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July 28, 2020

Fiscal consequences of COVID-19 travel restrictions

Where is an employee taxed if he is forced to stay abroad and work there? Does the domicile of a company follow its director who is not allowed to travel back to his place of residence? Read here the temporary solutions and also a warning. Because after the crisis, there are tax dangers.

mr. Erwin Morriën, Belastingadviseur

mr. Erwin Morriën, Belastingadviseur

Location of the company

Where is a company established if the director is obliged to stay in another country for months? In our practice we had to deal with this situation. Two Moroccan directors were not allowed to return home. Apart from the emotional problems, this also raises tax questions. After all, does their Moroccan company move when all the important decisions, the actual management of the company, are taken abroad for a longer period of time? Yes, it could.

Working from home abroad

And what are the consequences for  income tax if an employee is detained in a country other than the country of residence? They can be very unpleasant. The employer would have to set up a payroll administration in that foreign country and the employee would have to file an income tax return there. After all, international tax law stipulates that an employee’s salary is taxed in the country of residence, unless the work is performed in another country. Tricky issues, which are unforeseeable, undesirable and can be extremely expensive.

Solution

The Netherlands has responded to the call of the OECD (the international organisation for cooperation) to ensure that these problems will not lead to unnecessary and undesirable tax consequences. To this end, agreements have been concluded with Belgium and Germany, for example. In relation to other countries, the Dutch tax office will judge lenient during the crisis.

Warning

Please note that if a director remains elsewhere after the lifting of the travel restrictions, or if an employee has found happiness abroad, the tax consequences may still occur. Because then, according to the Dutch tax office , they have made a well-considered choice and they will know and have to bear the tax consequences. This position is not solid as a rock, but also not totally outgunned.. Therefore, be aware; during the end of the corona crisis there may be fiscal dangers!

Are you questioning the impact of the coronary travel restrictions? Please contact Erwin Morriën, international tax lawyer with MOORE/mth Amsterdam, e.morrien@mth.nl or +31 (0)88-2021734