Special agreements on taxation expire on 1 July 2022

Attention cross-border workers and employers! On 1 July 2022, the special agreements on, among other things, taxation of employees crossing the border between the Netherlands and Germany and between the Netherlands and Belgium will end.

Background

As a result of the coronavirus pandemic, many employees have been forced to work from home. If, for example, the employee's home is located in a country other than where he/she normally works (usually where the employer is located), the employee and possibly you as employer would have been required to pay tax in the country of residence on the working from home days as a consequence. As an employer, in principle you should have checked whether you were required to register in the employee's country of residence for (wage) tax and, often related, social security purposes.

Temporary tax liabilities in country of residence

The creation of temporary tax liabilities in the country of residence has been recognised by the OECD (Organisation for Economic Co-operation and Development) as an undesirable consequence of the coronavirus pandemic. After all, once the coronavirus pandemic was finished, it was expected at the time that employees would return to the workplace as before the pandemic.

To prevent the creation of temporary tax liabilities, at the beginning of the coronavirus pandemic the OECD issued guidelines on how not to attach tax consequences to the change of workplace. Thus, as long as the coronavirus pandemic continues, employees and their employers continue to pay taxes only in the country where the employer is established. The Netherlands has adopted these guidelines in bilateral agreements between the Netherlands and Belgium and between the Netherlands and Germany. Other border countries have also entered into similar bilateral agreements.

Since the pandemic and the related restrictions on travelling within the European Union are gradually coming to an end, these agreements will expire on 1 July 2022. From then on, workplace changes will in any case have consequences for your employees and possibly also for you as an employer.

What are the rules as of 1 July 2022?

  1. If your employees return to work from 1 July 2022, you do not need to take any further action. Your employees continue to pay tax in the country where the employer is established.
  2. However, if your employees do not return to work or return to work on a part-time basis from 1 July 2022, you will need to act.

What does this mean for you and your employees?

Employer

For you as an employer, this means that you may be required to register for tax purposes (wage tax, social security and corporate tax) in the country of residence and pay taxes and employer contributions in that country.

A possible change in the social security position could also result in an increase in your costs. After all, in addition to the implementation costs, you also need to take into account rising wage costs due to potentially higher employer contributions in the other country.

Another possible consequence is that the employment legislation and conditions of the country of residence may become applicable. For example, laws governing dismissal, reporting sick and reintegration obligations, annual leave, holiday allowance, legal insurances for e.g. incapacity for work, supplementary pension, etc. Obligations may also arise under collective labour agreements or comparable foreign schemes, including compulsory pensions in your sector.

Employee

For your employees this means they will be required to pay these taxes for the days they work from home (and possibly be required to pay employee contributions). This could result, among other things, in a change of their net income (= income after deduction of taxes and social security contributions).

Act now!

In short, with one month remaining, it is important that you review the existing policy for your employees living abroad and adjust it where necessary. If you have any questions or need assistance, please contact our experts. They can assist you at all stages of the process and provide expert advice.