Want to know everything about salary split?

Working in more than one country?

If an employee works in two or more countries, different countries may be entitled to tax part of the employment income. This is commonly referred to as a salary split.

A salary split can arise simply because of the employee’s international working pattern. For example, an employee may live in the Netherlands and regularly work in Belgium, Germany or another country.

Whether a salary split actually arises depends on the applicable tax treaty, the employee’s working pattern and the employment arrangements. It is recommended to assess international working arrangements and its implications in advance.

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Salary split: the basic principle

In general, for a salary split to arise, an employee must actually carry out work in two or more countries. For statutory board members, specific tax treaty provisions may apply, which can result in taxation in another country even if no activities are physically performed there.

For employees, as a general rule, employment income may be taxed in the country where the employee physically performs the work. An applicable tax treaty may provide an exception, often referred to as the 183-day rule. Whether this exception applies does not depend on the number of days alone. Among other things, it may also be relevant:

• the employee’s presence and working days in the other country;
• which company qualifies as the employer for tax treaty purposes; and
• whether the employment costs are borne by an entity or permanent establishment in the other country.

The concept of employer for treaty purposes does not necessarily correspond with the company named as employer in the employment contract. The exact interpretation depends on the applicable tax treaty and the circumstances. Dutch policy contains specific rules on the interpretation of the employer concept in cross-border employment situations.

Taxation in different countries

If more than one country is entitled to tax the employment income, the salary is generally allocated between those countries based on the work attributable to each country.

This does not necessarily mean that the employee actually pays tax twice on the same salary. Tax treaties generally determine which country may tax the income and how the employee’s country of residence should provide relief from double taxation.

A salary split can affect the employee’s overall tax position, positively or negatively. The outcome depends on factors such as the countries involved, applicable tax rates, personal circumstances and available tax facilities.

Depending on the circumstances, the salary split may need to be reflected through payroll, while in other situations the tax position is ultimately dealt with through the employee’s income tax return.

Social security: in which country?

Tax and social security should be assessed separately.

Within the EU/EEA and Switzerland, the applicable social security legislation generally determines that an employee is subject to the social security system of one country at a time, even when the employee regularly works in several countries.

Outside this framework, bilateral social security treaties and national legislation may determine where contributions are due.

This means that an employee can have a salary split for tax purposes while remaining fully covered by the social security system of one country.

Other points to consider

Cross-border working involves more than income tax. Depending on the situation, it may also be necessary to consider:

• social security and, where applicable, the application for a social security certificate (A1/Certificate of Coverage);
• payroll registrations and reporting obligations;
• employment law and mandatory local employment conditions;
• pension and employee benefits;
• health insurance;
• company cars and other benefits in kind;
• special tax regimes for internationally mobile employees; and
• the impact on the employee’s net income.

How will a salary split affect your situation?

A salary split should always be considered as part of the employee’s overall cross-border employment position.

Van Oers can assess where the employee’s salary is taxable, determine the applicable social security position and identify the payroll and employer obligations in the countries concerned. Where necessary, we coordinate with our international network to ensure that the different country positions are properly aligned.

Do you work in more than one country or are you a statutory board member of a company in another country? Our Global Mobility specialists are happy to assess the applicable rules and what this means for your salary, payroll and social security position.