The salary of a Belgian tax resident relating to days performed in Luxembourg is generally taxable in Luxembourg according to the Belgium-Luxembourg double tax treaty. The days worked outside of Luxembourg are then taxable in Belgium (state of residence).
Belgian tax resident working in Luxembourg
Since 2015, however, an executive agreement between both countries provided a tolerance according to which the salary of such Belgian resident is fully exempt in Belgium and exclusively taxable in Luxembourg if he has not worked for more than 24 days outside of Luxembourg. E.g., if he has worked 20 days from home, the salary related to these 20 days is not taxable in Belgium. This tolerance is not exactly legally sound, but would be retroactively rectified by a protocol to the Belgium-Luxembourg double tax treaty. On 17 August 2021, the endorsement procedure for this protocol was initiated in the Belgian federal parliament.
During the Covid-19 pandemic many workers were forced to work much more or even exclusively from home. To mitigate the consequences of this, executive agreements have been concluded between the Luxembourg and Belgian tax authorities. Belgium has also concluded similar agreements with its other neighboring countries, for that matter see Tiberghiens newsflash published 25 June 2021. Now, and after years of rumors that the 24 day-rule would be extended to 48 days (see also Tiberghiens newsflash published 20 April 2021 ) the Belgian and Luxembourg authorities have publicly announced that an agreement in this regard was reached.
As part of a larger agreement between both countries, the compromise now reached is 34 days. Starting in 2022, a frontier worker in the Belgium – Luxembourg context would be able to work for 34 days outside the state where he usually performs his work, while remaining liable for tax in that state.
As this is laid down in an executive agreement, it appears that endorsement by the legislature will be required. But on the other hand, the previous 24-day rule was also only laid down in an executive agreement and has been consistently applied since 2015.
A Belgium – Luxembourg cross-border worker will therefore be able to work from home 10 days more than at present before the salary relating to these activities becomes liable to tax in his residence state. This will undoubtedly impact and be welcomed by several cross-border workers. Employers should nonetheless stay aware of another important risk attached to having (key) employees working from home, being the risk that an employee’s home office would result in a permanent establishment. For this we refer to Tiberghiens newsflash published 25 May 2021.