While the remote work has become an integral and essential part of labor relations in the Grand Duchy of Luxembourg, a number of factors may hinder its implementation for non-resident employees.
When it comes to teleworking for non-resident employees, the parties to an employment contract must take three major parameters into consideration:
Taxation of employee income: bilateral tax treaties signed between the Grand Duchy of Luxembourg and neighboring countries define thresholds for days worked from the countries of residence of non-resident employees. Should these thresholds be exceeded (34 days for France and Belgium and 19 days for Germany), the income of non-resident employees related to the days worked from abroad (including the days worked from their countries of residence) will no longer be taxed in accordance with Luxembourg law but in accordance with the laws of the countries from which these non-resident employees carried out their work;
Applicable law to the employment contract: where a substantial part of the professional activity of a non-resident employee is carried out outside the Grand Duchy of Luxembourg, the question of the application of certain provisions of the law of the country in which the non-resident employee carried out the work may arise. In such a case, it will be necessary to compare the rules of Luxembourg law and those of foreign law in order to determine and apply the provision that is most favorable to the employee, which can be an extremely complex exercise;
Affiliation of the employee to a social security scheme: European regulation requires that an employee may only be affiliated to a single social security scheme, notwithstanding any working arrangements agreed between the employee and his/her employer. The said European regulation also sets a threshold above which non-resident employees working outside the territory of the Grand Duchy of Luxembourg must join the social security scheme of the foreign country in which they have performed a substantial part of their work, rather than the Luxembourg social security scheme. Until recently, this threshold was set at 25% of the employee's working time (considered over a period of one year).
Aware of this last issue, the representatives of the Member States of the European Union recently met and drew up a framework agreement on the application of Article 16(1) of Regulation (EC) No 883/2004 in cases of habitual cross-border teleworking.
Under this framework agreement, the aforementioned 25% threshold can be raised to 49%, allowing non-resident employees to telework two days a week without such remote work having an impact on their affiliation to the Luxembourg social security scheme.
However, non-resident employees can only benefit from this framework agreement if the country in which they reside is a signatory.
The Grand Duchy of Luxembourg, represented by the Social Security Minister Claude Haagen, signed the framework agreement on 5 June 2023, which will come into force on 1 July 2023 for an initial period of five years.
With regard to the Grand Duchy of Luxembourg's neighboring countries, Germany and Belgium (depositary state of this framework agreement) have already signed the agreement on 9 June 2023. Hence, on 1 July 2023, non-resident employees living in these two countries will be able to avail themselves of the provisions of the framework agreement and thus request remain subject to Luxembourg social security legislation, provided they meet certain conditions, as for example having submitted a joint application with their employer to benefit from such new regime.
On the other hand, non-resident employees living in France will not be able to take advantage of the provisions of the framework agreement on 1 July 2023, as France has not yet signed the framework agreement.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.