In a nutshell, these agreements introduced a fiction for tax matters according to which homeworking days of employees are considered to have been spent in the country (abroad) where they would have worked without the COVID-19 measures. A similar measure is applied for social security matters at EU-level.
Following several reconductions over the last 2 years of pandemic, these COVID agreements should end on 30 June 2022.
Back to the normal rules!
Taxation
As from 1 July 2022, the former ‘normal’ rules, as provided by the relevant double tax treaties, will apply again.
Therefore, cross-border workers are generally taxed in the country of employment (provided all other conditions are met) and thus exempt (or granted with a tax credit) in their country of residence, unless they work from a location in another country (for instance teleworking from home). If so, the employment income is generally taxable in the country of residence of the employee.
As an exception to the general rule above, it should be noted that Luxembourg concluded specific agreements with Belgium, France and Germany. According to these agreements, cross-border workers that work from home (or abroad, for example during a business trip) benefit from a certain tolerance allowing to work remotely. The amount of days per year depends on the country of residence and applicable double tax treaty.
These thresholds are currently set as follows:
|
Country of residence |
Number of days allowed for remote working |
|
Belgium |
34 |
|
France |
29 |
|
Germany |
19 |
However, when the threshold is exceeded, the tolerance does not apply anymore, and the country of residence is then entitled to tax all the employment income (including those days within the said limit).
For 2022, the abovementioned thresholds should not be prorated and therefore, the full number of days should apply for the period from 1 July to 31 December.
Social security
In case a person works in two or more countries (within the EEA or Switzerland), the applicable social security legislation is usually the one of the country where the employer is situated, unless the employee pursues a substantial part (25%) of his/her activity in his/her state of residence (in the latter case one is subject to social security in the country of residence). Following publication of our newsletter, at the European level, it was decided to foresee until 31 December 2022 that the competent EU member state for social security does not change for teleworking frontier workers. Hence, until 31 December 2022, employees who reside in one country and (normally) work in another country can continue to work from home (more than 25 percent of their time) without becoming subject to social security in their country of residence. More details and confirmations at national level are to follow soon.
What does this mean?
Due to the end of the COVID measures, working from home, even limited, may potentially lead to changes of the applicable social security and/or tax regime.
Moreover, even when it would not imply any tax or social security consequences, regular teleworking implies specific duties for the employer, such as respecting certain local labor law regulations and informing authorities or specific organisms (e.g. work insurance, social security administration, inspection). Corporate income tax aspects should also be taken into account by the employer.
Therefore, while teleworking has become the norm during the pandemic and will likely remain a widespread practice in many businesses, the implementation of teleworking policies and monitoring of employees’ physical presence seems more crucial than ever.
What about the future?
Following important changes in work habits, efforts and adaptation, the return to old practice is not without creating discontent. Negotiations are ongoing:
Belgium
In a recent resolution, Belgium indicated that it wants to enter into conversation with its neighboring countries in order to reach a structural solution for teleworking for frontier workers. In this context, it is proposed to raise the number of days that an individual can work outside of the country of employment up to 48 days, being approximately 1 day per week. In addition, it is envisaged to introduce a definition of telework in the OECD model convention.
Belgium also wants additional tolerances in the applicable social security rules for teleworkers at EU-level.
France
An intergovernmental commission of 19 October 2021 showed the willingness of France and Luxembourg to increase the teleworking days tolerance to 34 days per year. It has still not been implemented in the double tax treaty. More recently, on 9 March 2022, the French National Assembly voted a resolution 819 aiming to increase the number of days cross-border workers can work from home without consequences and at conducting a European reflection on the status of frontier workers. This resolution aims to modify the tax treaties and the social security system in order to implement 2 days of telework per week for all countries bordering France.
Germany
In December 2021, a petition was launched on the initiative of the German Bundestag, to ask the Federal Government to enter into negotiations with Luxembourg to increase the current 19-day tolerance to 55 working days for cross-border commuters. It is also requested that the same tolerance would apply for social security purposes.
It may take some time before these adjustments are agreed upon and implemented. We keep monitoring these developments and will inform you accordingly.
For any question on this publication, please do not hesitate to contact the author(s) or your trusted advisor at Tiberghien.