Improved tax flexibility for Belgian / Luxembourg cross-border workers

Wed 12 Jan 2022

Due to the Covid-19 pandemic, many Belgian tax residents working in Luxembourg were no longer able to travel since remote working/home working was recommended or mandatory, based on governmental rules. As such, ‘the 24-day rule’ (whereby taxation of days working in Belgium are treated as fully taxable in Luxembourg and not in Belgium, provided the 24-day limit is not exceeded) was often exceeded, and consequently, this income would be taxable in Belgium.

As a result, both the Belgian and Luxembourg governments considered the Covid-19 pandemic as a ‘force majeure’. Consequently, they agreed that, up until 31 December 2021, working days spent in the home country do not need to be considered as working from home, but as working from Belgium/Luxembourg, depending on the tax residency status of the individual.

Based on article 15 of the double tax treaty concluded between Belgium and Luxembourg (DTT BE-LUX), the professional income of an employee is, in principle, taxable in the country where the professional activity of the employee is exercised. For Belgian cross-border workers, this means that their remuneration is in principle taxable in Luxembourg. An exception to this rule is where a Belgian employee stays in Luxembourg for a maximum of 183 days during a 12 month period, their remuneration is paid by or on behalf of an employer that is not established in Luxembourg, and the remuneration is not borne by a permanent establishment or a fixed base which the employer holds in Luxembourg. In such cases, Belgium remains competent to levy taxes on that individual’s remuneration.

As of 2015, an administrative tolerance was introduced. This tolerance enables an individual who is a tax resident in Belgium and works in Luxembourg to spend a maximum of 24 working days outside Luxemburg in order to be still fully taxable in Luxemburg. Many Belgian residents used this tolerance since it is more attractive to be taxed in Luxembourg than in Belgium. Note that this tolerance also applies in the other direction, i.e. tax residents in Luxembourg working in Belgium.

Given the fact that remote working/home working has become part of our professional lives, the Belgian and Luxembourg governments recently agreed that, as of 2022, ‘the 24-day rule’ will be stretched to 34 days. As such, individuals will be able to spend up to 34 working days outside the country they usually perform their professional activities and still remain fully taxable in the country where the work is performed.

It is important to note is that if the threshold of 34 working days is exceeded, article 15 of the double tax treaty needs to be applied. Going forward, it is really important to keep track of all days spent in Belgium, Luxembourg, and abroad.