If you live in one country but work in another, that’s you! While it may be great to have such geographical separation between your work and personal life, it does have an effect on your taxes and social security — especially in a pandemic.
We teamed up with Daniel over at HBK to tackle this tricky topic. He offered us some clarity to help wrap your heads around the different definitions — so let’s dive right in!
What kind of taxpayer are you?
Before we jump into the nitty-gritty, there’s one defining factor: whether you are considered a resident taxpayer or a non-resident taxpayer by the Belastingdienst (Dutch Tax Agency). This is dependent on a number of factors:
“If you have family, personal ties, and a majority of your economic interests in the Netherlands you will be classed as a resident taxpayer — even if you actually work abroad,” explains Daniel.
As a resident taxpayer of the Netherlands you are taxable for your worldwide income. However, if you (partly) work abroad, (a part of) your income relating to the work days abroad may become taxable in the country where you work (if certain conditions are met.)
Jump to see resident taxpayer implications
However, if the majority of your personal and economic interests are located in another (EU) country, but you work in the Netherlands, then you will be considered a non-resident taxpayer in the eyes of the Dutch taxation system.
As a non-resident taxpayer who works in the Netherlands, you will only be taxable for the income relating to your Dutch working days (provided that certain conditions are met).
Jump to see non-resident taxpayer implications
During the pandemic, many cross border workers have found themselves becoming remote workers. Essentially, they are spending more of their time working from their country of residence, instead of the country of work.
A remote worker is defined as someone who works for a company but outside of the traditional office environment. In the pandemic, many of us have found ourselves constructing our own makeshift office spaces within our homes, thus becoming remote workers.
This is where things become different. For the majority of us, the switch to remote work means nothing more than a significantly reduced commute (bed to office chair) and some new back pain.
However, for cross border workers, there can be significant implications when it comes to taxation and social security.
Tax implications for cross-border workers
Ok, so what are the tax implications for cross-border workers? As we said above, to begin to understand the implications for cross border workers you need to firstly determine whether you are a resident or non-resident taxpayer.
Following from this, you also need to determine whether you are working for a Dutch employer or working for a foreign employer. What happens in terms of taxation varies depending on where you fall along this spectrum.
A bit confused? Don’t be! We’ll run through some important definitions and the various scenarios with you.
The 183-day rule
If you’re unsure about whether or not you stand to lose some of your taxation benefits you need to ask yourself the following question:
- How many days have I been working from here?
Specifically, you need to calculate whether you spent more than 183 days outside of the country of residence. Why this number? Daniel uses an example to explain:
“If Louis, who is a resident of the Netherlands and works for a Dutch employer, temporarily returns to France to stay with his relatives during the pandemic, he will be liable for taxation in France on his French work days if he spends more than 183 days in France,” he says.
Resident cross-border workers and Dutch income tax liability
If you are considered a resident worker, and normally work in a different country but now work from your home in the Netherlands, you may find that by the end of the year the majority of your salary is taxable here — instead of the country in which you would normally work.
Meanwhile, any salary that you earned while in the country where you usually work will be taxable there.
As a result, you may end up in a situation where you have to pay a substantial amount of income tax in the Netherlands, whereas you can claim taxes back in the country where you usually work and where your employer is based.
For example: Michael lives in the south of the Netherlands with his family, but commutes to Luxembourg for work. According to the Belastingdienst he is a resident taxpayer. However, since May 2020 he has worked remotely at home. Now, his salary will be liable for taxation in the Netherlands instead of in Luxembourg, which can lead to a bureaucratic nightmare.
Do you have a Dutch or foreign employer?
Regardless of where you work, as a resident taxpayer, your employer may be either Dutch or foreign. This has implications for how you, as a cross border worker, can claim tax relief. Daniel offers a helpful explanation to help us understand.
A resident taxpayer with a foreign employer
Let’s consider your tax situation if you are a resident taxpayer with a foreign employer.
For example, you have a French employer (who pays your salary). You can claim a relief to avoid double taxation for the income relating to the French work days (regardless of how many days you spent/worked in France. This means that the 183 day rule does not play a role in this scenario.)
A resident taxpayer with a Dutch employer
On the other hand if you are a resident taxpayer with a Dutch employer then the situation is slightly different.
If you have a Dutch employer (who pays your salary), then you can only claim a relief to avoid double taxation for the income relating to the French work days when you spent more than 183 days in France.
The situation is also slightly different if you are a non-resident cross-border worker. Let’s tackle this scenario.
Non-resident cross-border workers: Dutch income tax liability
To begin, let’s recap on what a non-resident cross-border worker is. To clarify, Daniel offers us the example of a non-resident worker who works in the Netherlands but lives abroad.
For example: Freya, who is a resident of France, normally commutes to her Dutch job from her home in France. When coronavirus hit, she started working from her French home. Because she worked the majority of her time in France, most of her salary will be liable for taxation in France, not the Netherlands.
Do you have a Dutch or foreign employer?
Again, as a non-resident cross-border worker, your tax situation will vary depending on whether your employer is Dutch or foreign. Much like with resident cross-border workers, the difference is seen in how the 183 day rule can be applied in your situation.
Time for some handy examples? We thought so.
A non-resident taxpayer with a Dutch employer
If you are a non-resident taxpayer with a Dutch employer (who pays your salary), you are only taxable for the income relating to your Dutch work days. This is regardless of how many days you spent/worked in the Netherlands. I.e. the 183 day rule does not play a role in this scenario.)
30% ruling and non-resident cross-border workers
Under the 30% ruling, incoming employees may be entitled to keep 30% of their wage, including reimbursement for moving costs — tax-free!
If non-resident cross-border workers with a Dutch employer work from home (i.e abroad) during the pandemic, they may find that they lose out on some of the allowances of the 30% ruling.
Why? The 30% ruling is only applicable on income that was earned while working in the Netherlands. If suddenly your income was considered to be earned in France, for example, you could lose a part of that tax benefit.
A non-resident taxpayer a foreign employer
If you are a non-resident taxpayer with a French employer (who pays your salary), your salary will only become taxable in the Netherlands for the income relating to your Dutch work days if you spent more than 183 days in the Netherlands.
A few exceptions: Belgium, Germany
As with everything, there are a few exceptions — and we love to hear about them when it comes to tax.
Certain countries have teamed up during this time of confusion to try and make life a little bit easier for cross border workers. The magic words here are bilateral agreements. Specifically bilateral agreements between the Netherlands and Belgium, and the Netherlands and Germany.
These agreements mean that cross-border workers who are forced to work remotely from home due to coronavirus will still be liable for taxation in the country in which they were meant to be working.
For example: “Sam lives in Belgium but usually works in the Netherlands. Now, due to the pandemic, Sam is working remotely from Belgium. Thanks to a bilateral agreement between Belgium and the Netherlands, the Belgian tax office will look the other way. Sam’s salary will continue to be taxable in the Netherlands.”
This is the same for cross-border workers who live and work between the Netherlands and Germany.
If you’re still uncertain of whether you can benefit from these agreements, you can always reach out to tax consultants like HBK for some guidance.
Note: that these bilateral agreements with Belgium and Germany are in place until the end of June. At this point it is unsure whether the agreements with both countries will be extended.
Tax implications for cross-border employers during the pandemic
Employers of cross border workers may also face implications if their employee is working remotely from a different country. Depending on the country involved, the employer might be required to set up a payroll and withhold taxes in the country where the employee works remotely.
Therefore, it is important for employers to get informed about the implications they might face if the employee works remotely outside the country in which the employer is based.
Yup, it looks like the consequences of the pandemic for cross-border employers are also quite significant!
Social security and cross-border workers during the pandemic
Now that we’ve covered taxes, we also need to talk about social security and cross-border work during the pandemic. As you can imagine, it’s no good being covered in the Netherlands if you need to receive the benefits in France.
So what can cross border workers do about their social security? And how has it been affected by the pandemic?
Social security as a resident worker
Usually, you receive social welfare from the country in which you work. For example, if you are a resident of the Netherlands but work in Belgium, you will have social security in Belgium.
However, in EU/EEA countries and Switzerland, if you spend more than 25% of your work hours working from your country of residence instead of your country of work, then you should receive social security in your country of residence.
Now, given that many resident cross border workers are currently living and working from the Netherlands instead of their country of work, some changes had to be made.
Social security as a non-resident worker
The predicament is similar for non-resident cross border workers, explains Daniel.
“If you have a Belgian who works in the Netherlands, then he will be given social security in the Netherlands. However, if he spends more than 25% of his time working in Belgium, then he will become socially insured in Belgium.”
Exceptions: the SVB and COVID-19
However, if this rule continued to apply this year, there would be a lot of trouble and confusion for cross-border workers and their employers. Thankfully, some exceptions have been made in light of the pandemic.
However, the SVB have announced that cross-border workers who are currently forced to work from home due to the pandemic will not have to adjust their social security location if the home country is inside the EU/EER/Switzerland — meaning you don’t have to worry about a change in your social security position. This applies to both non-resident and resident taxpayers.
Social security and implications for cross-border employers
Usually, when an employee needs to receive social security in their resident country (e.g Netherlands) instead of the country in which they work (e.g Belgium), the Belgian company will need to register their business in the employee’s resident country (Netherlands) in order to pay the social security contributions due on behalf of that employee.
As you can imagine, this is a bit of a trek for employers. Luckily, the above exception for workers also applies to employers, meaning they will not have to register their business in a different country if their employee must work remotely due to the pandemic.
This means that if a Dutch employer has a non-resident employee who would like to remain covered for social security in the Netherlands (even if the employees work more than 25% of the time in the country of residence), they won’t have to lift a finger — the SVB will keep that employee covered for as long as these measures are in place. In this scenario it is also important to check if the country of residence announced similar relaxing measures.
Conversely, this also means that if a foreign employer has a resident employee who works more than 25% of the time in the country of residence (e.g Netherlands), they will not have to become socially insured in the Netherlands so long as the SVB’s exceptions remain. Also in this scenario it is also important to check if the country of employment announced similar relaxing measures.
Lastly, Daniel advises that you keep yourself up to date on the rules that are applicable in your country of residency and country of work. However, if you remain confused a tax consultant is the way to go.
Phew! We know that is a lot to take in, but it’s always good to keep yourself informed about your tax and social security situation — especially during these times!
If you’re struggling to wrap your head around how these different definitions and rules apply to you, fear not — that’s what tax consultants are for. The team at HBK work specifically with expats and will be happy to discuss how they can help you, so don’t be afraid to get in touch!
How has your work situation been affected by the pandemic? Let us know of your experiences in the comments below!
Feature Image: Saulo Mohana/Unsplash