Cross-border employment and tax treaties

If an employee is (physically) performing work activities in multiple countries or works in a country other than their country of residence, they may be taxable in multiple countries due to the application of tax treaties. Most tax treaties that the Netherlands has concluded with various countries contain a specific provision regulating taxing rights in the case of international employment of an employee.

Tax Treaty(s)

Based on this provision, the country of employment has the right to levy tax on wages attributable to work physically performed in the country of employment if:

• the employee resides in the country of employment for more than 183 days per twelve-month period (this period varies by tax treaty), or
• the wages are paid by or on behalf of an employer established in the country of employment, or
• the costs are allocated to a permanent establishment of the employer in the country of employment.

If one of these conditions is met, the wages are taxable in the country of employment. If none of these conditions are met, the wages are taxable in the country of residence.

Economic/Material Employer

The second condition is met if there is a material/economic employer. Most of the people are generally aware of condition 1 (the so-called 183-day rule), but they don't realize that tax liability in the country of employment can also arise from the first working day if there is a material employer in the country of employment. Whether a material employer exists must be assessed based on the actual situation. Among other things, it is important to know who an employee receives instructions from, but also which company bears the employee's salary costs.

If you work across borders or employ employees who work in multiple countries and would like to learn more, please feel free to contact me: danielle.peeters@tax4expats.nl