Amendment to the Dutch-Germany tax treaty regarding remote work

The regulations concerning cross-border remote work between the Netherlands and Germany will soon be updated. Previously, there was no specific limit on the number of days that cross-border workers could work from home for their foreign employer without affecting the tax allocation. Since working in the country of residence typically means that tax rights are also granted to that country, having your foreign employer process your salary in their country of residence could lead to errors or complications. The recent amendment brings some relief. This article outlines the key changes and provides practical information on what this means for your organization.

More clarity and less administrative burden for employers

The new regulation will provide employers and employees with more flexibility, while reducing the administrative burden related to cross-border remote work. Cross-border workers living in Germany and working in the Netherlands (or vice versa) may work from home up to 34 days per year without triggering a tax liability on that income in their country of residence. This helps to prevent errors, simplifies payroll administration, and limits the need for additional wage declarations, as long as the 34-day limit is not exceeded.

Is 34 remote workdays enough?

This adjustment is a step forward, as it acknowledges the issue. However, this is (still) not a solution for all cross-border workers. Employees who, for example, regularly work from home one day a week (exceeding the 34 days per year) are excluded from the regulation and may still face a tax liability in their country of residence. Considering that working from home can quickly accumulate days, the number of days may rise rapidly. Therefore, the Netherlands and Germany have signed a letter of intent to explore whether it is possible to implement a regulation for more than 34 remote workdays.

Key points to keep in mind

Social security: The amendment to the tax treaty does not affect social security obligations. The change does not alter the social security status of cross-border workers. Employers must continue to verify whether an A1 certificate is required. This certificate determines in which country social security contributions must be paid.

Shadow payroll: If an employee works from home for more than 34 days, a tax liability in their country of residence may arise. In this case, it may be necessary or desirable to set up a shadow payroll. This is a parallel payroll system for the employee’s country of residence, used to ensure that tax on the remote workdays is correctly reported.

Split payroll: In certain cases, a split payroll can still be advantageous. This is particularly relevant for employees who work from home for more than 34 days per year.

Questions?

Do you have questions regarding payroll and social security for cross-border workers or what to do if cross-border workers work more than 34 days per year from home? Feel free to reach out. We are happy to assist and guide you through the necessary steps.

Please feel free to contact us. We will be happy to help you and think with you about the necessary steps.

Download: 6 key considerations for employers in the Netherlands