Secondment to Belgium: points of attention for Dutch entrepreneurs

If you plan to offer your services across borders, you can use your own employees to do so. These employees are then 'seconded', i.e. sent by the employer to provide services in an EU Member State other than the one in which they usually work.

The posting of employees from Ireland to Belgium brings with it some important points of attention. To help you on your way, we have drawn up an overview of the most important aspects to take into account when posting an employee to Belgium. The focus here is on an Irish company posting an employee to Belgium.

Of course, this overview is not complete but it should give you a good idea of the posting of personnel to Belgium. If you have further questions about certain issues, you can of course always contact us.

The overview consists of 5 aspects:

• Applicable social security: which social security legislation will apply during the secondment to Belgium?

• Applicable labour law: which labour law will apply to the employment relationship during the secondment to Belgium?

• Administrative formalities: which administrative formalities must you complete before you can post your employees to Belgium?

• Tax consequences of the secondment: where does the seconded employee have to pay personal income tax on his/her salary, and does the secondment have consequences for the employer in terms of corporate income tax and VAT?

• Prohibition on posting?

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1. APPLICABLE SOCIAL SECURITY

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Based on European law, an employee is in principle subject to the social security system of the country in which he works (the so-called "workstate principle").

However, secondment is an exception to this principle, as a result of which the social security system of the seconding country (Ireland) continues to apply. The main conditions for applying this exception are as follows:

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• The planned duration of employment in the other country does not exceed 24 months (exceptionally extendable to 5 years).

• A bond of subordination remains between the posting employer and the posted employee throughout the duration of the posting.

• The employee was socially insured in the temporary employment country immediately prior to the posting.

• The posting employer performs sufficient economic activities in the temporary work country.

If those conditions are met, workers posted to Belgium by an Irish company therefore remain subject to the social security scheme of Ireland.

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2. APPLICABLE LABOUR LAW

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As far as the applicable labour law is concerned, a seconded employee remains in principle subject to the labour law of the seconding country (Ireland), as this is usually where 'the place of usual employment' is located. However, in order to prevent social dumping and unfair competition, the Irish employer must comply with (certain) rules of Belgian labour law during the temporary employment of its employees in Belgium. You will find an overview of the most important rules of Belgian labour law in our employment overview.

A distinction is made between the first period of 12 months and the subsequent period:

A. First 12 months

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During the first 12 months of the posting, the employer must comply with the so-called Belgian 'hard core' provisions. In the event of secondment to Belgium, this means that already during this period the vast majority of Belgian labour law must be complied with. Think about the working hours, the minimum wages and the public holidays.

B. After the first 12 months

From the moment the duration of the posting exceeds 12 months, the package of mandatory minimum protection rules is extended and the employer must apply all applicable wage and working conditions of the host country (Belgium). This means, e.g., that now the rules on guaranteed wages in case of illness must also be complied with.

Please note that the replacement of a posted employee for "the same task and at the same place" does not lead to a "reset" of the duration of the posting. In order to check whether the duration of the posting is already 12 months, the different periods of posting - both those of the replacement employee and those of the previously posted employee - are added together.

It is important to note that the provisions concerning the conclusion and termination of the employment relationship, as well as the supplementary pension schemes, are explicitly excluded and that the relevant Irish rules therefore continue to apply.

3. ADMINISTRATIVE FORMALITIES

When you wish to post workers to Belgium, you must take into account various formalities.

First of all, you have to apply for an A1 form in Ireland for the workers to be posted. The A1 form is proof that the employees remain subject to Irish social security while they are working in Belgium. With this A1 form, you must then make a Limosa declaration in Belgium to inform the Belgian authorities that your employees will be (temporarily) working in Belgium. If a (valid) A1 form is missing, the Belgian inspection services can make the employee concerned subject to Belgian social security.

Furthermore, depending on the specific sector and activities of your company, additional formalities may apply. For example, in certain circumstances, companies in the construction sector must file a declaration of work and register the persons on a construction site via the "checkin@work" application.

In addition, it is advisable to make clear agreements with the seconded employees, including on the applicable labour law, the applicable social security and tax law, possible tax benefits, provisions regarding working hours, etc. If the secondment leads to a 'salary split' (see point 4), a shadow payroll should also be set up to calculate and pay the tax contributions.

Finally, it must be verified whether there is a case of posting or (sub)contracting. Since Belgium has a principle prohibition on posting (see point 5), a written agreement may be required between the hiring company and the user in order to determine what instructions can be given to the posted workers.

4. TAX CONSEQUENCES OF THE SECONDMENT

When you post employees to Belgium, this can have tax consequences for both the employee and the employer. After all, the posting of employees may result in the employee's salary having to be split between the country of residence and the country of work for tax purposes (a so-called 'salary split').

In addition, a seconded employee may also give rise to a permanent establishment as a result of which, as an employer, you are subject to Belgian corporate income tax for your Belgian activities and may have to charge Belgian VAT.

Below we provide an overview of the tax consequences of secondment for (A) the employee and (B) the employer.

A. Tax consequences for the employee

The double taxation treaty between Belgium and Ireland determines which income is to be taxed in which country. Broadly speaking, the following principles should be taken into account.

The treaty stipulates that the country of residence (= country where the employee is resident for tax purposes) is in principle competent to tax the entire salary, regardless of where the work is done. However, if one of the following 3 conditions is met, the country of employment (= country where the employee performs his activities) has the right to levy the tax on the part of the salary that relates to the activities in the country of employment:

• The employee works more than 183 days in the country of employment.

• The employer has a permanent establishment in the country of employment.

• The salary is borne by a company in the country of employment which acts as the actual employer.

If one of the above-mentioned conditions is met, the income of the seconded employee will be split fiscally between Belgium and Ireland and consequently there will be a salary split. In many cases, a salary split leads to a lower overall tax and thus a higher net salary. The salary split can therefore be interesting to optimise your remuneration policy.

If your seconded employee finds himself in one of the situations mentioned above, you, as an employer, will have to withhold the wage tax from the gross salary every month and pay it to the Belgian tax authorities. A Belgian payroll agency can ensure that the wage tax is calculated and paid.

B. Tax implications for the employer

For the employer, a secondment can have an impact on both corporate tax and VAT. This will always depend on whether there is a permanent establishment. 

1) Corporate tax

On the basis of the double taxation treaty between Belgium and Ireland, an Irish company is subject to corporation tax in Belgium if it has a permanent establishment in Belgium.

The consequence of having a permanent establishment in Belgium will be that Belgian corporate income tax (25%) is due on the profit generated in Belgium (= Belgian turnover minus Belgian costs).

There are three main types of permanent establishments:

(a) tangible fixed assets

There can be a permanent establishment when your company has a physical space in Belgium (as owner, tenant or in some other way). This permanent establishment can take the following forms: place of management, branch office, company headquarters, factory, workshop, etc.

Thus, if you rent an office in Belgium for your seconded employee, this will lead to a material fixed establishment.

(b) Personnel permanent establishment

If you post an employee to Belgium who is authorised to conclude contracts in the name of your company, your company is deemed to have a personal permanent establishment in Belgium.

If you, as a foreign company, second (managerial) staff to Belgium, you must therefore take into account that the mere secondment may lead to a personnel permanent establishment.

c) Construction or assembly work

Finally, the place of execution of a building or construction or assembly project is also a permanent establishment if it lasts more than 12 months.

2) VAT

The VAT legislation has a similar definition for the term 'fixed establishment'. In general, it can be said that the rules for VAT are stricter, so that a permanent establishment is less likely to exist in the context of VAT than in the context of income tax.

If your Irish company does not have a fixed establishment in Belgium, you will have to transfer the VAT for most B2B transactions you carry out in Belgium to the VAT-registered customer.

If, on the other hand, you have a permanent establishment in Belgium, you are in the same position as companies established in Belgium for your activities or supplies in Belgium. Consequently, you are subject to the same VAT obligations and, in most cases, you will have to charge and remit Belgian VAT through periodic VAT returns.

5. PROHIBITION ON POSTING?

In principle, the posting of workers to a third undertaking, whereby the latter exercises (part of) the authority of the employer, is prohibited. This prohibition also applies to Irish employees who are posted to Belgium. Therefore, you must always ensure that the secondment does not fall under the 'prohibited secondment'.

In certain sectors, however, it is common practice for employers to provide services to third party users whereby employees are 'placed' with this third party user and they work for and on behalf of their employer (e.g. consultants). This concerns (sub)contracting and is permitted as long as the employer authority remains with the employer and is not transferred to the third party user. The third party user can only give limited instructions to the employee, e.g. regarding the welfare regulations in his company. Other instructions may only be given by the third party user if there is a written agreement that explicitly and in detail includes all instructions. However, this right of instruction may not undermine the authority of the employer and the actual implementation must fully comply with what is stated in this agreement.

If one of these conditions is not respected and the third party user gives more far-reaching instructions to the loaned employee, this is considered to be the exercise of employer authority and therefore a prohibited posting. In case of prohibited posting the consequences are far-reaching:

• Firstly, both the employer and the third party user risk criminal or administrative sanctions. In certain cases, the judge may even impose a ban on operation, a professional ban or temporary closure of the business.

• In addition, invoices relating to the provision of services are not recoverable.

• Furthermore, the existing employment contract shall be considered null and void and the employee shall be deemed to have directly concluded an employment contract of indefinite duration with the user. Both the employer and the user are jointly and severally liable for the payment of social security contributions, wages and all other benefits arising from the employment contract.

• Finally, the employee is given the right to terminate his employment contract without notice or compensation until the date on which he is no longer put at the disposal of the user.

The employee must not suffer any disadvantage from the above consequences. All risks are thus borne by the employer and the user.