Luxembourg is a signatory to a European teleworking agreement which raises the threshold of teleworking days that would trigger a shift in social security contributions of cross-border teleworkers and their employers towards the employee’s country of residence.

Starting 1 July, 2023, the new threshold, which is optional, will be raised from 25% to 49.9% and is subject to certain conditions and administrative formalities to be fulfilled.

While employers and employees welcome the increased flexibility this agreement can bring to teleworking, both companies and individuals will need to proceed with caution and carefully consider any decisions regarding their teleworking policies or the number of days spent working from home.

Here are three things you should know.

1. The new social security threshold does not apply to everyone.

First, it is important to note that this agreement only applies to the teleworking of cross-border employees whose country of residence has also signed the same agreement. Currently, Belgium and Germany have joined this initiative, while France has not made a decision yet. Consequently, the new threshold will only affect German and Belgian tax residents who work in Luxembourg.

The agreement does not apply to the work that an employee would be performing abroad in the normal course of business. Thus, a combination of home work and cross-border work would not necessarily be compatible. 

2. There are also personal income tax days.

While the number of days in regards to social security has been raised for teleworking, the previous limits on the number of days worked outside of Luxembourg have remained unchanged in regards to personal income tax. If these limits are exceeded, individuals may become partially subject to tax in their country of residence.

3. And don’t forget about corporate tax.

At present, there is no alignment between the rules for permanent establishment (PE) and social security at the OECD and EU levels in terms of the number of days. Regrettably, the social security threshold implicit in the new teleworking agreement further exacerbates the disparity between these different principles.

The OECD has not provided any additional guidance on PE rules for teleworking, apart from the guidance issued during the COVID-19 pandemic, which was only applicable for that period.

As a result, the increased number of days employees can telework without triggering a shift in social security affiliation may pose additional challenges for Luxembourg companies as they should monitor their foreign PE exposure.

Avoiding surprises

While the new agreement is good news for flexibility, it makes it even more crucial for Luxembourg companies to have clearly-defined and compliant teleworking policies and processes in place to avoid surprises for their employees or the organization.

About the authors

Deloitte’s team of specialists help organizations navigate the complex landscape of teleworking to meet the demand for flexible work options.

Bernard David, Partner, Tax Business Leader

Stephane Tilkin, Partner

Andras Gombkoto, Director