As a general rule, employment income is taxable in the employee’s country of residence, unless the employment is exercised in another country. For cross-border commuters (i.e. employees residing in France, Germany or Belgium and commuting to Luxembourg to carry out employment-related activities), this means that their employment income is taxable in Luxembourg (and not in their country of residence). Depending on the employee’s country of residence (France, Germany or Belgium), different tax thresholds will apply under which income from employment should remain taxable in Luxembourg despite activities being physically exercised elsewhere (either in the employee’s country of residence or in any third country).

Thus, taxation in the employee’s country of residence should not occur where the number of days worked outside of Luxembourg does not exceed:

  • 29 days per year for France
  • 19 days per year for Germany
  • 24 days per year for Belgium.

With respect to Belgium, further to a joint statement by Luxembourg and Belgium dated 31 August 2021, the annual 24-day limit should be increased by 10 days as from 2022.

Under five mutual agreements between the competent authorities in Luxembourg and France (dated 16 July 2020, 27 August 2020, 7 December 2020,10 March 2021, 15 June 2021 and 23 September 2021) concerning cross-border workers in the context of the COVID-19 pandemic, the 29-day rule applicable to French residents working from home shall not apply to the period 14 March 2020 to 31 December 2021.

In a separate mutual agreement dated 16 July 2020 concerning the detailed rules of application of point 3 of the protocol to the tax treaty between France and Luxembourg, those authorities also stated that social security payments by the respective countries shall be taxable only in the jurisdiction from which they originate (by application of Article 17 para. 2 of the tax treaty).

Furthermore, on the basis of the mutual agreement signed on 7 December 2020, salaries, wages and other similar remuneration which an individual resident in France receives for services rendered to the Luxembourg national government, its local authorities or public bodies in respect of days worked at home in the context of the COVID-19 pandemic, shall remain taxable in Luxembourg (pursuant to Article 18 para. 1 a) of the tax treaty), if that individual is a French national who does not have Luxembourgish nationality. If a taxpayer wishes to apply this mutual agreement, then they undertake to apply it consistently in both contracting states, and to keep at the disposal of the administration a certificate from their employer indicating the number of days worked at their home (solely on the basis of the government health instructions) for which they received the above-mentioned income, as well as the related tax assessment notice.

For German cross-border commuters, on the basis of two consultation agreements signed on 3 April 2020 and 7 October 2020 between Germany and Luxembourg (the “Consultation Agreements”) followed by a circular letter issued on 21 October 2020, days teleworked from Germany due to the impact of COVID-19 that would otherwise have been spent in Luxembourg can receive the same tax treatment as days worked in Luxembourg. This means that the days on which employees resident in Germany telework from home may not need to be counted toward the 19-day limit. In particular, the following aspects of the Consultation Agreement should be noted:

  • Employed persons wishing to use the above-mentioned fictitious treatment (i.e. fictitious allocation of teleworking days to Luxembourg while the COVID-19 situation persists) are required to maintain appropriate documentation. In addition, the employment income allocated to Luxembourg must actually be taxed in Luxembourg, meaning that it must be included in the tax base for determining the employee’s Luxembourg tax liability. Finally, the employee shall be viewed as having consented to the taxation of this employment income in Luxembourg.
  • Such fictitious treatment cannot be used where, irrespective of COVID-19, home working days would have been spent in Germany or any country other than Luxembourg (e.g. where an employee already conducts their activities in Germany/from their home office as per the terms of their contract).
  • The fictitious treatment also applies in identical terms to salaries, wages and other similar remuneration for government services (other than pensions) covered by Article 18 para. 1 of the double tax treaty between Germany and Luxembourg.
  • Germany and Luxembourg have agreed that payments made pursuant to the rules governing short-time work in Germany (Kurzarbeitergeld) and in Luxembourg (chômage partiel) qualify as social security payments by the respective country within the meaning of Article 17 para. 2 of the double tax treaty between Germany and Luxembourg.
  • The Consultation Agreements are applicable with respect to working days between 11 March 2020 and 31 December 2020. The period of application beyond 31 December 2020 is extended automatically to the following month if neither Germany nor Luxembourg terminate it, respecting a notice period of one week before the end of each month. Further to an agreement signed on 15 September 2021, this shall remain applicable until at least 31 December 2021.

For Belgian cross-border commuters, on the basis of agreements signed on 19 May 2020, 24 August 2020, 7 December 2020,12 March 2021, 15 June 2021, and 23 September 2021, between Belgium and Luxembourg, days teleworked from Belgium due to the impact of COVID-19 that would otherwise have been spent in Luxembourg can receive the same tax treatment as days worked in Luxembourg. This means that the days on which employees resident in Belgium telework from home may not need to be counted toward the 24-day limit. Such fictitious treatment cannot be used where, irrespective of COVID-19, home working days would have been spent in Belgium or any country other than Luxembourg. Cross-border workers who make use of this fictitious treatment are required to apply it consistently in both contracting states and to maintain appropriate documentation. In addition, the employment income allocated to Luxembourg must actually be taxed in Luxembourg, meaning that it must be included in the tax base for determining the employee’s Luxembourg tax liability. The agreement is applicable with respect to working days between 11 March 2020 and 31 December 2021.

Your contact for more details: EmpCrisis@arendt.com

(24/09/21)

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)