The outbreak and spreading of the coronavirus (COVID-19) leaves almost no one unaffected. It has become a worldwide phenomenon impacting personal and family life, governments, businesses and the economies across the globe. Depending on the location and anticipated impact of the virus, certain (sometimes extreme) measures (such as quarantine and lock down) and safety precautions are being put into place by governments but also by (international) companies. It is far from business as usual.
Impact on the whereabouts of your workforce
Immigration entry restrictions apply in many countries. Entry rules are changing daily, consular offices may also lack staff or are closed due to regulatory / policy requirements. Employees may find themselves breaching their immigration terms due to overstaying or constrained by them (for example unable to work remotely). Business travellers may get stranded due to quarantine restrictions or no-fly policies. Others may need emergency immigration support. Employers carefully need to consider the impact of these restrictions on the ability of their workers to perform their normal duties.
To safeguard the good health of their employees and customers to the maximum in the first place but being conscious on business continuity as well, many companies have – until further notice – reduced or even put on hold all (non-essential) international business trips made by its employees and company directors. Big meetings and international trainings, seminars, events and conferences are being delayed or even cancelled. The same is often true for bigger in-house team meetings. By way of precaution, some companies temporarily deny access to their premises for all non-staff individuals (such as suppliers and customers).
In an accelerated pace companies are moving to fully remote working where possible, which can be challenging from an organisational/structural perspective and with respect to connectivity and bandwidth but also importantly with respect to data security and documentation of decisions – particularly in regulated industries. Some organisations take advantage of the disruption to normal business by accelerating upskilling initiatives using remote learning (e-learning or broadcast/recorded content).
All of the above measures who are currently most important for the wellbeing of your people and customers, may also have an impact on the income tax and social security position of your employees.
Tax impact of corona?
Individual income tax is generally due in the worker’s country of residence. However, employees who work in a cross-border context (frequent business travellers, employees assigned or seconded abroad or working simultaneously in different countries) may face taxation in other countries (than their home country) as well. Income tax position of these people is generally determined based on their physical presence/where they perform their activities.
As the increased corona measures are heavily impacting international business travel and employees are often asked to work from home, this is resulting in a significant increase of teleworking or homeworking whereby employees are working in their country of residence (instead of working on site, visiting clients, attending meetings abroad, etc.).
Working at home will impact the physical presence abroad in case where individuals are working in a cross-border situation. Moreover, there are specific situations (for example for Belgian residents who are normally working in Luxembourg for a Luxembourg employer) whereby these employees can work up to 24 days per calendar year outside Luxembourg without triggering taxation in Belgium. However, due to teleworking this threshold of 24 days may easily be exceeded in 2020 which will result in different income tax treatment. Also people working in Belgium with the application of the special tax regime, will face an impact on their income tax position if there professional travel is reduced. As variations in travel and working pattern may have a significant impact on taxation, employers should monitor this carefully. Employee payrolls in home and host country may have to be amended. Ultimately, this will also need to be reflected in the employee’s individual (home and host country) income tax returns.
In practice, since the COVID-19 outbreak, many companies find themselves confronted with questions regarding unforeseen and forced changes in the working pattern of employees who perform activities in surrounding countries (such as Luxembourg, The Netherlands and France). One of the main questions that arises is whether the corona virus could qualify as a case of force majeure, by which a day worked at home (in Belgium) could be disregarded for tax purposes? Could these home working days / Belgian working days (by way of administrative tolerance) exceptionally be considered as days worked “at the habitual place of work” outside of Belgium? Currently and based on recent contacts with the Belgian tax authorities in this respect, it seems that there would be no such tolerance applicable. However, going forward, depending on the factual circumstances and evolution of the coronavirus, this may well be put on the agenda of the government and tax administration.
In meantime is strongly advisable to closely monitor where your workforce is working to allow for the correct actions to be taken in due time.
Impact on the applicable social security scheme?
The impact of the coronavirus should also be further analysed from a social security point of view. In case of a of a “European employment situation”, the EU regulation on the coordination of social security systems will apply. This regulation determines the applicable social security legislation based on the professional activities performed in the different European member states by the employees concerned.
An employee performing professional activities in two different European member states, will be subject to the social security legislation of the residence state if he performs a substantial part of his activities (thus being at least 25% of his working time or salary) in his residence state. If an employee performs less than 25% in his residence state, he or she will be subject to the social security legislation of the country where the employer is located.
If employees (who under normal circumstances do not work more than 25% in their home country) – due to the impact of the corona measures – now spend an increased number of working days working remotely from home, could this then have an impact on the applicable social security scheme? Here the question also arises whether exceptions would be granted by the social authorities?
One could argue that from a social security perspective, the fact that an employee works exceptionally from home for a certain period of time, should normally be ignored in the framework of the EU regulation because according to a Belgian view, one should only take into consideration the reasonably expected travel / work pattern of an individual in the coming months. Following this approach, we would not expect that the Belgian authorities would claim Belgian social security contributions – due to the exceptional unforeseen character of the working pattern – for an employee who is a resident of Belgium and who normally works (e.g.) in Luxembourg (and is thus subject to the Luxembourg social security scheme), but now needs to work from home due to the coronavirus. Of course, in order to avoid unpleasant surprises, this should be cleared out with the authorities on a case by case basis.