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When cross-border workers are working from home

As a result of the Corona pandemic, employees are working from home in many instances. If the place of remote working is not also located in the country in which the professional activity is carried out, this can have an impact on the taxation of wages and salaries as well as on social security coverage.

Allo­ca­tion of the right of taxa­tion

Emp­loyees are sub­ject to unli­mi­ted tax lia­bi­lity in their coun­try of resi­dence and are the­re­fore also taxed on their remu­n­e­ra­tion in that coun­try. If the pro­fes­sio­nal acti­vity is not car­ried out in the coun­try of resi­dence, the dou­ble tax trea­ties regu­late in which coun­try the taxa­tion is to take place.

Many emp­loyees live along the Ger­man bor­ders who regu­larly com­mute from their for­eign resi­dence to their place of work in Ger­many or, in the oppo­site case, per­form their work abroad. In the dou­ble tax trea­ties with Aus­tria, France and Swit­zer­land, a so-cal­led cross-bor­der com­mu­ter regu­la­tion is exp­li­citly inclu­ded. Con­trary to the prin­ciple that remu­n­e­ra­tion is taxable to the extent where the pro­fes­sio­nal acti­vity is car­ried out, the right of taxa­tion in its ent­i­rety is assig­ned to the coun­try of resi­dence, pro­vi­ded the emp­loyee qua­li­fies as a cross-bor­der com­mu­ter. To this end, the emp­loyee must live close to the bor­der, which is regu­la­ted in the respec­tive agree­ment, and return to his place of resi­dence on each wor­king day.

In the case of other dou­ble tax trea­ties which do not con­tain any rules on cross-bor­der com­mu­ters, the clas­sic cri­te­ria for the allo­ca­tion of the right of taxa­tion are app­lied.

Effects of wor­king from home?

In times of the Corona cri­sis, com­pa­nies have in many instan­ces orde­red that work, as far as fac­tually pos­si­ble, should no lon­ger be car­ried out at the com­pa­nies’ pre­mi­ses but from home for rea­sons of health pro­tec­tion. This also affects cross-bor­der com­mu­ters, who would other­wise regu­larly com­mute across the bor­der to their work­place. In this case, wor­king from home is often also eco­no­mi­cally more sen­si­ble because other­wise, as a result of the bor­der con­trols tem­pora­rily rein­tro­du­ced wit­hin the EU, an enor­mously time-con­su­ming bor­der cros­sing on the way to work would have to be accep­ted.

This would mean that the con­di­ti­ons for the app­li­ca­tion of the cross-bor­der com­mu­ter regu­la­tion pro­vi­ded for in the dou­ble tax trea­ties would no lon­ger be met. More­o­ver, if wor­king from home were to be car­ried out over a lon­ger period of time, the 183-day rule pro­vi­ded for in a large num­ber of dou­ble tax trea­ties might no lon­ger apply, which would lead to the risk of a salary split and cor­res­pon­din­gly to a pro­por­tio­nal taxa­tion in the coun­try of work and the coun­try of resi­dence.

In order to avoid a change in the pre­vious tax tre­at­ment of cross-bor­der com­mu­ting as a result of tem­porary work from home, a bila­te­ral agree­ment was rea­ched with Aus­tria as announ­ced with let­ter of 16/04/2020 by the Ger­man tax aut­ho­ri­ties. The emp­loyee can make use of this by noti­fying the emp­loyer and the res­pon­si­ble tax office in the coun­try of resi­dence. A memo­ran­dum of under­stan­ding for the dou­ble taxa­tion agree­ment with France already con­ta­ins a pro­vi­sion accor­ding to which wor­king days spent in the home office have no effect on the right of taxa­tion. This was again dealt with in detail in a con­sul­ta­tion agree­ment (let­ter of 25/05/2020 by the Ger­man tax aut­ho­ri­ties). In the dou­ble tax treaty with Swit­zer­land it has already been agreed that it is harm­less if there is no bor­der cros­sing for up to 60 wor­king days.

In addi­tion, Ger­many and the Nether­lands have already agreed that, days wor­ked from home as a result of the Corona pan­de­mic are con­s­i­de­red as days wor­ked in the coun­try of emp­loy­ment (as announ­ced by let­ter of the Ger­man tax aut­ho­ri­ties of 08/04/2020). This regu­la­tion app­lies from 11/03/2020 until the pos­si­ble uni­la­te­ral ter­mi­na­tion of the agree­ment. Howe­ver, it can only be app­lied uni­formly in both con­trac­ting sta­tes. In addi­tion, sui­ta­ble records must be kept, such as a cer­ti­fi­cate from the emp­loyer on days wor­ked from home due to the corona cri­sis. A simi­lar arran­ge­ment has also been rea­ched bet­ween Ger­many and Lux­em­bourg (as announ­ced by let­ter of the Ger­man tax aut­ho­ri­ties of 06/04/2020) and bet­ween Ger­many and Bel­gium (as announ­ced by let­ter of the Ger­man tax aut­ho­ri­ties of 07/05/2020). This means that the state in which the work is car­ried out should con­ti­nue to have the full right of taxa­tion, pro­vi­ded that the 183-day rule is ful­fil­led with due regard to the fic­tion.

Howe­ver, it is also con­ceivable that emp­loyees use their second or holi­day home abroad for remote wor­king or are sim­ply stran­ded abroad. Thanks to tech­no­logy they should be able to con­ti­nue wor­king from there. It is curr­ently still unc­lear how to deal with these tax­pay­ers, who are not clas­sic cross-bor­der com­mu­ters in the fis­cal sense, but who now work from abroad nevert­he­less. In the case of a tem­porary nature, this should have no effect. Howe­ver, if the pro­fes­sio­nal acti­vity from abroad con­so­li­da­tes, we recom­mend cla­ri­fi­ca­tion in the respec­tive state in which the acti­vity is car­ried out. In addi­tion, a regu­larly used home office quickly leads to a per­ma­nent estab­lish­ment of the emp­loyer abroad. The­re­fore, we recom­mend to check the impacts toge­ther with the emp­loyer.

Social secu­rity sta­tus when wor­king from home?

Social secu­rity cover for an emp­loyee who lives in one state and works in ano­ther or several other sta­tes is gene­rally pro­vi­ded in one state only. Wit­hin the EU and Swit­zer­land, there are uni­form requi­re­ments accor­ding to which the social insurance obli­ga­tion exists in the coun­try of emp­loy­ment if more than 75% of the pro­fes­sio­nal acti­vity is car­ried out there. If at least 25% of the work is per­for­med in the coun­try of resi­dence, social insurance coverage is pro­vi­ded there. For acti­vi­ties in several EU sta­tes and respec­ti­vely Swit­zer­land, which are not the coun­try of resi­dence, the social secu­rity obli­ga­tion exists in the coun­try of resi­dence, even if no sig­ni­fi­cant part of the acti­vity is per­for­med there.

Tem­pora­rily wor­king from home acti­vity trig­ge­red by the Corona pan­de­mic should, in prin­ciple, not change the exis­ting social secu­rity sta­tus. The Ger­man Natio­nal Asso­cia­tion of Sta­tutory Health Insurance points this out in a cir­cu­lar dated 17/03/2020. The pro­fes­sio­nal acti­vity takes place wit­hin the frame­work of the emp­loyer's right of direc­tion and is the­re­fore not detri­men­tal to the exis­ting social secu­rity sta­tus under social secu­rity law.

Note

The announ­ce­ments focus on the tem­porary nature of wor­king from home and recom­mend to negate impacts on tax and social secu­rity. Howe­ver, this should not be relied upon unre­ser­vedly, as a tem­porary acti­vity can also become a regu­lar acti­vity in the future. Tax­pay­ers and their emp­loy­ers should take a close look and exa­mine the respec­tive indi­vi­dual situa­tion in more detail early on.

In addi­tion, emp­loy­ers should, accor­ding to their sta­tutory duty of care, inform affec­ted emp­loyees about the pos­si­ble tax and social secu­rity con­se­qu­en­ces of wor­king from home and cla­rify the hand­ling in each indi­vi­dual case with them.

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