And international employment always comes with tax obligations. When you are employed in different countries at the same time, the question arises where your income is taxable.
Please note that the analysis below only looks at the tax aspect of income, not at possible social security aspects. Furthermore, the analysis below provides a practical explanation of the general article in the double taxation treaty between Belgium and the Netherlands, which applies to Belgian workers employed in the Netherlands. Given that each specific situation is different, one must determine in each case, based on the specific circumstances, where one's income will be taxable. However, it should be emphasised that in most agreements entered into by Belgium a provision has been included that is in line with the one included in the Belgium-Netherlands double taxation treaty.
Relevant legislation and practical interpretation
Article 15 of the Belgium-Netherlands double taxation treaty determines where income obtained in a Belgian-Dutch context is taxable. The wording of the article is rather complex, but from a practical perspective it can be read as follows:
In principle, you are taxable in the state where you are a tax resident (Belgium), unless you physically carry out your activities in another member state (the Netherlands). Concretely, this means that Belgian employees are taxable in the Netherlands to the extent that they work on Dutch territory.
Again, there is an exception to this: even though Belgian employees work on Dutch territory, only Belgium will be entitled to tax their income if
- the employees stay in the Netherlands less than 183 days during a 12-month period; AND
- the employees' remuneration is paid by a non-Dutch company; AND
- the employees' remuneration is not paid by a permanent establishment of the Belgian company in the Netherlands either.
From the above the following conclusions can be drawn:
- Belgian employees who work in the Netherlands less than 183 days, are paid by a Belgian company that does not have a permanent establishment in the Netherlands (and there is no material employer in the Netherlands either): Belgium is entitled to tax the income.
- Belgian employees who work in the Netherlands less than 183 days, are paid by a Dutch company (of where the remuneration is paid by a Dutch company): the Netherlands are entitled to tax the income from day 1.
- Belgian employees who work in the Netherlands less than 183 days, are paid by a permanent establishment of a Belgian company in the Netherlands (or where the remuneration is paid by a permanent establishment in the Netherlands): the Netherlands are entitled to tax the income from day 1.
The analysis above can be extended to the situation where part of the remuneration is paid by the Netherlands (e.g. by the permanent establishment) and part is paid by the Belgian head office. In this case – without entering into detail – a so-called salary split could be applied. This means, on the one hand, that the part of the remuneration that relates to the days of physical employment in the Netherlands, which will be paid by the Dutch establishment, will be taxable in the Netherlands. On the other hand, the part of the remuneration that relates to the days the employee in question works in Belgium (or in a third country/outside the Netherlands) will not be taxable in the Netherlands but in Belgium. For the sake of completeness: the remuneration that is taxable in the Netherlands must be included in the Belgian tax return and is automatically exempt, but it will have an influence on the reservation as to the progressive tax rate. In addition, it must be checked to what extent local tax is due on the income that is "exempt" in Belgium.
Practical case: general fee
Practice shows that in situations where employees only stay abroad for limited periods, these costs are not directly payable by the foreign company. In such situations, a general management fee is often charged, without detailing to which specific activities the fee corresponds. In the latter situation the description of relevant documents regarding the general management fee charged is important. If the employee costs can be determined (individually), the tax authorities could say that the Dutch company is the material employer. In such case, these employees would be taxable in the Netherlands from day 1. This would include possible social security contributions/health insurance, etc.
In the case of Belgian employees who work in the Netherlands less than 183 days and are paid by a Belgian company, and where the Belgian company charges a general management fee to the Dutch company, in principle, the entire remuneration will be taxable in Belgium (unless it can be determined based on the general management fee that the salary costs have been charged to and hence are paid by the Dutch company/permanent establishment).
In the situation above, the fee received from the Dutch company by the Belgian company will, however, be taxable in the Netherlands. Hence, the Dutch corporate tax return for the Belgian company will include the management fee minus the attributable salary costs. In this case, the corporate tax rates and not personal income tax will apply to the company. Obviously, this is independent from the question how and where the remuneration from the Belgium company must be taxed.
Important remark: in our opinion, in the case of a permanent establishment, it is not possible to charge a general management fee, as the company cannot pay a fee to itself. In this case, the remuneration is attributable to the Dutch activities. The employee will be taxable in the Netherlands from day 1.
If the employees concerned will only effectively perform work on Dutch territory on a limited number of days, such a general management fee can be used. This is also explicitly confirmed on the website of the Dutch authorities. In the case of secondment within a concern, a maximum of 60 days will not be a problem.
In practice, it frequently occurs that employees within an international concern, in the context of an exchange programme or career development, are sent to other, foreign establishments of the concern for short periods of time (see example 4 above). It also frequently occurs that employees are sent to another establishment within the concern for a short period of time in view of their specific expertise within the concern. This is especially common in knowledge-intensive organisations. Usually the employee's stay in the other state is only temporary, for a short period of time, so there is no regular participation in the activities or projects of the receiving company of the concern by the employee. It can be said that, taking into account the short-term stay, there is no relationship of authority with the receiving company in this situation, because the work does not constitute an integrated part of the normal business activities of the receiving company. In addition, normally, other elements of a relationship of authority are also absent. For practical reasons, with a view to the explanation of the concept of employer under the 183-day scheme in the tax treaty, I will assume that, in the situations described above, foreign employees who will not be employed in the Netherlands within a concern situation for more than a total of 60 working days per 12-month period, are not in a relationship of authority with the Dutch establishment(s) of the concern (therefore no taxation in the Netherlands). In this context the following circumstances are important. The 60-day rule does not apply if the employee stays in the Netherlands for more than 183 days. The 60-day rule must be tested per 12-month period, even when the 183-day scheme of the tax treaty uses the calendar or tax year as a basis. With respect to the term working days, reference is made to HR 23 September 2005, no. 40 179 (LJN: AP1424), so that sick days can also count as working days. If workers are employed in the Netherlands for longer than a total of 60 working days per 12-month period, the principle above does not apply. In that situation it must be checked from the first day of employment whether there is an employer in the Netherlands, as referred to in the treaty, in paragraph 2(b) of the article relating to the employment relationship.
However, if this should result in a double exemption, because the other treaty country does not impose a tax either, it will be decided whether this should be discussed with the other country.
Obviously, the risk of a possible modification and corresponding interest/penalties being imposed by the Dutch tax authorities cannot be entirely excluded if it is found that there were longer periods of employment. That is why quality advice is essential in this case. If the Dutch tax authorities should find, following a tax inspection, that there was income that was taxable in the Netherlands, the income tax and possible social contributions will still be claimed. These claims will be made with the corresponding interest and penalties.