Covid-19 and Luxembourg cross-border workers: how will working from home be taxed?

in Tax, 02.04.2020

This blog is regularly updated based on the latest announcements. Last update: 11am on 8 April 2020.


Highlights from this blog

  • The days that Belgian, French and German residents work from home due to Covid-19 will not count towards the 24-day tax threshold for the Belgians, the 29-day threshold for the French or the 19-day threshold for the Germans. The days will be taxed in Luxembourg.
  • It has been confirmed that working at home in another country will not affect your social security status: those covered by the Luxembourg system will still be covered regardless of number of days worked at home during the outbreak.
  • Parents have been awarded special leave to look after children who have the virus, or whose schools or crèches have closed. This leave will not count towards the usual “leave for family reasons” threshold calculations.
  • French, Belgian, and German cross-border workers require a certificate, signed by their employer, to cross the Luxembourg border.
  • The deadline to submit individual tax returns has been extended to 30 June 2020.

As COVID-19 strengthens its foothold in Europe, many EU member states, including Luxembourg, have announced new measures to limit the impact of the virus across the continent. Employers have also been swift to act to ensure the safety of their employees, first by relaying state communications to their people, and more recently by making difficult internal decisions on appropriate measures to take.

Coronavirus developments in Luxembourg

When it comes to Luxembourg firms, two main preventative measures have been reported. First, we saw companies asking individuals returning or in contact with people who have been in impacted countries to self-isolate. The companies asked employees to work from home until further notice.

Luxembourg’s workforce is atypical—200,000 employees cross the border from Belgium, France and Germany every day. This adds a layer of complexity for employers and employees alike, and a request for employees to stay or work from home raises tricky questions around taxation. In this context, many of our clients have been in touch to seek guidance.

Below you’ll find a summary of key considerations for the taxation of cross-border workers employed by a Luxembourg employer. Please note that this does not touch upon Luxembourg labor law.

  1. Existing thresholds

The number of days that cross-border employees can work from home without being taxed by their home country are found in the Double Tax Treaties. Luxembourg has signed separate treaties with Germany, Belgium and France so the numbers differ depending on where a person lives. German residents can work 19 days outside of Luxembourg without being taxed in their home country, Belgians can work 24 days, and French residents 29. When these limits are exceeded, the Germany, Belgium, and France authorities can usually step in and tax the individuals concerned. In this case, they can recoup tax on every single day that the individual worked outside Luxembourg, and not only the days exceeding the thresholds.

The Belgian, French, German and Luxembourg governments have announced that, in the case of a “force majeure” like Coronavirus, working from home days do not count towards the 24-day (Belgium), 29-day (France) or 19-day (German) threshold. This means that, from 14 March, the presence of a worker at home in Belgium or in France, including for remote working, will not be taken into account in the calculation of the 24 or 29 or 19 days respectively. This measure will apply until a new order is issued.

  1. Existing scope

It is worth noting that only working days are considered in this calculation. This rule covers working from home, training course attendance, meetings abroad and other business trips. Holidays and illness, on the other hand, don’t count towards the threshold calculation. There are several scenarios that are being enacted, or might be enacted in the future, that wouldn’t affect taxation.

> Leave to look after children will not be taxed in the home country

The Luxembourg government has confirmed that parents staying home to look after children with the virus or due to the lockdown of school and creches will be able to request “leave for family reasons. This is an extension of the existing system wherein parents can take leave without loss of remuneration when they are looking after a child under the age of 18.

The number of days of leave provided for under this rule depends on the childs age, and is structured as follows:

    • 12 days of leave per child under 4
    • 18 days of leave per child from 4 to 13 years old
    • 5 days of leave per child from 13 to 18 years old provided the child is hospitalized

However, the Luxembourg Government has confirmed that days taken due to the Coronavirus outbreak will not count in the calculation of the usual leave for family reasons listed above.

Employees must inform their employer on the first day of their absence. Please click here for further information.

> If a neighboring country goes into quarantine, their resident’s leave will not be taxed in the home country

If Germany, Belgium or France ask citizens to quarantine, for example, this would be classed as sickness so these days would not be counted.  This is one potential scenario that the government could negotiate with neighboring countries to avoid a complex tax situation for cross-border workers.

  1. Tax returns

The Luxembourg government has announced an extension of the deadline to file the Luxembourg income tax return. Individuals will have until 30 June to submit.

  1. Border control

Border controls have been established between Germany, France and Luxembourg. To enter the country at this time, cross-border workers are required to present a certificate, signed by their employer, as proof of professional status. German residents can download the form here, French residents here, and Belgian residents here. After completing the required fields, the employee can submit the form to their employer for validation.

  1. Social security

In this context, the Belgian, French and German governments – and many others – have decided that the period during which an international mobile worker is working from home on Belgian, French or German territory due to COVID-19 measures will not be considered for the determination of the applicable social security legislation. This measure may also relieve international mobile workers and their employers from having to complete additional administrative formalities in these challenging times, but in practice may require coordination with other EU governments. More information in this respect can be found here for German residents, here for French residents, and here for Belgian residents.

The working patterns of most individuals have changed due to COVID-19 measures, resulting in an increased number of cross-border workers logging on for their day’s work from their country of residence. Given that the increase in remote work may lead to changes in the country of applicable social security coverage, the EU Commission provided “Guidelines” to Member States : “In situations that could lead to a change in the Member State of insurance of the worker, Member States should make use of the exception provided for in Article 16 of Regulation (EC) No 883/200411 with a view to maintaining the social security coverage unchanged for the worker concerned. To apply for such an exception, the employer must submit a request to the Member State whose legislation the worker requests to be subject to”.

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