New Agreement Belgium - Netherlands: will homeworking trigger withholding and reporting obligations?

After the Covid-crisis, working from home became the “new way of working”. Questions raised whether residents working from their home office for a company established abroad would trigger adverse tax and social security consequences for the foreign company.
 

Background

In respect of the new way of working, the Framework Agreement on cross-border telework for social security was agreed as of July 2023, and a recent Parliamentary Question clarified in May 2023 on whether homeworking in a cross-border work situation would create a permanent establishment in Belgium. And Belgium and the Netherlands have now reached an agreement on the interpretation of a “permanent establishment” for remote working employees. The definition of a “permanent establishment” is not only important for corporate income taxes but also for withholding and reporting obligations by the employer in the resident location of the employee.

Especially in cases where there was no authority to conclude contracts on behalf of the foreign employer, one still had to examine all facts and circumstances to determine whether the home office could be considered at the disposal of the employer.
 

Interpretation of “at the disposal” of the employer

The home office is generally not considered to be at the disposal of the employer if the employer’s presence in the home office via telework is so discontinuous or occasional that the home office cannot be considered a place of business in the hands of the employer.

As the notion of “employer’s presence in the home office” was vague and open for various interpretations, the new agreement now provides in three types of homeworking (footnote: This definition does not correspond with the definition of homeworking under the Circular letter 2022/C/12 for homework allowances):

1. 1. Occasional homeworking:
   if employees work occasionally from home with no preset pattern.
   
   
2. Structural homeworking with option to work at company’s location:
   if employees work structurally from home but has the possibility to choose to work at the company’s premises in the host location.
   
   
3. Structural and mandatory homeworking:
   if employees are obliged to work from home

Only in the latter homeworking scenario, the home office would be considered as a permanent establishment based on the new Agreement. Please note that all relevant facts and circumstances should be analyzed in depth before concluding which category of home working is applicable.

Note that these rules are independent of the individual taxation rules based of article 15 of the double tax treaty between Belgium-the Netherlands.
 

Exemptions under the new Agreement

Nevertheless, the agreement also provides practical guidance for some situations where no ‘permanent establishment’ exists. First, if an employee (resident of one country) works less or up to 50% of his/her working time from home for a 12-month rolling period for the employer (located in another country), it can be presumed that the home workspace does not constitute a permanent establishment.

Secondly, homes used for ancillary or preparatory activities, like secretarial tasks such as accounting, HR or ICT-activities are not deemed to create a permanent establishment.
 

Belgian domestic legislation

Irrespective the new Agreement provisions whether or not homeworking would be considered a permanent establishment, Belgian domestic legislation applies a much broader definition of an establishment compared to the definition under the tax treaties. This implies that even if the new Belgian-Dutch Agreement does not consider a location as a permanent establishment, there may still be a requirement to fulfill specific compliance formalities in Belgium.

From a wage tax perspective, having an ”establishment” in Belgium could trigger withholding and reporting obligations for the foreign employer in Belgium.
 

Withholding and reporting obligations in Belgium

By having a permanent establishment in Belgium, the Belgian Income Tax Code (ITC) clearly states that the Belgian permanent establishment of the foreign employer will be subject to withholding and reporting obligations in Belgium.

With the law of 11 February 2019 Belgium introduced extended withholding and reporting obligations for (foreign) corporate entities in Belgium. In addition, in 2020 the Belgian administration issued a FAQ aiming a catch-all principle for withholding and reporting obligations and explicitly stated that also withholding taxes apply to Belgian establishment under domestic law, even if there is no taxable permanent establishment under treaty law. 

Non-compliance with these rules could trigger additional tax inquiries or audits and could potentially lead to a set of liabilities and penalties for the establishment in Belgium.
 

Conclusion

With this new Agreement, Belgium and the Netherlands aim to provide more clarity to which extent a home office can be considered as a permanent establishment. 

But even in the absence of a permanent establishment based on the new Agreement, the home office in Belgium could still trigger withholding and reporting obligations in Belgium.

Therefore, it is of utmost importance to review your remote working population in a cross-border situation.

EY as your trusted business advisor can help with:

• reviewing your remote working population and policies

• analyzing the risks of a permanent establishment based on actual facts and circumstances

• advising on the new rules and impact of this agreement on your organization

• providing support to your organization in managing the withholding and reporting responsibilities associated with your remote workforce through our Global Payroll Operate team.