What are the key points of attention?
- Under the current “threshold”, telework in the state of residence triggers a change of applicable social security legislation when it reaches 25% of the total working time (subject to a tolerance until 30 June 2023).
- Under the agreement, a cross-border teleworker would remain (upon request based on article 16 of the EU Regulation) subject to the legislation of the country where the employer is established, provided that telework in the state of residence represents less than 50% of the total working time.
- Each Member State should accept or reject this agreement. Luxembourg, Belgian and Dutch authorities have already indicated that they intend to accept the agreement.
- The Framework Agreement does not apply to individuals who:
- habitually pursue an activity other than cross-border telework in their state of residence; or
- habitually pursue an activity in a state other than the state of residence or state of its employer; or
- are self-employed; or
- are employed by more than one employer located in different Member States;
Karen is teleworking from her place of residence in Belgium 40% of her working time and is working 60% in the Netherlands at the premises (branch office) of her employer which has its statutory seat in Germany. The Framework Agreement cannot be applied as Karen works outside the State where the statutory seat of her employer is situated.
Karl is teleworking from his residence in the Netherlands for 45% of his working time and is working 55% of his working time in Luxembourg at the statutory seat of his employer. Provided that both the Netherlands and Luxembourg are signatory Member States, application of the Framework Agreement can be requested, resulting in the application of Luxembourg legislation
- The period during which the legislation is determined per request is limited to three years (renewal is possible).
What does this mean from an income tax point of view?
- The increase of the social security threshold does not affect the employee’s income tax position who generally is taxable in the state where the activity is pursued, subject to double tax treaties provisions (and their respective tolerance thresholds, if any).
- Unless a specific tolerance would apply (e.g. the Belgian – Luxembourg 34 day rule), the employee thus is taxable in the state of residence as from the first day of teleworking at home.
- Also, the social security tolerance does not prevent a teleworking employee (inadvertently) creating a permanent establishment for the employing company in the state of residence, with all due consequences.
- As the mutual COVID-19 agreements the Belgian and Luxembourg tax authorities concluded with its neighboring countries ended 30 June 2022, it is important for employers and employees to monitor compliance with the income tax rules.
What do employers need to do?
We advise employers to check whether they employ any cross-border teleworkers who fulfill the conditions of the agreement. It should then be analyzed from a multidisciplinary point of view whether it is preferable or not apply the agreement to avoid a change in the applicable social security regime considering the end of the social security tolerance 30 June 2023.
For any questions, please contact your trusted advisor at Tiberghien Luxembourg or Belgium or contact one of the authors of this publication.