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The tax and social security measures that were applicable as of March 2020 to limit the impact of increased working from home due to the COVID-19 pandemic on the tax and social security position of cross-border workers are set to expire on 30 June 2022. This means that, as of 1 July 2022, the default international tax and social security regulations will, in principle, be applicable once more. However, a new European social security neutralisation guideline was recently agreed. The guideline aims to ensure that, until 31 December 2022, there will be no impact for frontier workers who spend an increased amount of time teleworking in their home State – for whatever reason – when determining the applicable legislation.
The ‘classic’ international tax rules applicable for cross-border workers are essentially based on the physical presence of the taxpayer. This is why, at the onset of the COVID-19 pandemic, it was necessary to find solutions. Indeed, due to the travel restrictions, many cross-border workers were forced to work from their home country instead of in the country where they’d usually work. Without specific rules, this would have had serious consequences in terms of determining the country where the taxes on professional income should be levied. In addition, these disrupted work patterns could have impacted the applicable social security legislation.
Tax agreements and social security guidelines
This is the reason why Belgium concluded tax agreements with its neighbouring countries (the Netherlands, France, Germany and Luxembourg). According to these agreements, the days worked from home by a cross-border worker – who would usually be working in another State but cannot do due to COVID-19 measures – are considered as if they had been performed from the usual State of employment. This tolerance is not mandatory, and the worker has to opt in in order to benefit from it. If applied, the tolerance allows cross-border workers to continue to be taxable in their ‘usual’ State of employment (and not in their country of residence, as would be the case if the tolerance were not applied).
This derogation to the classic international tax rules has been applicable since 11 March 2020 for the agreements concluded between Belgium and the Netherlands, Germany and Luxembourg, and since 14 March 2020 for the agreement concluded between Belgium and France.
A neutralisation guideline for social security purposes was agreed at a European level by the Administrative Commission for the coordination of social security schemes. This guideline – which was applied by many Member States, including Belgium – stated that any increased time spent working from home that resulted from the COVID-19 pandemic would be disregarded when determining the applicable social security legislation.
End of the COVID-19 no-impact measures
The tax tolerances and the social security guideline were adopted as temporary measures. Now that many COVID-19 measures have been phased out due to the improvement of the sanitary situation, a decision was made not to further extend these no-impact measures beyond 30 June 2022. This means that, as from 1 July 2022, the classic international tax and social security rules will be applicable once more.
What does this mean in practice? Physical presence will (once again) become the main criteria for determining where individuals will be taxable. Generally – and if the conditions are met – cross-border workers will be taxable in their State of employment for the days on which they are physically present at the office, and will, in principle, be taxable in their country of residence for the days on which they are not physically present at the office in the State of employment.
Even if the COVID-19 tax agreements end on 1 of July 2022, most companies will continue to offer their employees the opportunity to work remotely. This will most likely have consequences for cross-border workers from a tax point of view. However, Belgium has concluded a tolerance with Luxembourg stating that if a worker works less than 34 days per year outside of their ‘usual’ State of employment, these days will not be taken into consideration and the individual will be fully taxable in their ‘usual’ State of employment. No such tolerance has been agreed with any other countries at the present time, therefore the classic international tax rules apply.
New social security guideline
The social security COVID-19 neutralisation guideline is set to expire on 30 June 2022. However, the Administrative Commission recently reached an agreement on a new neutralisation guideline. This guideline aims to ensure that, until 31 December 2022, there will be no impact for frontier workers who spend an increased amount of time teleworking in their home State – whatever the reason – when determining the applicable social security legislation. This new period of neutralisation will give employers and employees more time to adapt and will give the Administrative commission more time to deliberate on this topic, including on whether more structural changes are required in this area. However, this only concerns a guideline – without any binding force – and it will be interesting to see how the different social security administrations will apply this in practice. It’s also important to stress that this guideline only covers the social security perspective and will have no effect on the tax-related COVID-19 agreements which end on 30 June 2022.
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