Moving across the border
There were 204,003 cross-border workers in Luxembourg at the end of the first quarter of 2020. This constitutes about 46% of the country's workforce, with approximately 107,500 living in France, 48,500 in Germany and 48,000 in Belgium. A number of Luxembourg nationals have also opted to move across the borders mainly due to real estate costs.
As house prices rise further in the Grand Duchy, more people are considering the option to find a cheaper residence across the border, but how does this affect their entitlements?
Can I become a cross-border worker?
If you are an EU citizen or come from Iceland, Liechtenstein, Norway and Switzerland, then you can work in Luxembourg but reside in Germany, France or Belgium.
However, if you are a third-country national residing in a neighbouring country you will need a valid work permit and employment contract for Luxembourg. You will also need a visa or permit for residency in the neighbouring country. You can find out more about working in Luxembourg as a third country national and cross-border worker on Guichet here. Work permits are initially valid for one year but can be subsequently renewed for three years.
Guichet states currently that: “Under the Withdrawal Agreement, British citizens will continue to enjoy the right to engage in a professional activity as a cross-border worker in a European Union Member State after the end of the transition period if the paid activity started before the end of the transition period [31 December 2020].” However, the site also goes on to say that the exact details will be set out at a later date.
Luxembourg has double taxation agreements in place with bordering countries. If you’re main employment is in Luxembourg and you live across the border, you’ll be taxed on your income by Luxembourg. You must fill in and file an annual tax return. Families are asked to provide their full income (even if a spouse works in the country of residence), in order to be taxed at the correct rate.
If your spouse works locally, he or she will be taxed in the country of residence or country of employment if this differs (ie you both live in France and one of you works in Germany, the other in Luxembourg). Employees usually pay taxes at source and then pay additional taxes or get a tax rebate from their filed annual tax returns.
If you’re self-employed you will be taxed locally unless you have a fixed business base in Luxembourg, then you will pay tax on your income to Luxembourg. Pensioners are taxed on the pension income in the country from which their pension originates.
Whilst you’ll pay tax on income from Luxembourg, you won’t pay taxes for any world-wide income – for example rental income, capital gains tax or inheritance tax. This you will pay in your country of residence.
You can find out about the specific tax provisions for cross-border workers by country on Guichet here.
The tax year is 1 January to 31 December and you must file your tax returns by 31 March of the following year (this year, the rules have changed due to Covid-19 and you can find out more in our article on Understanding Tax).
The rules on homeworking and Covid-19
Pre-pandemic the rules for homeworking were set by agreement and stood at a maximum per year of 29 days in France, 24 days in Belgium and 19 days in Germany. If you worked fewer days at home, you would pay income tax in Luxembourg. If you worked at home for more than these maximums, your income would be divided according to how many days you worked at home and how many in Luxembourg, and taxed accordingly by your country of work and country of residence.
The initial lockdown and subsequent restrictions resulted in a change to these rules and currently any home-working performed since 14 March up is not counted as part of this agreement with neighbouring countires. On Monday, Luxembourg reached a new agreement with France, German and Belgium to maintain teleworking and this exceptional tax agreement for cross-border workers until 30 June 2021.
Social security and health benefits
If you pay social security contributions in Luxembourg you are entitled to healthcare. You do this by filling out an S1 or BL1 form (depending on the country you are residing in). This will entitle you to healthcare in your country of residence as if you were insured there.
You will be reimbursed for treatment provided in your country of residence according to its own rates, tariffs and terms. If you’re living in Belgium, a specific agreement means that the CNS will provide additional reimbursement for treatment provided in Belgium at the level of the average rate in Luxembourg. You can find the relevant forms for each country here.
You can include your children and spouse in the cover but you will need to prove that your family is dependent on you, and the legislation of your country of residence will make the final decision. Generally if your spouse works in the country of residence, family members will be regarded as dependent on the spouse.
You can also receive family benefits such as a monthly child allowance so long as your children are not receiving these in the country you reside. You can find out more on claiming the family allowance in Luxembourg here.
At the moment, you are entitled to unemployment benefit but you must claim it from your country of residence. However new rules are due to come into place from 2026 where cross-border workers will be entitled to unemployment benefit from Luxembourg if they worked in the country for an uninterrupted six-month period before losing their job. You can find more about the current situation for claiming unemployment benefit if you’re a cross-border worker here.