Since 1st January 2020, the new double tax treaty concluded between France and Luxembourg entered into force, requiring to review the French frontier worker’s salary taxation.
As a reminder, a French resident working for a Luxembourg company is taxable in Luxembourg provided that he physically performs his professional activity in Luxembourg.
In the context of the additional agreement that is form an integral part of the tax treaty, France and Luxembourg agreed on a tolerance threshold of 29 days.
The French frontier worker can therefore work a maximum of 29 days per year outside Luxembourg (in France or in a third country) on behalf of his Luxembourg employer without triggering a taxation in France.
By contrast, if the tolerance threshold of 29 days is exceeded (by adding the productive and non-productive days)1, the frontier worker is in principle taxable in France on all the days of activity performed outside Luxembourg2.
In practice, the Luxembourg employer must implement a tax split in order to limit the Luxembourg withholding tax at source on the portion of the salary taxable in Luxembourg. This split leads to some implications and actions on both sides of the border requiring a case-by-case analysis :
- Impacts on the Luxembourg Payroll (recalculation of the global tax rate for the married frontier workers, etc.)
- French tax payment methods on the portion of the salary taxable in France (implementation of the “prélèvement à la source” (withholding tax at source) or “acompte contemporain” (advance payment)<sup>3</sup> and practical actions made by the employer and/or the employee, etc.)
Social security focus
As a reminder, based on the EU social security regulation, the French frontier worker performing an activity in Luxembourg is in principle subject to Luxembourg social security.
When he works outside Luxembourg, the question of the applicable social security regime necessarily arises :
- In case of temporary mission in France (or within E.E.E or Switzerland), the French frontier worker can be maintained under Luxembourg social security during a maximum period of 24 months (renewable under some conditions)
- In case of activity performed on a continuous basis4 in Luxembourg and in France on behalf of the Luxembourg employer, the French frontier worker will be subject to French social security if he performs a substantial activity5 in France (his country of residence). In this case, his Luxembourg employer will have to complete all the necessary formalities with the competent authorities in France and pay the social contributions due pursuant to the French regime.
Baker Tilly Luxembourg Advisory team is at your disposal to analyze on both sides of the border the tax and social security implications due to an activity outside Luxembourg.
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1 Business trips, meetings, any type of missions, homeworking, social events, trainings, etc.
2 Provided that the third country where the activity is performed does not have the taxation right on the salary related to the days performed in this third country (conf. double tax treaty between France and the third country).
3 Contrary to the Belgian and German frontier workers for whom the taxation is generally made through the income tax return.
4 Normally (on a regular basis) in contrast to temporary.
5 Substantial activity is defined as an activity which represents at least 25% of his working time and/or his remuneration.