One employee living on one side of the German and Dutch border and working for an employer on the other is the smallest cross-border arrangement it is possible to create, and it is governed by three separate bodies of law that do not share definitions, thresholds or timetables. Social security is decided by European regulation. Income tax is decided by the treaty. The withholding duty is decided by each state’s domestic law. All three can point in different directions on the same facts, and each of them is correct.
The mistake almost every employer makes is to settle one of the three and treat the other two as following from it. The A1 certificate arrives, and the payroll is set up accordingly. Or the 183 day rule is checked, and the social security position is assumed to match. What follows is the three questions in the order they have to be asked, and the point at which each of them is actually decided.
Social security: the twenty five per cent indicator
Article 13(1) of Regulation (EC) No 883/2004 governs a person who normally works in two or more member states. Where a substantial part of the activity is pursued in the state of residence, that state’s legislation applies to the whole of it. Where it is not, the legislation of the state in which the employer’s registered office or place of business is situated applies.
Article 14(8) of Regulation (EC) No 987/2009 defines a substantial part. It is a quantitatively substantial part of all the activities, not necessarily the major part, and the indicative criteria for an employed person are the working time, the remuneration, or both. In an overall assessment, a share of less than 25 per cent is an indicator that a substantial part is not being pursued in the state concerned.
The 25 per cent figure is an indicator inside an overall assessment, not a hard statutory line, and a case sitting just either side of it is not settled by arithmetic. Article 14(10) requires the institutions concerned to take into account the situation projected for the following twelve calendar months, so the judgement looks forward rather than only back at days already worked. Marginal activities are disregarded under article 14(5b).
The telework agreement, and the fifty per cent inside it
The 25 per cent indicator produced an obvious problem once home working became normal. An employee living in the Netherlands and employed in Germany who worked two days a week from home crossed it, and the applicable legislation moved to the Netherlands, taking the employer’s contribution obligations with it.
The Framework Agreement on the application of article 16(1) of Regulation (EC) No 883/2004 in cases of habitual cross-border telework addresses that. It has been in force since 1 July 2023, Belgium acts as depositary state, and both Germany and the Netherlands have applied it from that date. It permits cross-border telework from the state of residence amounting to less than 50 per cent of total working time while the employer’s state remains competent.
The agreement has limits that matter more than its headline. It operates on application rather than automatically, so an employer who does not apply gets the ordinary article 13 outcome. It is drafted for telework, so an employee who spends the same proportion of time visiting customers in the residence state is outside it. And it is a matter for the two states, whose signatory positions are maintained over time rather than fixed.
The certificate settles one question and no others
The A1 certificate records which state’s social security legislation applies. It does that with binding effect between the institutions, which is precisely why it is so often produced in answer to a question it does not address.
It says nothing about which state may tax the employment income. It says nothing about where wage tax must be withheld. It says nothing about whether the employer has created a taxable presence. An employee can be correctly insured in the Netherlands and correctly taxed in Germany on the same facts, and a file that contains only the certificate has documented one third of the position.
The divergence is structural rather than accidental. The regulation allocates a single applicable legislation to avoid split contributions, so it looks for one answer covering the whole of the employment. The treaty allocates taxing rights, and it is content to split the income between two states by reference to where the work was done. The two instruments are solving different problems.
Tax: thirty five workdays before one hundred and eighty three days
Article 14(2) of the convention of 12 April 2012 between the Netherlands and Germany is the provision everyone knows. Remuneration for employment exercised in the other state is taxable only in the state of residence if the employee is present in the other state for periods not exceeding 183 days in total in any twelve month period beginning or ending in the tax year concerned, the remuneration is paid by or on behalf of an employer who is not resident in the other state, and it is not borne by a permanent establishment there. All three conditions must hold.
The reference period is a rolling one, any twelve month period beginning or ending in the tax year concerned. Days in the last quarter of one year and the first quarter of the next are counted together.
The provision that decides most hybrid working cases is newer than the treaty that contains it. Article 14(1a) was inserted by the protocol of 14 April 2025 amending the convention, which entered into force on 31 December 2025 and applies from 1 January 2026. It provides that where a resident of one state exercises employment in the other, remuneration for days worked in the first-mentioned state or in one or more third jurisdictions is taxable only in that other state where the employment is so exercised on fewer than 35 workdays in a calendar year. Where a convention between the state of residence and a third jurisdiction lets that jurisdiction tax the remuneration for days worked there, the first sentence does not apply to that part. It is a calendar year test, it is counted in actual workdays, and a day counts only where at least 30 minutes of the work that day is performed in the state of residence or in a third jurisdiction. An employee working from home one day a week crosses it before the end of the third quarter. Paragraph 2 applies notwithstanding both paragraph 1 and paragraph 1a, so where its three conditions are met the 183 day rule prevails over the 35 workday test.
Who withholds, and the establishment that decides it
The treaty allocates the taxing right. It does not create or remove a withholding duty, which is a matter of domestic law on each side.
Section 38(1) of the Einkommensteuergesetz makes the duty turn on whether there is a domestic employer, defined as one having in Germany a residence, habitual abode, place of management, seat, permanent establishment or permanent representative within the meaning of sections 8 to 13 of the Abgabenordnung. The same provision extends the duty to a party who commercially hires out employees to a third party for work in Germany, and brings wages paid by a third party within the duty where the employer knows or ought to recognize the fact, which is expressly aimed at affiliated groups.
Section 41(2) then defines the establishment for wage tax purposes, and it is a different concept from the one in the treaty. It is the business or part of the business of the employer in which the wage relevant for the wage tax deduction is determined. Where that determination does not happen at the employer’s business or does not happen in Germany, the centre of management in Germany governs instead. A payroll processed in one place and work performed in another can therefore separate the two, and section 38b sets six tax classes into which the employee must be placed once the duty exists.
There is no border worker article
Employers on both sides of this border regularly ask which rule covers Grenzgänger, on the understanding that a special regime exists for people who commute daily. In this treaty it does not. There is no border worker article, and no provision addressed to commuting or to home working as such.
What exists instead is narrow and specific. Article 14(3) deals with employment costs borne by a fixed place of business on a cross-border business park through which the common border runs, allocating the income exclusively to the employee’s state of residence unless that person is subject to the other state’s rules under the social security regulations, in which case the other state may tax. Article 14(4) covers ships, aircraft and inland waterway vessels. Neither helps an ordinary commuter.
The employee’s own position is then governed by residence. Section 1(1) of the Einkommensteuergesetz makes a person with a residence or habitual abode in Germany taxable there on worldwide income, and section 1(3) allows a person without one to elect to be treated as unlimitedly liable where at least 90 per cent of the income is subject to German tax, or the income outside the German charge does not exceed the basic allowance. On the Dutch side, article 2.10 of the Wet inkomstenbelasting 2001 sets the 2026 box 1 income tax component at 8.10 per cent up to 38,883 euros, 37.56 per cent to 78,426 euros and 49.50 per cent above that, which the Belastingdienst publishes as combined rates with national insurance contributions of 35.75, 37.56 and 49.50 per cent for a taxpayer below state pension age.
What has to be true in the file
The evidence for all three questions is the same evidence, and it is generated by the employee rather than by the finance function. The employment contract should state a place of work that matches what happens. Time records should support the workday count at the level of the individual, because both the 35 workday test and the 183 day test are personal. Any home working arrangement should be documented as an arrangement, with the proportion agreed rather than tolerated, since the social security position turns on a projection over the following twelve months and a projection has to rest on something.
The one thing that should never appear in the file is a single answer applied to all three questions. An employer who has concluded that the employee is Dutch for social security purposes has not concluded anything about German wage tax, and an employer relying on the 183 day rule has not addressed article 14(1a) at all.
The cost of getting this wrong is asymmetric. Contributions wrongly paid in the wrong state are recoverable through a procedure designed for the purpose. Wage tax not withheld is recovered from the employer, with the employee’s cooperation no longer available if the employment has ended. And the day counts that decide both are recorded, or not recorded, years before anyone asks to see them.
This article is informational and does not constitute tax or legal advice. Rules of this kind evolve and their application depends on the facts of each structure. Each engagement is subject to scope and applicable regulation.