Affected by Brexit?
There is a risk that your income may be taxed twice if two countries have the right to tax your income because, for instance:
- You live in one EU country but work in another (cross-border commuter)
- You are posted abroad for a short assignment
- You are living and looking for work abroad and have transferred unemployment benefits from your home country
- You have retired to one country and receive a pension from another
In these situations, while you will always be subject to the tax rules of your country of residence, you may also have to pay taxes in the other country.
Fortunately, however, most countries have double tax agreements. These agreements usually spare you from double taxation:
- under many bilateral tax agreements, the amount of tax you paid in the country where you work will be offset against the tax you owe in your country of residence
- in other cases, the income earned in the country where you work might be taxable only in that country and exempt from tax in your country of residence
You should note that the tax rates in the two countries involved will most likely be different. If the tax rate in the country where you work is higher, that is the final rate you will pay - even if the tax paid in that country is offset against the tax due in your country of residence, or if your country of residence exempts you from any further tax.
In order to claim relief from double taxation, you may need to prove where you are resident and that you have already paid taxes on your income. Check with the tax authorities what proof and which documents you need to submit.
All EU countries regularly exchange tax information to ensure taxpayers meet their obligations and to combat tax fraud and tax evasion.
The information below describes the most common double taxation treaty rules, in line with the OECD model tax convention; please check the details of the tax treaty relevant to your situation.
What rules apply if you are:
A cross-border commuter
If you live in one EU country and work in another, the taxation rules applicable to your income will depend on national laws and double tax agreements between these two countries - and rules can differ considerably from those that determine which country is in charge of social security issues.
Depending on the double tax agreement, you may have to pay taxes in your country of work as well as in your country of residence:
If you are an employee, the country where you work will, in most cases, tax the income you earn on its territory.
If you are self-employed and registered as such in the country where you live but provide services across the border, you will generally have to pay income tax in the country where you provide services if you set up a 'fixed base' or 'permanent establishment' (such as an office or a shop) there. Check with the tax authorities which rules apply to your case.
If you live in one EU country but earn all or almost all of your income in another and pay tax there, the country where you earn your income should treat you as it would treat a resident - that is, it should give you the same tax reliefs and tax exemptions and any other tax benefits available to residents, such as personal allowances, or the possibility to complete a joint tax return with your spouse.
The European employment services' cross-border partnerships in your region will be able to help you find out if there are any special tax arrangements in place for cross-border commuters that would apply to you.
A worker posted abroad
If you are posted abroad for a short assignment (up to 2 years), you will remain under your home country's social security system. However, the income earned during a posting abroad may be taxed in the host country.
When posted abroad by your company, you may not have to pay tax in the country where you work on the income you earn during your posting if:
- You stay abroad for less than 6 months in a year and
- Your salary is paid directly by your employer (at home), rather than by a branch or other company your employer has in the country where you work
A company director or board member
If you live in one country and are a member of the management board of a company in another, the country where the company is located may tax fees and income related to this role.
EU countries may treat as part of your fees any benefits in kind (for instance stock options or company car) that you receive as a board member.
If, alongside your role as a board member, you work for the same company as an adviser, a consultant or an ordinary employee, your income from these functions will most likely be subject to the same tax treatment as that applied to other cross-border commuters (see above).
An employee working in one EU country for a company based in another
If you live in one EU country and work there for a company based in another EU country you will normally, under most tax treaties, be subject to tax only in your country of residence.
A mobile artist or sports professional
When you work in another EU country - outside the EU country where you're tax resident - as an entertainer (such as a musician, theatre, film, radio or television artist) or as a sports professional, income you receive can be taxed in the country where the money was earned. This may be the case even if you're paid indirectly via another person or a company (such as a management company, team, troupe or orchestra).
The length of your stay abroad, and whether or not you have a fixed base there are often not taken into account: the decisive element is the performance in the country.
However, if the performance or event is exclusively or mainly supported by public funds or if the money you earned is insignificant, some countries will not tax your income. Your income will, however, will still be subject to the tax rules of your home country (the country where you are tax resident).
Your home country will often either:
- exempt from tax the money you earned from performances or events in another EU country, or
- grant you tax relief for any income tax paid at source in the country where you earned the money
To claim a tax refund or tax relief in the country where you live, you will probably have to show some documents proving that you paid tax on the income you earned abroad. You may need to provide sworn translations of any official documents used to support your claim.
A civil servant abroad
If you are seconded to work abroad as a civil servant, or if you live in one EU country but work as a civil servant in another, the following conditions usually apply:
- you will continue to pay tax on the income from your civil servant job only in the country of the administration that employs you
- you will pay income tax only in the country where you work if you are resident there and
- you are a national of that country or
- you did not move there just for the purpose of working as a civil servant (for example you were already living there before being recruited as a civil servant).
An unemployed person looking for work abroad
If you spend a short period (less than 6 months a year) in another EU country without working there, you probably won't be considered a resident for tax purposes in that country. In that case, any transferred unemployment benefits should be taxed only in the country that pays them.
If you spend more than 6 months in a year in another EU country, you could be considered tax-resident of that country and unemployment benefits transferred from another country may be taxed there. Indeed, under many bilateral tax agreements, unemployment benefits are subject to tax only in the country of tax residence.
However, if you keep a permanent home and strong personal and economic ties with your home country, you could still be considered a tax-resident of your home country, even if you stay abroad for more than 6 months. In this case, the other EU country may not be entitled to tax your unemployment benefits
A retired person abroad
If you have retired to another EU country and spend more than 6 months a year there, that country may consider you a tax-resident. If so, you may have to pay tax to that country on your total worldwide income - including pensions you receive from other EU countries.
Exception: public sector pensions are usually taxed only in the country of the administration that employed you.
Sources you should check
This is only a summary of what usually happens. To find out what the rules are in your case:
- ask a local tax office
- check the double tax agreement between your host country and the country where you are tax-resident
- if you are a civil servant working abroad, check the applicable international law and any special international diplomatic/consular agreement - to find out if, as a civil servant, you are entitled to any tax privileges in the country where you work