Teleworking from Belgium: risk of a permanent establishment
As a foreign entrepreneur, you want to expand your activity into Belgium. Initially, you want to do this simply by hiring a staff member here who works from home and carries out certain assignments for you. Does this automatically give you a ‘permanent establishment’ in Belgium, meaning you have to comply with all kinds of tax and legal obligations and are taxed here as well?
How do you want to start your Belgian activity?
If you start your activity in Belgium through a physical office, a factory, a shop, … (without immediately incorporating a company in Belgium for that purpose), then in principle there is no doubt: you have a permanent establishment. This means that the profit you make in Belgium that can be attributed to that permanent establishment is taxed here too, and that you must comply with a number of tax and legal obligations here. You can read more here.
Now suppose you do not immediately need a physical establishment in Belgium, but simply hire a staff member here who works from home and carries out certain assignments for your foreign company. Is there then already a permanent establishment?
Is a staff member working from home a permanent establishment?
An employee working from home in another country does not automatically constitute a permanent establishment. That depends on the specific facts and circumstances (a ‘question of fact’). A home workplace only constitutes a permanent establishment where all of the following conditions are met together:
- The home workplace is a fixed place of business (permanence).
Please note! A place is not permanent where it is used full-time for only a short period, but it can be permanent where it is used on a regular basis for short periods over a longer period (for example, where the employee systematically works from home two days a week).
- The place is attributable to the foreign enterprise. If, for example, the employee works from home permanently and the employer does not make any other office space available to them, they are deemed to make (part of) their home available to the employer for carrying out their work.
- The activities they carry out from home are of a commercial nature, and not merely of a preparatory or auxiliary nature. Commercial activities are, for example, regular (i.e. more than merely sporadic) client visits, building up a client portfolio, business development, necessary local services (for example repairs, training), management of suppliers and coordination of contracts, cooperation with other enterprises, access to expertise or real-time interactions, etc. Preparatory or auxiliary activities are, for example, purely administrative tasks, internal bookkeeping or diary management.
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Tip. If the employee does not carry out activities of a commercial nature and, over a period of 12 months, works less than 50% of their total working time from home, it is assumed that in principle there is no permanent establishment.
Please note! If, as a foreign entrepreneur, you have no permanent establishment in Belgium, you are in principle not taxable in Belgium, but you must nevertheless file a nil corporate income tax return and comply with the necessary payroll obligations in respect of that staff member’s remuneration in Belgium.
Good to know. Belgian domestic legislation also contains a definition of a permanent establishment, the so-called ‘Belgian establishment’. That definition is broader than the one in the double tax treaties. In other words, under Belgian legislation you have a ‘Belgian establishment’ more quickly than a 'permanent establishment’. A double tax treaty, however, always takes precedence over a country’s domestic legislation. So if, under Belgian legislation, there is a Belgian establishment but, under the double tax treaty, it is not a permanent establishment, then your profit is not taxable in Belgium. But take note: even in the absence of a permanent establishment within the meaning of a double tax treaty, the foreign company has tax obligations in Belgium. So make sure you are well advised!
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