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  • The protocols to the double tax treaties concluded by Luxembourg with Belgium, France and Germany provide rules allowing cross-border workers to perform their activities outside of their employment state while remaining taxable in their employment state, but only for a limited number of days.
  • Given that the maximum amount of days can easily be exceeded during the COVID-19 crisis due to travel restrictions and the requirement of "social distancing" resulting in many employees working from home and thus outside of Luxembourg, the Luxembourg Government concluded agreements with the three countries, according to which the days spent outside of Luxembourg due to the current crisis are not taken into account.
  • These three agreements were initially concluded for a limited period of time, were then renewed several times and some of them have now been extended again.
  • As far as social security is concerned, the Luxembourg Government also concluded agreements to make sure that cross-border workers remain subject to the social security legislation of their employment state and do not become subject to social security in their residence state, even if they spend 25% or more (threshold applicable under the EU social security rules) of their working time in their residence state due to COVID-19.

The protocols to the double tax treaties concluded by Luxembourg with Belgium, France and Germany provide rules allowing cross-border workers to perform their activities outside of their employment state (Luxembourg in most cases) for a maximum amount of days (19 days in Germany, 24 days in Belgium and 29 days in France) while remaining taxable in their employment state.

Given that the maximum amount of days can easily be exceeded during the COVID-19 crisis due to travel restrictions and the requirement of "social distancing" resulting in many employees working from home and thus outside of Luxembourg, the Luxembourg Government concluded agreements with the three countries, according to which the days spent by employees outside of Luxembourg due to the current crisis are not taken into account. These three agreements were initially concluded for a limited period of time and were then renewed several times.

The agreement with Belgium, which was supposed to apply from 11 March 2020 until 31 March 2021, has now been extended until 30 June 2021. The agreement with France, which was supposed to apply from 14 March 2020 until 31 March 2021, has been extended until 30 June 2021. As far as the agreement with Germany is concerned, it is renewed monthly automatically as from 2021. This means that the agreement will remain in force at least until 30 April 2021. However, given the current context, it can be expected that the agreement with Germany will also remain in force at least until 30 June 2021.

As far as social security is concerned, Luxembourg also concluded agreements according to which, until 30 June 2021, any days spent working from home due to COVID-19 will not impact the applicable social security rules. In other words, cross-border workers will remain subject to the social security legislation of their employment state and will not become subject to social security in their residence state, even if they spend 25% or more (threshold applicable under the EU social security rules) of their working time in their residence state due to COVID-19.

While these measures are positive since they avoid potential individual tax and social security implications of working from home during the crisis, businesses should keep in mind that employees working from a country other than the country of residence of their employing company may create a permanent establishment of the company in the residence state of the employee. Indeed, despite the recommendations made by the OECD in its Updated guidance on tax treaties and the impact of the COVID-19 pandemic (according to which the exceptional and temporary change of the location where employees exercise their employment because of the COVID-19 pandemic, such as working from home, should not create new permanent establishments for the employer), since no measure has been taken so far in Luxembourg in this respect, Luxembourg companies should carefully monitor the activities performed by their employees outside of their tax residence state.

Originally published March 2021.

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