On 16 May 2019 the Luxembourg Prime Minister Xavier Bettel and the Belgian Prime Minister Charles Michel have agreed to reopen negotiations regarding the double tax treaty concluded between Belgium and Luxembourg, with respect to the taxation of individuals working in a cross-border context.
Belgian-Luxembourg double tax treaty
In principle, employees who are tax resident of Belgium and who perform their employment activities in Luxembourg for a Luxembourg employer, are taxable in Luxembourg on the employment income in relation to the working days spent in Luxembourg.
If those employees would work outside Luxembourg from time to time (because of teleworking from their home in Belgium or business trip to another country), the income in relation to the non-Luxembourg working days, would normally become taxable in Belgium (and thus no longer in Luxembourg).
Mutual agreement of 16 March 2015 – Tolerance of 24 days
Based on a mutual agreement between (signed between Belgium and Luxembourg on 16 March 2015), an exception is foreseen to the above rules. Indeed, as from 1 January 2015, tax residents of Belgium who are working for a Luxembourg employer in Luxembourg, are allowed to perform employment activities outside Luxembourg for maximum 24 days per calendar year, while they are deemed to have performed their duties physically in Luxembourg (and vice versa).
Consequently, there is a tolerance available for non-Luxembourg working days (up to a limit of 24 days), even though the employee was for example working at home, allowing Luxembourg (work state) to still tax the corresponding employment income and preventing a shift of taxation power to Belgium (home country).
In the future: a tolerance of 48 days?
The main purpose is to further relax the rules applicable to cross-border employees between Belgium and Luxembourg with respect to the taxation of their employment income in Luxembourg and Belgium.
In order to support the work-life balance for residents of Belgium under employment agreement in Luxembourg, both countries expressed their intention to double the limit of 24 days. In the future, it is thus anticipated that residents of Belgium will be able to spend maximum 48 days per year outside of Luxembourg for professional reasons, without being taxed on the corresponding employment income in Belgium (and vice versa).
Finally, please note that taking into account a limit of maximum 48 days, the employee will in principle still remain subject to the Luxembourg social security scheme for employees (i.e. country where the employer is located). Indeed, as long as the employee performs less than 25% of his employment activities in Belgium (home country), the Luxembourg social security regime will remain applicable. Therefore, it should be carefully monitored whether the employee will perform more than 48 days in Belgium, as this may impact his social security position and possibly trigger social security contributions in Belgium.
Of course, in order to become effective, further steps will need to be taken in order to translate the intention of the prime ministers towards the Belgian-Luxembourg double tax treaty.
We will keep you posted on further developments in this area.