Remote working has taken off in recent years, partly in response to the Covid pandemic and changes in work culture. This new way of working offers several advantages, both for employers and employees. However, the rise of flexible working also raises new questions and challenges for employers. For example, consider the situation where employees want to work wholly or partly from another country. In what cases can an employee claim this as a right? Which national law then applies to the employment contract? Which national court rules on labour disputes? And what about social security and taxes? In this blog series, we address these issues. In this fourth and final part, we discuss tax law and other concerns.
If an employee wishes to work remotely from abroad, it will be necessary to check, from a tax point of view, whether the Netherlands has concluded a treaty with the relevant country. Such a treaty contains rules to avoid double taxation. An overview of all treaties can be consulted via the government treaty database. Most treaties follow the principle that wages are taxed in the country of residence, unless the employee works in another country. However, the country of residence may still levy tax if the so-called 183-day rule applies. The conditions for application of this scheme are treaty-dependent, but generally it is met if:
- The employee does not spend more than 183 days in the country of employment (weekend and holiday days included!)
- The salary is not paid by or on behalf of an employer based in the country of employment; and
- The employee does not work in a permanent establishment of the employer in the country of work.
If a tax liability arises abroad, the employer may have to keep payroll records in the relevant country and register with the foreign tax authority. Sometimes, the employee may pay the tax with the income tax return.
When moving structurally abroad, the salary is no longer taxed in the Netherlands. Moreover, the employee – if applicable – can no longer claim the so-called 30% rule, where 30% of the salary remains untaxed as reimbursement of extraterritorial costs.
Finally, a significant employer risk exists when working abroad, namely the risk that the employee is considered a “permanent representative” of the employer abroad. In that case, the employer is deemed to have a “permanent establishment” abroad, creating a substantial burden. Think of having to pay income tax and VAT and compliance obligations.
Other points for attention
In conclusion, we would like to point out some other points that deserve the attention of employers in case an employee works remotely from abroad.
- When working from abroad, the employer must ensure a healthy and safe workplace. It is advisable to identify and anticipate possible risks when working abroad. This can be included as part of the risk inventory and evaluation (RI&E). In addition, the employee can be asked to sign a health and safety declaration. By doing so, the employee indicates that he is working safely and carefully at all times.
- Employers should be alert to safeguarding privacy. The risk of a data breach when working at a remote location may be higher, especially when employees use public networks.
- Employers should be vigilant about pensions. A mandatory pension scheme may apply in the other country. In addition, the question may arise whether a supplementary company pension plan can be continued in a tax-friendly way.
All in all, the ability to work remotely from abroad seems to be becoming an increasingly important employment condition. We do stress the importance for employers to be well informed about possible risks involved. We also advise employers dealing with employees working (temporarily) abroad to, where possible, make agreements on the topics discussed in the employment contract. Which agreements these are will always depend on the circumstances of the case. Would you like to know more about working from abroad or have questions in response to the above? Then please feel free to contact Caroline Mehlem, lawyer Employment Law, Employee Participation and Pension.