Luxembourg Extends Cross-Border Tax and Social Security Agreements with Neighboring Countries

Over the past fifteen months, many countries have introduced creative new approaches to address the economic realities of the COVID-19 pandemic.  As employees continue to work remotely and employers reconsider whether employees must return to the workplace at all, some jurisdictions have implemented measures to accommodate the needs and interests of both employers and employees in the ever-changing and evolving employment environment.  Luxembourg is an example of a country that has sought to develop solutions with its neighboring nations to ease the economic burden of the COVID-19 pandemic on workers.

Cross-Border Tax Implications

At the beginning of the COVID-19 pandemic, Luxembourg authorities worked with their counterparts in Belgium, France and Germany to develop measures to minimize the tax impact of the COVID-19 pandemic.  The four European governments recognized that telework would be required to accommodate many cross-border workers and determined that applicable tax convention requirements would need to be relaxed in the COVID-19 world.  These earlier tax conventions provided that cross-border workers may telework from their home country for up to a certain number of days (e.g., 24 days for Belgian workers, 29 days for French workers and 19 days for German workers who work remotely in their home country for the benefit of their Luxembourg employers) without the related remuneration being taxed in their home country.

Due to the COVID-19 pandemic and the need to accommodate remote work, Luxembourg’s government agreed with its three neighbors that, because the COVID-19 pandemic is a case of force majeure, days that workers work remotely are not taken into account for the purposes of taxing remuneration in their home country.  Put differently, these new agreements avoid double taxation and prevent fiscal evasion with respect to taxes on income and capital.

On June 11, 2011, Luxembourg’s Ministry of Finance announced that its cross-border tax agreement with Belgium has been extended until September 30, 2021.  Similarly, on June 15, 2021, Luxembourg’s Ministry of Finance announced that its agreement with France also has been extended until September 30, 2021.  Luxembourg’s cross-border tax agreement with Germany is automatically renewed monthly, unless one of the contracting states revokes the agreement at least one week before it is due to expire.  As such, the agreement is valid until further notice.

Cross-Border Social Security Implications

 In addition to double taxation concerns, working from home in a neighboring country can affect workers’ social security standing.  To protect against this risk, during the early months of the COVID-19 pandemic, Luxembourg entered into amicable agreements with Belgium, France and Germany regarding social security affiliation for cross-border workers who are teleworking.  Under the relevant agreements, days that workers telework due to the COVID-19 crisis are not taken into account when determining the social security legislation applicable to cross-border workers in these countries.  As such, teleworking will not influence workers’ social security standing in these four jurisdictions.  Luxembourg’s social security affiliation agreements with Belgium, Germany and France initially were in effect until December 31, 2020, but they since have been extended.

On June 11, 2021, Luxembourg’s Ministry for Social Security announced that Luxembourg and Belgium agreed to extend the amicable agreement on social security affiliation for cross-border workers who are working remotely until December 31, 2021.  On June 15, 2021, the Ministry also announced that Luxembourg and France agreed to extend their agreement until September 30, 2021, which is the date that the French Parliament has voted to come out of the state of health emergency.

We continue to monitor workforce management issues in both US and non-US jurisdictions.