Luxembourg cross-border workers – how feasible is working from home in the long-term?

With the rampant spread of Covid19 across Europe, many states including Luxembourg, quickly executed government lead measures to attempt to contain the virus from spreading across the continent. Within the financial services our clients were quick to act; maximising on the plethora of online tools available, they seamlessly transitioned to working from home.

Since lockdown, several studies have evidenced the benefits of remote working. A study by the Harvard Business Review in March indicated “that sales teams working from home completed 13.5% more sales calls than in an office environment.” This study also revealed that at-home workers reported much “higher job satisfaction.”  Similarly, according to a recent survey from Deloitte, “70% of employees working in investment management and banking services, rated their working from home experience as positive.” 76% said this was due to avoiding the daily commute. The most apparent advantage of remote working is the time and money employees save in traveling to and from work. This is particularly noteworthy for employees working in Luxembourg. Due to Luxembourg’s small size and high cost of living, a significant proportion of the workforce live outside its borders.

According to Luxembourg’s National Institute of Statistics and Economic Studies, STATEC, “44.9% of Luxembourg’s workforce is made up of cross-border workers.” The majority are from France, followed by Germany and Belgium. As EU nationals, they are free to travel with no restriction.

Frontier workers must pay taxes in Luxembourg for income that is generated within the country. To avoid double taxation, agreements are in place between Luxembourg, Germany, Belgium, and France. “These agreements ensure that a person who comes to Luxembourg to live and work for fewer than 182 days in any given 12-month period, will only pay taxes for the income in Luxembourg, and in his or her home country for worldwide income.”

However, the Covid19 context has raised a new layer of complexity around taxation.  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.  For example, in the treaties with Germany, Belgium and France, 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 days.

Due to Covid19 these governments have announced that working from home days “will not count towards the threshold.” On 22 June 2020, Luxembourg, Belgium and France agreed to extend their agreement until the 31st of August. Luxembourg and Germany extended their deal on taxation of cross-border workers through to the end of July 2020.  It is expected that these arrangements will be automatically extended to the next calendar month.

However, with the fears of a second wave occurring, and several cities across Germany and France having to go back into lockdown, the situation of cross-border workers remains uncertain. Employees are encouraged to keep records to show that home working is COVID related.  It will be interesting to watch how homeworking may become the new norm post COVID and how taxation regulations will adjust to fit accordingly.

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Harvard Business Review

Deloitte Report