In recent weeks Delano has been looking at covid-19 and the workplace. Restrictions on home working have been temporarily waived for cross-border workers, who represent 46% of Luxembourg’s labour force. But breaching the rules can bite both bosses and staff.
To find out how, Delano spoke with Jean-Philippe Franssen, payroll and personal tax partner at the accounting and advisory firm Grant Thornton.
Aaron Grunwald: We often hear about the home working limits on cross-border commuters, currently suspended, but what exactly happens to a cross-border worker who exceeds the authorised number of days?
Jean-Philippe Franssen: Indeed, in the context of the covid-19 crisis, the limits on days worked by cross-border employees outside Luxembourg to avoid double taxation have been suspended until the 31st of December. In a usual situation, the risk for an employee normally paying his/her taxes in Luxembourg is to start paying taxes in the country of residence as well, if he/she exceeds the limit of days provided by the double tax treaties. For example, if a cross-border employee exceeds the limit of 29 days worked outside Luxembourg, as provided by the double tax treaty between France and Luxembourg, his/her salary will be taxable in France based on all days worked outside Luxembourg, including the initial 29 days. [Editor’s note: the regular annual limits are 24 days for Belgium and 19 days for Germany.]
Regarding social security, the risk for the employee is to see a change in his/her social security affiliation if he/she exceeds a threshold of 25% of activity in his/her country of residence. The implications will be significant, especially regarding health care coverage, pensions and application of social benefits, for example, child allowances.
What about employers? Will they need to pay additional taxes and social contributions if their cross-border staff exceed the threshold?
On the employers side, there is no risk in terms of taxation. However, in case the salary is fully or partially taxable in the country of residence, the employer might have to take care of formalities regarding withholding taxation in the country of residence.
Regarding social security, besides administrative formalities, there might be consequences in terms of charges to be paid by the employer. The level of charges is often quite higher in neighbouring countries, such as France and Germany.
It is, then, important for an employer to keep his/her staff in the Luxembourg social security [system] in order to avoid the payment of charges abroad.
Could employers potentially be required to pay social contributions in both Luxembourg and in the employee’s country of residence?
In terms of social security, the applicable principle at a European level is the uniqueness of affiliation. Indeed, it is not possible to have two affiliations and to pay social contributions in two countries. The risk for the employer when employees start working outside Luxembourg over the authorised percentage is to have employees affiliated in a foreign country. For example, if an employee working in a company in Luxembourg exceeds 25% of their working activity in France, they become affiliated to the social security [system] in France, the country of residence, and are not affiliated to social security in Luxembourg anymore.
Are there any important tax or social insurance rules or obligations for Luxembourg residents who work from home?
Luxembourg residents working from home do not see any implication at a social security level, they remain under the social security in Luxembourg. Regarding taxation, there are no particular implications either, their salary remains fully taxable in Luxembourg.