The double taxation agreement between Germany and Luxembourg was recently adjusted and brings with it some new features for employees who work across borders. Article 14 of the DTA, which regulates the taxation of income from employment, is particularly relevant for many in practice.
Basic principles of taxation according to Art. 14 DBA-Luxembourg
According to Article 14 of the Luxembourg DBA, the right to tax is generally assigned to the state in which the work is carried out. If an employee lives in Germany but works in Luxembourg, then Luxembourg has the right to tax the wages. In return, Germany exempts these wages from tax, subject to tax progression.
However, this regulation does not apply without restrictions. Particularly in times of increasing flexibility due to mobile working and home office, further questions may arise. Art. 14 of the Luxembourg DBA provides special regulations for such cases.
Home office and mobile work: The new de minimis limit
A key issue in practice is the question of how income is taxed if the work is partly carried out in the country of residence - for example, in a home office. The new version of Article 14 of the Luxembourg DBA now contains a de minimis limit that takes such cases into account.
Employees who carry out their work for up to 35 days per calendar year in their country of residence or in a third country continue to be subject to taxation in the country of work, in this case Luxembourg. This regulation simplifies the tax treatment for employees who occasionally work from home and avoids a complicated division of wages between Germany and Luxembourg.
Conclusion
The adjustments in Article 14 of the Luxembourg DBA create a more flexible arrangement for the taxation of employees who work across borders. These innovations offer a simplification, especially at a time when mobile working is becoming increasingly important. Employees who regularly work from home benefit from the new de minimis limit, which reduces the need for a complex income split. Despite the extension of the home office regulation in the Luxembourg DBA, the obligation to file a tax return for employees living in Germany may still exist. This should be checked on a case-by-case basis.