Some expats who work in more than two countries can use a salary split to reduce their tax burden. Boekel de Neree tax advisor Vincent van Oostveen explains how.

Some employees exercise their employment in more than one country, offering attractive tax benefits by means of a salary split.

For example, if an expat works three days per week in the Netherlands and two days per week in Belgium, both countries — under certain circumstances — can claim taxation with respect to the income deriving from that employment.

Tax treaties

By entering into a tax treaty, the involved countries intend to divide their claims on taxation. In general, a tax treaty is an agreement between two nations.

The general rule for the taxation of income from employment described as salaries, wages and other similar remuneration packages, states that the income is taxable in the country where the employment is actually carried out, giving rise to the possibilities of a salary split. The general rule is not applicable to non-employment remuneration paid to members of a company´s board of directors.

Employment is carried out in the place where the employee is physically present when performing the activities for which the income is paid. Salaries, wages and similar remuneration include benefits in the course of employment for example the use of a house or apartment or a motor vehicle.

An employee will be able to claim a salary split if he or she meets one of the following conditions:

The employee is present in the country where the employment is actually carried out for a period or periods exceeding in aggregate 183 days in the fiscal year concerned or;

the remuneration is paid by, or on behalf of an employer who is a resident of the country where the employment is actually carried out or;

the remuneration is borne by a permanent establishment or a fixed office location which the employer has in the country where the employment is actually carried out.

If an expat's situation does not satisfy one of these conditions, the income is not taxable in the country where the employment is actually carried out, but in the country of which the employee is a resident and he or she will not be able to utilise a salary split for taxation purposes.
Salary split

Employees who work in their country of residence and in another country, can make a salary split under certain circumstances and their income will be taxed in the country of residence and part of the income will be taxed in the other nation where the employment is carried out.

Basically, the income will be divided across the two countries and the employee benefits from a salary split because the effect of progressive tax rates will be spread over the two countries.

The salary split is applicable when the employee receives his or her income from an employer located in the country where part of the employment is carried out. In this situation, the nation where the employment is exercised has the right of taxation on the basis of the tax treaty.

The employee must be physically present when performing the activities for which the income is paid. Moreover, employer and employee must have agreed that part of the employment will be carried out in another country. This agreement has to be laid down in a written contract.

In practice, it is possible that the complete remuneration is paid by the employer in the country of residence. A salary split is still possible when the employment costs are passed onto the employer in the other country. It should be proven that the employer in the other country ultimately bears the employment costs.