Germany - Germany and Luxembourg agree to extension of de minimis rule for employees

Cross-border work is increasingly becoming the norm in the global labour market. Double taxation agreements regulate who has the right of taxation, generally depending on the scope of the activity in the other country.

In principle, employees who are resident in Germany and work in Luxembourg for a Luxembourg employer are taxed in Luxembourg exclusively if the activity is carried out exclusively in Luxembourg. However, if the employee also carries out an activity in Germany, the country of residence, the salary for the workdays in Germany is taxed there on a pro rata basis.

But what if the activity in the country of residence takes up only a few days per year because the employee works for his Luxembourg employer in the German home office?

Until now, the following de minimis rule applied: If the activity in the country of residence (Germany) lasted a maximum of 19 days per year, this was disregarded and taxation still took place exclusively in Luxembourg. Conversely, if the activity in Germany lasted 20 days or more, taxation had to be split between the two countries from the first day of activity, according to the provisions of the Germany-Luxembourg income tax treaty.

Due to increasing international cooperation and the expansion of home offices as a result of the COVID-19 crisis, the 19-days per year threshold was often insufficient, which led to complicated consequences under tax law. The finance ministers of Germany and Luxembourg have acknowledged the situation, and the de minimis regulation has been extended to 34 days starting from 2024.

This change is intended not only to make cross-border work and the handling of home offices more flexible, but also to reduce bureaucracy and simplify taxation. Luxembourg is also implementing a regulation with Germany that it had previously negotiated to a similar extent with Belgium and France. Thus, conditions for the taxation of workers in neighbouring countries are beginning to be standardised.

Christiane Anger
BDO in Germany

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