For internationally active employees, the taxation of salaries is linked to the location where the work is carried out. The sudden switch to the home office may therefore have a major impact on the tax position and the net salary of the employees concerned and on the payroll administration of the employer.
For instance, a Belgian employee usually works 4 days a week in Poland and 1 day a week in Belgium. His/her salary is for 80% taxable in Poland and for 20% in Belgium. If he/she works exclusively in Belgium as of March 2020 as a result of the Covid-19 measures, his/her salary for this period is, according to the general rules, 100% taxable in Belgium.
For tax, there are no general exception measures in place. Hence, for most internationally active employees, Covid-19 will have a major impact on the taxation of their salary. This is however different for employees who normally work in Belgium's neighbouring countries as Belgium has concluded agreements with Germany, France, Luxembourg and the Netherlands.
These agreements introduce a fiction according to which homeworking days of (Belgian) employees who normally work in Germany, France, Luxembourg or the Netherlands are considered to have been spent in the country where they would have worked without the Covid-19 government measures. This fiction is effective as of mid-March 2020 and is still being extended.
For instance, a Belgian employee used to work 4 days a week in Germany and 1 day a week in Belgium. As of March 2020, he/she works exclusively in Belgium. If the employee relies on the fiction, 80% of the 2020 annual salary remains taxable in Germany and exempted from tax in Belgium.
It is advisable to examine what is most opportune in each individual situation: to invoke the fiction or to apply the general rules, i.e. taxation based on the place(s) where the activities are actually performed. This is relevant for the employer’s payroll obligations. The employee will have to apply the fiction (or not) when submitting his/her 2020 tax return.
To invoke the fiction, an individualised certificate from the employer is required. This certificate must contain a number of obligatory statements, including the number of days the employee worked from home solely because of the Covid-19 government measures. If applicable, also the number of homeworking days provided for in the employment contract must be mentioned. In addition, it is required that tax is paid in the country where the activities would have been carried out in the absence of the Covid-19 pandemic.
Tiberghien’s international tax team will continue to monitor these developments. In case you have any further questions here or want to discuss this, please do not hesitate to contact the author.
For the impact of the Covid-19 pandemic on the applicable social security, we refer to a newflash published on 9 April 2020.
Katrien Bollen – Senior Associate (firstname.lastname@example.org)
Mona Vera – Associate (email@example.com)