Luxembourg: Luxembourg cross-border workers situation since 30 June 2022

Due to the COVID-19 pandemic, a lot of employees who used to work abroad have been forced to work from home. In order to mitigate the impact, Luxembourg concluded so-called ‘COVID agreements’ with its neighbouring countries in 2020. In a nutshell, these agreements provided that for tax purposes, home working days of employees are consid­ered to have been spent in the country (abroad) where they would have worked without the COVID-19 measures. A similar measure was applied for social security matters at the EU level.

Following several reconductions over the last 2 years of the pandemic, these COVID agree­ments concerning taxes ended on 30 June 2022. They were, however, extended until 31 December 2022 for social security purposes.

Taxation

Since 1 July 2022, the former ‘normal’ rules as provided by the relevant double tax treaties have applied again.

Therefore, cross-border workers are generally taxed in their country of employment (provided all other conditions are met) and thus exempt (or granted with a tax credit) in their country of residence, unless they work from a location in another country (for in­stance teleworking from home). If so, the employment income is generally taxable in the country of residence of the employee.

As an exception to the general rule above, it should be noted that Luxembourg concluded specific agreements with Belgium, France and Germany. According to these mutual agree­ments, cross-border workers that work from home (or abroad, for example during a business trip) benefit from a certain tolerance allowing for working remotely. The amount of days per year depends on the country of residence and applicable double tax treaty.

However, when the threshold is exceeded, the tolerance does not apply any more, and the country of residence is then entitled to tax the employment income on a pro-rata basis.

For 2022, the abovementioned thresholds should not be prorated and therefore, the full number of days should apply for the period from 1 July to 31 December.

Social security

In case a person works in two or more countries (within the EEA or Switzerland), the appli­cable social security legislation is usually the one of the country where the employer is situated, unless the employee pursues a substantial part (25%) of his/her activity in his/her state of residence (in the latter case one is subject to social security in the country of residence).

The Administrative Commission for the coordination of the national social security of the EU agreed, however, to maintain the rules applicable during the COVID pandemic until 31 December 2022.

Therefore, until 31 December 2022, employees who reside in one country and (normally) work in another country can continue to work from home or another state within the EEA or Switzerland (more than 25 per cent of their time) without affecting the determination of the social security applicable (without becoming subject to social security in their country of residence).

What about the future?

Following important changes in work habits, efforts and adaptation, the return to old practice does create some discontent. Negotiations are ongoing…

It may take some time before these adjustments are agreed upon and implemented. We keep monitoring these developments and will inform accordingly.

Read the WTS Global Mobility Newsletter here.