If a Belgian is working in Luxembourg, then the issue arises about which of the two countries may tax that person’s Luxembourgish wages. It can be a significant issue given the substantially lower tax burden in Luxembourg.
The Belgium-Luxembourg double tax treaty’s main rule is that if the employment is carried out in Luxembourg, then the salary relating to the days performed in Luxembourg is taxable in Luxembourg and exempted from tax in Belgium.
However, obtaining the exemption for this income in Belgium is not always straightforward.
Burden of proof
Belgian residents who claim such an exemption in Belgium must prove that their activities were physically carried out in Luxembourg.
Proof can be provided by various documents such as bank statements, time logging over-views, personal train tickets, toll tickets, fines for traffic offences, fuel bills, hotel bills, meeting attendance lists (such as meeting minutes), receipts, mobile phone bills showing roaming charges and so on.
In practice, many taxpayers are confronted with investigations, and the Belgian tax authorities may go very far in demanding proof of physical presence in Luxembourg. Unsurprisingly, there are a considerable number of disputes about these issues.
24-days’ tolerance increases to 48 days
Another issue concerns the definition of ‘presence’, as Belgian employees working for a Luxembourg employer do not always carry out their work in Luxembourg; in particular, given that more and more people work from home to avoid long commutes, and employees may have to work in a third state because of conferences, business trips, training and professional development, or social events.
This issue may have a significant effect on such a person’s tax liability in Belgium.
According to the applicable double tax treaties, in principle, any working day performed outside Luxembourg is subject to tax in Belgium (except in the specific case of France).
Not only does this lead (in most cases) to a higher total tax burden, it also results in an increased administrative burden, on the one hand for the employer who has to be careful when determining the Luxembourg tax levied on the salary of its Belgian employee and, on the other hand, for such an employee. However, double taxation should in any case be avoided by applying for a tax refund in Luxembourg.
In 2015, the Belgian and Luxembourg governments introduced a tolerance, the so-called “24 days rule”. Thanks to this rule, Belgian employees working in Luxembourg may work outside Luxembourg for 24 days per year and still benefit from an exemption in Belgium and taxation in Luxembourg.
However, as soon as the limit of 24 days is exceeded, the tolerance no longer applies for the first 24 days either.
Practice shows that many employees easily spend more than 24 days per year outside Luxembourg for their job, resulting in Belgian taxation on this part of their income.
This issue may end for many cross-border workers, as in 2019 the finance ministers of Belgium and Luxembourg concluded an agreement to start new negotiations to increase the limit from 24 to 48 days.
If this agreement is formalised, this would facilitate tax compliance, increase legal certainty and reduce the tax burden for many cross-border workers.
It will take some time before this adjustment comes into effect.
We will keep you updated. Please do not hesitate to contact our team if you would like further information.
