The tax and social security consequences of remote working

Since the start of the corona pandemic, employees in the Netherlands are expected to work from home as much as possible. So, for quite some time now, employees have been working remotely. In this article, BDO addresses the impact remote working can have on expats from an income / wage tax and social security perspective.

Residency

It is possible that an employee’s residency changes as a result of remote working, as residency in the Netherlands is determined based on all the relevant facts and circumstances. Employers and employees should reconsider the employee’s residency status in the Netherlands if the facts and circumstances have changed due to remote working.

For example, a person’s residency status determines which type of Dutch personal income tax return should be filed. Resident taxpayers are taxed on their worldwide income, with the possibility of relief of double taxation if tax is due in other countries as well, while non-resident taxpayers are only taxed for sourced income in the Netherlands. Furthermore, the residency status affects the levy rebates that are applied in the payroll administration of the employer.

Income / wage tax

Here is how working remotely from another country might affect not only your tax situation, but also the allowances and benefits you are entitled to as a resident of the Netherlands.

International taxation

When you work and reside in the Netherlands for a Dutch employer, your salary is entirely taxable in the Netherlands (no cross border situation). However, this could change once you start working remotely from another country and this country will become your work state and / or your residence state. A cross border situation exists in such cases, and the relevant tax treaty will need to be consulted.

Based on most tax treaties, an employee is taxable in the state of residence, unless the employment is performed in another country (the "work state"). So, if your residency remains in the Netherlands, your salary will be taxable in the Netherlands, unless you physically exercise your employment in another state.

If the employment is exercised in another country ("the work state") than the Netherlands, the salary attributable to the working days in the other country state is taxable in that other country. However, the Netherlands as the residence state may levy taxes on your total salary (also, the salary related to the work days in the other country) if:

1. You spend less than 183 days in the fiscal year or any twelve-month period commencing or ending in the fiscal year in the work state
2. Your salary is paid by (or on behalf of) an employer who is not a resident of the work state
3. Your salary is not borne by a permanent establishment that your employer has in the work state

If your residency changes due to remote working and the Netherlands is no longer your residency state, your salary will be taxable in the Netherlands insofar your salary is attributable to your working days in the Netherlands (i.e. the Netherlands has become your work state). The remainder of your salary will, in principle, be taxable in your state of residence. Therefore, this will affect your net income, as every country has its own national legislation on taxes and tariffs. Please note that if you have a net salary agreement with your employer, remote working will not affect your disposable income.

To make sure the taxing levy rights are divided correctly, we would advise you to keep a travel calendar including work days, holidays and sick days and the country in which you physically spent each day.

Allowances and reimbursements

Many expats profit from the 30%-ruling in the Netherlands. The 30%-ruling consists of a tax-free allowance of a maximum of 30% of the taxable salary of the expat. The 30%-ruling only applies to salary taxable in the Netherlands. If, due to remote working, the salary becomes (partially) taxable in a different country than the Netherlands, the 30%-ruling benefit will self-evidently be lower or nil depending on the specific circumstances. It is therefore very important to take note of this as it can affect your disposable income.

In a previous article, we mentioned that the Dutch government has taken fiscal measures to ensure that employers can continue providing employees with the original tax-free fixed travel allowance despite the change in facts and circumstances. The Dutch state secretary approved that the tax-free fixed travel allowance can be paid based on the original travel pattern regardless of an employee’s changed travel pattern for 2020 and 2021.

However, this approval lapses as of January 1, 2022. The approval for continuing other tax-free fixed allowances ended on January 1, 2021. A changed travel pattern, due to remote working, will most likely impact your tax-free fixed travel allowance in 2022.

Social security

If your work pattern or residency has changed, it is highly advisable to reconsider your social security position. EU Regulation 883 / 2004, social security treaties and national social security legislation determine whether and where one is covered by social security.

Within the EU, EER and Switzerland, EU Regulation 883 / 2004 determines in which country a cross-border employee is subject to social security legislation. Within the EU, a person is subject to the social security legislation of a single member state only. The main rule is that a person is subject to social security legislation in the country the activities are carried out.

Special rules apply among others to posted workers and persons that pursue activities in more than one member state. If you work in more than one member state, the main rule is that you are subject to social security legislation in your state of residence, provided that you perform a substantial part of your employment in your state of residence. A substantial part is viewed as a minimum of 25% of your working time or remuneration. If you do not perform a substantial part of your employment in your state of residence, you will be subject to social security legislation in the state your employer is situated.

Outside the EU, a cross-border employee’s social security position is determined by concluded social security treaties or solely based on national social security legislation. When no social security treaty nor the EU regulation 883 / 2004 is applicable, the national social security legislation of the country or countries in which you work and reside are applicable.

This could lead to the situation in which you are covered in more than one country or not covered at all. Therefore, it is advisable to seek advice on your specific situation for social security purposes and to inform your employer about your whereabouts as this could have (financial) consequences for your employer as well.

Stay on top of things from home

As (partially) working from home is becoming the standard, it is important to reconsider your tax and social security position, especially when your employer is located in another country. Working from home can have an effect on residency status, which indirectly affects which country has the right to levy taxes and where you are covered by social security. Therefore, we would advise contacting your employer or tax advisor to check which impact remote working has on your specific situation.

If you have any questions regarding working from home and the effect it might have on your residency status, your income, tax and social security, BDO is there to help!