working with staff abroad: tax and social security ... · working with staff abroad: tax and social...

1 International Business Forum

Working with staff abroad: tax and

social security opportunities and pitfallsTax and social law aspects of cross border employment

Peter Wuyts

Ria Matthijssens


• Tax implications of working with staff abroad

- General principles: Double Taxation Treaties

- The myths and pitfalls

- Obligation to withhold Belgian withholding tax

• Types of international employment

- Business Trip, Secondment, Transfer

- Simultaneous employment

• Labour law and social security aspects

• Questions

Contents


Tax implications of working with

staff abroad

Peter Wuyts


Distinction in function of the qualification of the individual

concerned:

- Employees (Article 15)

- Directors (Article 16)

- Self-employment (Article 14)

Tax implications of working with staff abroad


Employees (not self-employed):

• Principle: taxable in the residence state

• Exception: in case of employment outside the residence state,

taxable in the work state unless:

- The employee is present in the state where he works during a period

or periods, which do not exceed 183 days in a period of twelve

months beginning or ending in the same relevant tax year;

- The remuneration is paid by or on behalf of an employer that is no

resident of the work state;

- The remuneration is not borne by a permanent establishment or a

fixed base that the employer has in the work state.



Employees: Analysis of the conditions

• Cumulative conditions, i.e. taxation in residence state in case

the three (negative) conditions are met. Taxation in work state

in case at least 1 condition is not satisfied.

• 183 days rule: physical presence - !! Period !!

• By or on behalf of an employer in the work state:

- Basic principle for structures of split payroll opportunity

- Concept of the economic, material employer

- Service agreement

• Permanent establishment: material and personal permanent

establishment



Exemption of double taxation treaties:

• Credit method

• Exemption method:

- “Taxable” in the source state

- “Taxed” in the source state

- “Actually” taxed in the source state



A few myths unveiled…

• “When my employee stays less than 183 days, there is no

problem”

• “As long as I don’t charge any salary costs abroad, there is no

problem”

• “As long as I haven’t registered a branch office abroad, there is

no problem”

• “I have a foreign employer, therefore I am taxable abroad”



Withholding tax


Barring an exemption foreseen by law or by international

agreements, the withholding tax is owed by:

1. The debtor of remunerations, pensions, income and allowances

2. Who pays or attributes these in Belgium or abroad; and

3. Who has the quality of:

• Belgian resident (natural person)

• Domestic company

• Belgian legal persons

• Foreign companies ‘for which the remunerations paid (…), which

they pay or attribute in Belgium or abroad, represent business

expenses within the meaning of article 237 ITC92.

Withholding tax: basic principle


How to deal with differences in

taxation


• Split payroll structures often are implemented to benefit from

lower foreign taxes

• And why worry? It’s the employee’s problem !

• But is it?

• Sales Manager Benelux with split payroll is promoted to a function as

Sales Director in Belgium…

• A Belgian manager sends one of his team members to the subsidiary

in the Czech Republic and starts comparing net income levels

• A company has many engineers volunteering for a project in France,

while the manager responsible for the project in Germany is

understaffed…

Dealing with differences in international tax levels


• “Laissez-faire”: the employee bears the tax impact of the

foreign employment

• Tax equalisation: employer bears the positive or negative tax

impact of the foreign employment

• Tax protection: employer compensates negative impact of

employment abroad

Dealing with differences in international tax levels


Cross-border Employment

Labour and Social Security Law

Ria Matthijssens


Belgium Abroad

- EU or non-EU

- Business trip

- Transfer

- Secondment

- Simultaneous employment

- Social Security

- Labour Law

- Formalities


Social Security

Secondment

Principle

Conditions

- max. 24 months

- Economic activities in seconding country

- Relationship of subordination

- Before secondment: social security in seconding country

- No replacement of another employee

Formalities

Exceptions


Social Security – European Union


Example 1 – home base

Captain residing in Sweden (working there for less than 25%)

Working for a Finnish company

Flying from Stockholm to various European locations – Home base = Sweden

Regulation 1408/71: Finnish social security legislation (= registered office

employer)

Regulation 883/2004 - existing employment situations (transitional

provisions):

Finnish social security legislation (= <25% in home country → registered

office employer)

Regulation 883/2004 - new employment situations starting 28/6/2012:

Swedish social security legislation (= home base)

Europe’s impact on labour law & social security

Amendments to the EU Regulation 883/2004



Captain residing in Germany (working there for more than 25% but less than

50%)

Working for a Finnish company

Flying from Frankfurt to various European locations – Home base = Germany

Regulation 1408/71: Finnish social security legislation (≠ mainly employed

in home country → registered office employer)


provisions):

German social security legislation (> 25% employment in home country)


German social security legislation (= home base)





Captain residing in Germany (working there less than 25%)

Working for a Belgian company with a permanent representation in

Luxemburg

Flying from Luxembourg to various European locations – Home base =

Luxembourg

Regulation 1408/71: Luxemburg social security legislation (=

representation office)


provisions):

• Belgian social security legislation (< 25% in home country →

registered office employer)


• Luxemburg social security legislation (= home base)




Example 1 – 25%-rule

Residing in the Netherlands

Working in Belgium 4 days/week Belgian employer A

Working in the Netherlands 1 day/week Belgian employer B

2 employers in the same country

< 25% in the Netherlands

legislation country registered officeemployer(s)

Belgian social security

amended regulation : no changes







Working in the Netherlands 1 day/week Dutch employer B

1 employer in country residence

no 25% rule

legislation country of residence

Dutch social security

Amended regulation :

• Belgian social security = employer outside MS residence







Working in Germany 1 day/week German employer B

Working in the Netherlands 1 day/week Dutch employer C

2 employers outside country residence

no 25% rule

legislation country of residence

Dutch social security

Amended regulation : no changes

• = at least 2 employers outside MS residence




Social Security – Non EU

Bilateral agreements

- The United States of America, Canada and Quebec, San Marino,

Serbia, Bosnia-Herzegovina, Montenegro, Kosovo, Turkey,

Algeria, Morocco, Tunisia, Israel, Chili, Australia, Croatia,

Philippines, Japan, Macedonia, South Korea, Uruguay, India and

Switzerland (for nationals from outside the EEU).

- Nationals of the contracting countries, but exceptions are

possible.

No agreements

- Short period: 6 m. + 6 m.

- Local legislation

Service Overseas Social Security


• Basic principle : freedom of choice

Not limited to law of EU Member States

May be implicit, but must be clear

Can be changed during the lifetime of the contract

Different parts of the contract can be subject to different national legislation

• Restrictions:

If all elements of the employment situation refer to 1 country: choice for

legislation of another country may not result in loss of protection provided by the

legislation of the first country

Choice for non-EU law may not result in deviation from mandatory EU rules

Choice for non-EU law may not be the only link to that country (substance)

Choice may not result in loss of protection provided by the mandatory legislation

that would be applicable if no choice had been made by both parties.

“Public order” rules in the country where the case is brought to court

Labour law & social security

Rome I regulation: principles


• If no choice has been made: tie-breaker rules included in the

Regulation determine applicable legislation;

• This legislation also provides the minimal coverage;

• Criteria used in ECJ jurisdiction:

Quantitative criterion: where does the employee perform most of his

duties

Qualitative criterion: where is the real centre of activities located,

where does the employee perform his most important duties


Rome I regulation: determination applicable law


• Subsequent criteria:

Law of the country in which the employee habitually carries out his

work in performance of the contract;

Law of the country from which the employee habitually carries out his

work in performance of the contract;

Law of the country the place of business through which the employee

was engaged is situated;

Where it appears from the circumstances as a whole that the contract

appears to be more closely connected with a country than with the

countries designated under the rules above, the laws of that country.


Rome I regulation: tie-breaker rules


• Assignment (cf. EU Regulation 883/2004)

Temporary assignment does not change the place where work is

‘habitually’ carried out

No definition of notion ‘temporary’ intention to return

• Transfer: usually law of the receiving country

• Simultaneous employment

1 employer: qualitative and quantitative criteria to apply

More than 1 employer:

Several part time employment contract: different legislation

applies to separate contracts (but exception)

Framework agreement: qualitative and quantitative criteria to

apply


Rome I regulation: tie-breaker rules


EU Social

Security

Labour Law Formalities

Business trip

Transfer

Assignment

≥2 employers

Summary

EU Social

Security


Business trip

Transfer

Assignment

≥2 employers

EU Social

Security


Business trip Home Home/hostEHICEuropean Health

Insurance Card

Transfer Host Host Host

Assignment Home Home/host A1/S1 Labour agreement

≥2 employers EU Rome IA1/

Labour agreement


Non EU Social Security Labour Law Formalities

Business trip Home Home/host Host

Transfer Host Host Host

Assignment

Home - agr.:

- no agreement:

6 m. + 6 m.

Home/host

Agreement:Certificate of coverage

- 6 m.: no form?

+ 6 m.: approval Belg.

Social Security

≥2 employersBilateral agr.

No agreementHome/host

Agreem.: Certificate of coverage

No agreem.: local/host

Summary


Thank you for your attention

Peter Wuyts Ria Matthijssens

[email protected] [email protected]

+32 (0)496 57 48 61 +32 (0)475 71 93 11

mailto:[email protected]

mailto:[email protected]

working with staff abroad: tax and social security ... · working with staff abroad: tax and social...

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