Covid-19 measures have forced many employees to work from home. Working from home has tax and social security consequences when this home is in a country other than where an employee would normally work. Therefore, the Dutch authorities concluded an agreement with the Belgian and German authorities to mitigate the tax and social security impact from working from home. It is a temporary measure, in line with the OECD recommendation.
In a nutshell, it was agreed that home-working days due to the Covid-19 measure can be deemed as working days at the place where the employee would normally work. This would avoid changes in taxation and social security premiums. However, these are temporary measures and only apply between the Netherlands and Germany and the Netherlands and Belgium.
In the event that the temporary measures do not or no longer apply, working from home can result in Dutch wage tax and social security obligations as well as in corporate income tax and VAT obligations, depending on the activities of the employee. This leads to the obligation for the foreign employer to register in the Netherlands for tax purposes.
The Dutch-based employee is liable to Dutch personal income tax for any working day outside of the foreign country where his employer is located. In addition, Dutch social security obligations are triggered for the foreign employer when the employee starts working a substantial part (generally 25% or more) of his activities in his Dutch home country (on an annual basis). When the activities of the employee trigger a permanent establishment, apart from a corporate income tax and a possible VAT obligation, a Dutch wage tax withholding obligation also starts for the employer.
If the employer has only an obligation to register for Dutch social security premiums, due to the amount of Dutch working days of his employee and given the non-existence of a permanent establishment, the employer can also voluntarily register for wage tax purposes, facilitating the Dutch taxation of the employee. As the Dutch wage tax and Dutch social security premiums are covered by the same wage tax return, voluntarily registering for wage tax purposes would not necessarily lead to additional costs.
Given the comments on the 2017 OECD Model Tax Convention, a permanent establishment could nowadays be triggered when a home office is used on a continuous basis and the employee is required to use his home office, e.g. as his employer did not provide an (usable) office, but where the nature of employment clearly requires an office. This is probably not the case for an employee who is normally at the office of his employer, outside of the Netherlands, but is at his Dutch home due to Covid-19 measures. However, when being at home becomes more permanent, this could be deemed to differ. In addition, whether the permanent establishment is actually triggered in case of a home office also depends on the actual activities of the employee in the Netherlands. The permanent establishment is in principle defined by the tax treaty in place, in combination with the applicable alteration by the multilateral instrument and, therefore, the definition of a Dutch permanent establishment depends on the country where the employer is located.
If it is unclear whether a permanent establishment exists: WTS has extensive experience with providing/obtaining certainty on the (non-)existence of a permanent establishment.
