From 1 January 2024, German tax residents employed by a business located in Luxembourg (and vice versa) will be able to work remotely for 34 days per year.
On 6 July 2023, the governments of Luxembourg and Germany signed an amendment to the tax treaty aimed at avoiding double taxation and preventing tax evasion in relation to taxes on income and wealth.
The tax threshold for remote work has been increased from 19 days to 34 days for German residents employed by a Luxembourg business (and vice versa), under the scope of Article 14 of the double tax treaty relating to the taxation of income from salaried activities. This new threshold has also been extended to certain situations covered by Article 18 of the double tax treaty, which applies to remuneration received by public sector employees.
The ratification procedures in both countries must now be completed so that the amendment can enter into force, as appropriate, from 1 January 2024.
German tax residents will then be able to work for up to 34 days in their country of residence without tax consequences. If they exceed this threshold, Germany will regain the right to tax the remuneration received for all days worked outside Luxembourg. Currently, and contrary to the French model, if German (or Belgian) residents exceed the thresholds, this does not impose additional declaration obligations on their employer. Of course, the effects on employees must be carefully considered.
Now that Luxembourg and its three neighbours have signed the social security framework agreement allowing non-residents to telework for up to 49.9% of their working time without disaffiliation from Luxembourg, it will be interesting to see whether local employers will permit their non-resident employees to exceed the tax thresholds, thus offering an additional argument in favour of flexibility in the current "war for talent".
