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Luxembourg

26 October 2017

Luxembourg: tax reform touches cross-border workers

As of 1 January 2018, the Luxembourg government has planned a reform of the taxation of non-resident cross-border workers and non-resident pensioners. The consequence of the reform is that non-resident married taxpayers will be placed in a tax band that is normally used for single persons. Only if married cross-border workers fulfil a list of criteria, they will benefit the same treatment as resident married workers. The trade unions have criticised the ‘discrimination’ in fiscal terms of cross-border workers and the short term notice that is applied for this change.

The application of new fiscal rules for cross-border workers that takes effect on 1 January 2018 can have major consequences for the income of non-resident cross-border workers (and non-resident pensioners). Non-resident employees will be placed in ‘class 1’ by the direct tax authority. Class 1 is the tax band that is normally used for single persons, whilst ‘class 2’ applies for residents in officially recognised partnerships. Married cross-border workers can either accept the proposed tax rate based on ‘class 1’, ask for a different rate based on their estimated income in 2018, or do nothing. In the last case ‘class 1’ automatically applies for their wage or pension.

As the finance ministry announced the plans, trade union confederation OGBL criticised the changes that are addressing the country's commuting workforce. OGBL stated that the measures do not solve the problem of the discrimination in fiscal terms of cross-border workers. In the course of July 2017, the OGBL reached several improvements in the planned procedure. OGBL has produced a special brochure (in French and German) with information for its non-resident members.

For non-resident workers who receive the major part of their income in Luxembourg, the rules provide for a procedure, that can lead to an equal treatment in fiscal terms. These workers have to fulfil a series of conditions, such as an income beyond a certain threshold, with at least 90% of the income of one of the partners taxable in Luxembourg. A governmental website with guidelines was opened recently. The deadline for married couples, who work in Luxembourg but live in a neighbouring country, to determine their tax rate for 2018 was 31 October 2017. Trade union Aleba, which represents financial services workers, including thousands of cross-border workers, has called this deadline ‘simply untenable’. The union said that workers need longer to respond adequately.

Jan Cremers

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