Luxembourg’s Teleworking Agreements with Neighboring Countries Remove Tax and Social Security Burdens During the COVID-19 Pandemic
As we have previously highlighted, many countries have introduced creative new approaches to address the economic realities of the COVID-19 pandemic. As employees continue to work from home and employers reconsider whether employees must return to the workplace at all, some jurisdictions are implementing measures to accommodate the needs and interests of both employers and employees in the ever-changing and evolving employment environment. Luxembourg is yet another 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, the 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., 19 days for German workers, 24 days for Belgian workers and 29 days for French 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.
The Luxembourg 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. Currently, the Luxembourg government’s agreements with the governments of Belgium, France and Germany either remain in force indefinitely or continue to be extended.
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, 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 are in effect until December 31, 2020.