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Are there new taxation rules applying to cross-border workers post-pandemic?

Yes. The special bilateral agreements signed between Luxembourg and the Belgian, French and German authorities concerning the taxation rules applying to cross-border workers in the context of the COVID-19 pandemic came to an end on 30 June 2022.

As a consequence, from 1 July 2022, the general rules on the taxation of employment income received by Belgian, French and German cross-border commuters (i.e., employees residing in France, Germany or Belgium and commuting to Luxembourg to perform employment-related activities) apply.

Which taxation rules apply to cross-border employees?

Employment income is taxable in the employee’s country of residence, unless the employment activity is performed in another country. Thus, the employment income of cross-border commuters is, in principle, taxable in Luxembourg and not in their country of residence.

Depending on the employee’s country of residence (Belgium, France or Germany), different thresholds apply below which employment income remains taxable in Luxembourg despite the activities being physically performed elsewhere (whether in the country of residence or in a third country):

• 34 days per year for Belgium
• 29 days per year for France (increased to 34 days from 2023 onward once the amendment to the tax convention is in force)
• 19 days per year for Germany

Will these allowances be prorated?

In principle, no. However, there are still differences of interpretation between Luxembourg and the neighbouring countries regarding the reduction or not of the thresholds for employees in certain situations: part-time contracts, part-year activity, on-call work or telework for a small part of the day.

What are the tax consequences if the threshold is exceeded?

Where the applicable threshold is exceeded, the employment income received for the days worked outside of Luxembourg becomes subject to taxation in the employee’s country of residence.

French commuters: as of 01 January 2023, the French withholding tax is replaced by an advance payment mechanism deducted by the French tax authorities from the bank account of the concerned employee (resident in France). In this case, the Luxembourg employer must report information on the amount paid on the part of the salary relating to the days worked in France to the French tax authorities (once a year via a tax return). A specific registration process_ must be followed in France.

Belgian and German commuters: if the thresholds are exceeded, any additional taxes should, in principle, be levied via personal tax assessment only.

What are the potential taxation risks for the Luxembourg employers?

The normalisation of widespread teleworking by cross-border commuters may present certain tax risks for Luxembourg employers, such as the risk of creating a permanent establishment or permanent representative in a commuting employee’s country of residence. Depending on the combination of certain factors (e.g., the employee’s profile), this could even cause the employer’s Luxembourg tax residency to be challenged.

Such a risk would materialise in the taxation of all or a portion of the Luxembourg employer’s profits in the cross-border employee’s country of residence. There are also certain tax compliance requirements to consider.

Is there any chance the taxation rules will evolve soon?

The EU Commissioner for Economy, Paolo Gentiloni indicated that the EU Commission is working with Member States and stakeholders to find long term solutions for the tax and social security repercussions in cases of cross-border teleworking.

The EU Commission is further in contact with the Organisation for Economic Cooperation and Development (OECD) for possible coordination of the taxation framework applicable to cross-border teleworkers within the EU and between OECD Member countries, which currently are not congruent.

Your contact for more details: EmpCrisis@arendt.com

(05/01/22)

As part of the implementation of the new measures to further strengthen the support for companies and self-employed persons carrying out catering and/or drink sales activities (HORECA sector), companies and individuals earning commercial profits can apply for the cancellation of their quarterly advances for corporate income tax and municipal business tax for Q3 and Q4 2020, as well as for Q1 and Q2 2021 (request form for the cancellation of advances for the HORECA sector).

Requests for the cancellation of advances are automatically accepted by the tax authorities.

In addition, under the support measures put in place on 17 March 2020, it is still possible to request the cancellation of advances for Q1 and Q2 2020 (request form for the cancellation of advances), and to request a payment deadline extension for corporate income tax, municipal business tax and net wealth tax (request form for payment deadline extensions). Requests for payment deadline extensions must be made no later than on the payment due date, one month after the tax assessment is issued.

Taxpayers not targeted by this measure can also have their advances reduced or obtain a payment deadline extension upon request to the tax authorities (Administration des contributions directes), giving appropriate reasons.

Your contact for more details: Thierry Lesage (thierry.lesage@arendt.com)

(02/02/21)

Under the law of 25 February 2021:

• the deadlines for individuals to file their income tax and municipal business tax returns for 2019 have been extended to 31 March 2021;
  
  
• the deadline for individuals and corporations to file their income tax and municipal business tax returns for 2020 has been extended to 30 June 2021. Filing deadline extensions until 31 December 2021 may be granted for personal income tax and personal business tax returns for 2020;
  
  
• regarding the 2020 tax year, the deadline by which collectively taxable spouses can opt for individual taxation instead of collective taxation has been extended to 30 June 2021; and

the deadline for exercising the withholding tax option (RELIBI) in the case of non-Luxembourg paying agents has been extended to 30 June 2021, with regard to income allocated for 2020.

Your contact for more details: Thierry Lesage (thierry.lesage@arendt.com)

(01/03/21)

The deadlines for the communication and exchange of information provided for in the law of 25 March 2020 (the “DAC 6 law”), which implements the provisions of Council Directive 2018/822/EU (“DAC 6”) into domestic law, have been extended by 6 months.

The reporting process started on 1 January 2021. In practice, this means that as from that date:

• Affected intermediaries (not subject to legal professional privilege) or taxpayers, as the case may be, have to file reportable information with the Luxembourg tax authorities within a 30-day period beginning with the earliest of the following: (1) the day after the reportable arrangement is made available for implementation; (2) the day after the reportable arrangement is ready for implementation; or (3) the day when the first step in the implementation of the reportable arrangement is made (“Triggering Events”). Intermediaries that qualify as secondary intermediaries (or service providers) are required to file information within 30 days from the day after they provide, directly or other persons aid, assistance or advice.
• Information on reportable cross-border arrangements with a Triggering Event occurring between 1 July 2020 and 31 December 2020 had to be reported before 31 January 2021. In addition, information on reportable cross-border arrangements whose first step was implemented between 25 June 2018 and 30 June 2020 had to be reported before 28 February 2021.

Intermediaries covered by legal professional privilege (i.e. lawyers, chartered accountants and auditors) have to notify any other intermediary not covered by legal professional privilege of their reporting obligations – or they must notify the relevant taxpayers, as the case may be, within 10 days of a Triggering Event.

Your contact for more details: Thierry Lesage (thierry.lesage@arendt.com)
(18/03/21)

The general 5-year statute of limitations with respect to direct taxes due to expire on 31 December 2020 has been extended to 31 December 2021.

Your contact for more details: Thierry Lesage (thierry.lesage@arendt.com)
(08/05/20)

It is generally accepted under both LUX GAAP and IFRS that for December year-end, companies should consider the COVID-19 crisis as a non-adjusting event after the reporting period as at 31 December 2019. Nevertheless, companies should still disclose the nature and include an estimate of the financial impact of this material event in the notes of their financial statements (law of 19 December 2002 on the Trade and Companies Register, Art.  65, (1), 18° and IAS 10.21).  

However, if the management of a company determines after the reporting period that, due to the COVID-19 crisis, it intends either to liquidate the company or to cease trading, or that it has no realistic alternative but to do so, IFRS provides that such company shall not prepare its financial statements on a going concern basis (IAS 10.14-15 and IAS 1.25-26).

Your contact for more details: Yvan Stempnierwsky (yvan.stempnierwsky@arendt.com) 

(07/04/20)