An HR topic that has become a compliance topic
To attract and retain cross-border talent (nearly 127,000 French residents cross the border every day), offering remote working has become essential. But what belongs to social dialogue has very concrete tax and social security consequences: every day worked outside Luxembourg calls into question, for that day, the principle of taxation in the Grand Duchy.
And it is the employer who is on the front line: the employer applies the withholding tax, declares remote working to social security and answers for the compliance of its payroll. Fortunately, the France-Luxembourg tax treaty provides a tolerance threshold, but you need to know its rules precisely, and their blind spots.
The 34-day rule
The principle is set by the tax treaty of 20 March 2018, as amended by the protocol of 7 November 2022: a cross-border worker who is a French tax resident may work up to 34 days a year outside Luxembourg, remote working included, without calling into question full taxation in the Grand Duchy. This threshold, initially set at 29 days, has applied since the 2023 tax year.
As long as you stay within that limit, your entire remuneration remains taxable in Luxembourg, as if all your days had been worked on site. It is a treaty tolerance, not a right to remote working, which depends on your agreement with your employer.
What (really) counts towards the tally
This is where the most frequent mistakes hide. Three rules you absolutely need to know:
- The threshold does not only cover working from home. All days worked outside Luxembourg count: business trips to France or to a third country, training, seminars. A cross-border worker who works from home for 30 days and attends 5 days of training in Paris has exceeded the threshold.
- Any part of a day counts as a full day. Half a day of remote working, a morning before a medical appointment: that is a full day in the tally.
- The threshold is prorated. For part-time work or an incomplete year (hiring or departure during the year), the 34 days are reduced in proportion: a half-time employee has 17 days.
What happens if the threshold is exceeded?
The penalty is heavier than one imagines: if the threshold is exceeded, it is not only the excess days that become taxable in France, but all the days worked outside Luxembourg, from the very first. Crossing the limit by a few days therefore tips the entire “remote” portion of your remuneration into French taxation.
In practice, the corresponding remuneration must be declared in France as taxable income, while the Luxembourg portion continues to benefit from the mechanism eliminating double taxation. The real cost of exceeding the threshold depends on your situation: the household's tax rate, the spouse's income, the number of tax shares. For some households, a few days too many translate into several thousand euros of additional tax; for others, the impact remains moderate. It is a calculation to make before exceeding the threshold, not after.
On the employer's side, exceeding the threshold is not neutral either: Luxembourg withholding tax must be adjusted to reflect the portion taxable in France, and French filing obligations may arise depending on the situation. A poorly calibrated remote-working policy can thus turn every cross-border employee into a complex payroll file.
The social security threshold: the other limit, not to be confused
The tax threshold is not the only one to watch. Your social security affiliation follows a separate rule: since 1 July 2023, a European framework agreement allows the cross-border worker to work remotely for up to 49.9% of their working time, roughly two and a half days a week, while remaining affiliated to Luxembourg social security. The process goes through the employer, who declares the remote working to the Joint Social Security Centre; an A1 certificate is then issued.
The two thresholds are completely independent, and confusing them is the most widespread mistake. A cross-border worker who works from home two days a week remains affiliated to Luxembourg social security (below 49.9%)... but far exceeds the 34-day tax threshold, with the consequences described above. Working from home a lot is not forbidden: it is a trade-off, to be made with full knowledge of the facts.
Our practical advice
As an employer of cross-border workers, a few structuring reflexes avoid most of the difficulties:
- Formalise a remote-working policy suited to cross-border workers: a number of days consistent with the thresholds, counting rules, a procedure for declaring days;
- Organise the tracking of days worked outside Luxembourg, all of them: remote working, travel, training, with supporting evidence, because your payroll depends on it;
- Make the social security declarations: remote working must be declared to the Joint Social Security Centre to maintain your employees' Luxembourg affiliation (A1 certificate);
- Anticipate cases where the threshold is exceeded: adjustment of withholding tax, informing the employee, quantifying the impact;
- Inform your teams: an employee who understands the thresholds makes informed choices, and spares you corrections;
- Keep watch: discussions are under way between France and Luxembourg to raise the tax threshold, with no official timetable to date. Do not anticipate anything until it is ratified.
Do you employ cross-border workers, or are you about to recruit some? We help you build a compliant remote-working policy, set up your payroll and withholding, and manage special situations: part-time, multiple employers, assignments abroad.