Countries have taken extensive measures in order to fight this virus. As several of these measures entail countries closing their borders, international business travel has become very difficult, if not impossible. As a result, the working pattern and work location of several employees and self-employed workers have changed due to this crisis. In our newsletter of April and May 2020, we explained how this may affect the application of social (security) legislation and how this may impact international taxation. Herewith, we provide you with an update in this respect.
BELGIUM AGREES UPON EXCEPTIONAL MEASURES WITH NEIGHBOURING COUNTRIES WITH RESPECT TO INTERNATIONAL TAXATION
Individual income tax is generally due in the worker’s country of residence. However, employees who work in cross-border situations may be taxable in other countries than their country of residence. These rules are generally based on physical presence of an individual in a certain country. Following the corona measures, employees who usually work abroad or in cross-border situations, may now carry out more telework or are working from home in their residence state very frequently. From an international taxation perspective, the general rules to determine which country has taxing rights remain applicable, also during this period of crisis.
The Belgian authorities have now reached an agreement with the neighbouring countries on some specific measures following the Covid-19 pandemic. In our newsletter of May 2020 we discussed already the measures taken between the Belgian and Dutch authorities following the corona crisis which in the meantime have been extended until June 30th, 2020. Now similar measures have been agreed upon between Belgium and Germany. In case employees are working from home following the corona crisis, it will be assumed that the individual concerned will have worked in the country where he would have been working without the application of the corona measures. It is thus required that the employee is working from home solely and exclusively due to the corona crisis. This rule cannot be applied to working days during which the employee would have worked from home anyway or in third countries. It is important in this respect to keep track of all these days in a travel calendar, potentially together with an attestation from the employer confirming which days the employee has worked from home following the corona measures. These exceptional corona measures agreed upon between the Belgian and German authorities are valid for the period as from March 11th, 2020 until May 31st, 2020. Please note that they have foreseen in a possibility to extend this period, should the authorities of both countries agree to do so. In the meantime, both countries have indeed agreed upon an extension of the measures until June 30th, 2020.
Following the corona crisis, the French and Belgian authorities already came to an agreement regarding frontier workers. Separately from this frontier worker arrangement, they now accept exceptionally and temporarily that the days worked from home by an employee exclusively due to the measures taken following the Covid-19 pandemic, can be considered as days worked from the country where the individual normally would have been working without any corona measures and this on the condition that this country actually taxes the income earned by the individual. Also the agreement between Belgium and France is valid as from March 11th, 2020 until May 31st, 2020. Should both countries agree, this agreement could still be extended.
Earlier, Luxembourg also reached an agreement with Belgium concerning frontier workers and the application of the 24-day rule during this corona crisis. Now both countries have also reached similar agreements as Belgium has done with the other neighbouring countries: the days on which a natural person works from home in his State of residence solely because of the measures taken to fight the spread of Covid-19 may be considered as days worked in the State where that person would normally have worked without the corona measures and this on condition that this State actually taxes the said income. This agreement is provisionally valid as from March, 11th, 2020 until June 30th, 2020 and may be renewed if both countries agree to do so.
Except for some exceptional measures taken under these specific circumstances, it is important to keep in mind that the general rules to determine which country has taxing rights remain applicable, also during this period of crisis.
If you would like to receive additional information on this matter or assistance, the tax team of RSM Belgium is at your disposal: [email protected].