Homeworking and cross-border workers: how will the policy change in 2023?

20/12/22

In brief

While teleworking is becoming essential, the current legislation imposes some restrictions on cross-border workers in terms of both social security and taxation. In expectation of a more extensive reform of the international agreements, the countries are however providing some flexibility. 

Which rules will be applicable from 2023 to residents of border countries who are employees of a Luxembourg employer and who telework from their home? What are the implications in terms of taxation and social security?

In details

1. Cross-border teleworkers and taxation:

General principle of Double Tax Treaties:

Employees who are resident of a first State A :

  • who are working for an employer resident in another State B
  • and who are exercising a portion of their working time in their State of residence A

are in principle still taxable on the part of the salary relating to the days worked in their country of residence A. 

However, Luxembourg has concluded specific tax agreements with Germany, Belgium and France allowing it to maintain 100% taxation in Luxembourg when the employees are working outside Luxembourg below certain thresholds (see table below).

Exceptions to the above rules in case of part-time activity in the country of residence: 

Luxembourg and its border countries have agreed respectively on a limited number of days of work in the country of residence and/or outside Luxembourg while remaining taxable in Luxembourg. France and Belgium grant -  to date -  respectively a package of 29 and 24 days of telework to their residents and Germany grants 19 days. 

Nevertheless, both French and Luxembourg ministers have decided to extend this threshold by five days to 34 days from 2023. The amendment to the double taxation agreement between France and Luxembourg still needs to be ratified by both countries to be applied.

Moreover, the French government foresees in its Finance Law in 2023, which is currently being adopted, the abolition of the withholding tax on wages requirement for the Luxembourg employer when a part of these wages becomes taxable in France if the threshold is exceeded.

As for Belgium, the agreement extending the threshold from 24 to 34 days retroactive to 1 January, 2022 is still awaiting official ratification on the Belgian side, while Luxembourg has already ratified it. As for Germany, the threshold remains unchanged at 19 days. 

Below you will find a summary table of the rules and exceptions (in bold the new ones):

 

Taxation

 

Days worked outside Luxembourg above the annual thresholds below will result in the taxation of wages in the country of residence, depending on the number of days worked outside Luxembourg

Countries

France

Belgium

Germany

Thresholds 2022

29 days 

34 days (**) instead of 24 days

19 days 

Thresholds 2023

34 days (*)

34 days (**)

19 days 

(*) according to a governmental agreement signed between France and Luxembourg on 7 November 2022, pending ratification

(**) subject to ratification of the amendment by Belgium in order to be effective

2. Cross-border teleworkers and social security:

Social security general principle:

A resident of a Member State of the European Union (country A) working for an employer established in another Member State (country B), and who performs a substantial activity (i.e. more than 25% of his working time/pay) in his country of residence A, is subject to the social security system of his country of residence A. In this case, the employer who is resident in country B is required to contribute in country A specifically for this employee.

Extension of the transition period:

Due to the widespread use of teleworking since the COVID crisis, the European authorities have recommended to Member States not to take into account telework days in the calculation of the 25% threshold during a transitional period that was initially supposed to end on 31 December, 2022.

The Administrative Commission for the Coordination of Social Security Systems in the European Union has recently issued a new recommendation to extend this transitional period for an additional six month period, thus ending on 30 June, 2023.

 

Social security

 

General principle of unicity of the social security scheme according to the European regulations:

If more than 25% of the working time is spent in the country of residence different from Luxembourg, the social security system of the country of residence applies to the employee working for an employer in Luxembourg

 

Exception to the general principle above: extension of the transitional period in case of telework:

The days of teleworking from their border country of residence are not taken into account for the calculation of the 25% threshold: the employee can remain under the Luxembourg social security system until 30 June, 2023.

Border countries that apply this EU recommendation

Germany, Belgium, France, Luxembourg



Nowadays, telework has become an established way of working in many companies. We will keep you informed of the evolution of the legislation, as the States are aware that the social and fiscal rules will have to evolve to better adapt to new working patterns and expectations of flexibility.

However, employers must enact a telework policy in accordance with the Luxembourg Labour Code. It is therefore necessary to define the framework and the conditions as precisely as possible, in order to evaluate and limit the consequences for the employer as well as for the employees.

precisely 

Contact us

Nelly Mazzarol

Managing Director, Payroll and immigration services, PwC Luxembourg

Tel: +352 49 48 48 2171

Vinciane Istace

Partner, People Experience and Change Leader | Diversity and Inclusion Leader, PwC Luxembourg

Tel: +352 49 48 48 2112