In principle, income that arises from employment is subject to income tax and social security contributions in the country where the work is performed. Depending on the tax and social security regime of the country involved, the employer may be required to set up a payroll administration for this employee and calculate whether income tax and/or contributions are due. If, indeed, due, the employer must withhold an advance payment on the income and pay it to the government. This advance payment is called payroll tax.
This payroll tax calculation and withholding system creates a heavy administrative burden for the employer, let alone when multiple work countries are involved and, as a result, multiple payroll compliance requirements apply, as is the case with cross-border Hybrid Work (Telework).
In cross-border Hybrid Work cases, the employee has a usual place of employment in one country but also works in another. This can be on a temporary basis, e.g. when sent on an assignment or business trip, but also on a permanent basis, e.g. when allowed to work from home abroad. These situations can easily result in taxability in both countries. After all, in principle, employment income arises in both countries and thus is subject to the payroll tax regime in both countries.
Being taxable in multiple countries not only bears the risks of high additional payroll compliance costs. It can also lead to being double-taxed and dissatisfied employees, which may lead to additional salary costs for the employer who decides to compensate for the employee’s loss. On the other hand, NOT allowing the employee to work from home abroad and avoiding additional compliance and salary costs may lead to reputational damage for the employer.
In this Week’s Webinar, Frank de Bats will explain, on the basis of a real-life example, the most important dynamics of Telework in this context and its potential repercussions.
The webinar starts at 4 pm CET and consists of a 30-minute presentation followed by questions and discussions.