Cross-border commuters, tax burden and social security obligations: Which rules will apply from July 1, 2022? – Employee benefits and compensation

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Due to the development of teleworking in the context of the COVID-19 pandemic, the issue of taxation and social security affiliation of cross-border workers was discussed. In response to the COVID-19 pandemic, the Luxembourg government agreed in early 2020 with the Belgian, French and German governments on exceptional and temporary measures regarding the tax and social security situation of Belgian, French and German cross-border workers who normally reside in Luxembourg work and work remotely from where they live (the “agreement“).

The agreements partially expired on July 1, 2022. What are the consequences for employers?

Social security for cross-border workers

In principle, European Regulation 883/2004 stipulates that employees who are employed in Luxembourg and live outside Luxembourg remain affiliated with the Luxembourg social security system provided they do not work more than 25% of their annual working time in their country of residence.

As an exception to the above rule, the agreements allowed cross-border workers who worked more than 25% of their time from their home town to remain affiliated to the Luxembourg social security system during the COVID-19 pandemic.

The social security agreements were due to expire on June 30, 2022. However, the Administrative Commission for the Coordination of Social Security in the European Union has decided to apply a transitional period of 6 months from July 1, 2022 to December 31, 2022.

As a result, cross-border workers can continue to work remotely and remain affiliated to the Luxembourg social security system, even if the 25% threshold is exceeded.

Taxation of cross-border commuters

Bilateral tax treaties already existed before the COVID-19 pandemic between Luxembourg on the one hand and Germany, Belgium and France on the other. These bilateral tax treaties provide that taxation of employees normally employed in Luxembourg who work remotely from their place of residence will be maintained at 100% in Luxembourg if the following thresholds are not exceeded:

  • Germany: maximum 19 teleworking days per year;

  • France: maximum 29 teleworking days per year;

  • Belgium: maximum 34 teleworking days per year.

The agreements negotiated in the context of the COVID-19 pandemic allowed cross-border workers who exceed the above thresholds due to the number of working days from their place of residence in Germany, France or Belgium to remain taxable in Luxembourg.

However, the cross-border taxation agreements expired on June 30, 2022.

As a result, as of July 1, 2022, the salary relating to all days worked outside Luxembourg will be taxable in the worker’s country of residence if the above thresholds are exceeded.

Apart from the employees concerned having to pay tax on their earned income in their country of residence, remote work by cross-border workers can also pose tax risks for Luxembourgish employers. In particular, it could be assumed that the employer has a permanent establishment in the employee’s country of residence and therefore has to pay taxes in that country.

Leaving aside the practicality of the above rules, both employers and employees are advised to keep a record of the number of working days spent by employees outside of Luxembourg for whatever reason.

The content of this article is intended to provide a general guide to the topic. In relation to your specific circumstances, you should seek advice from a specialist.

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