Overtime for German cross-border commuters to Luxembourg: no deduction of basic allowance possible

According to the press, the Luxembourg Minister of Finance has stated that German cross-border commuters are in most cases not affected by the new overtime regulations because they can deduct:

• the basic tax-free allowance of €11,604;
• and the flat rate professional expenses allowance of €1,230

from overtime payments.

While this statement is true for the professional expenses allowance, it is incorrect for the basic tax-free allowance.

This inaccurate statement harbours considerable potential risk for cross-border commuters. Taxpayers who rely on this statement by the Minister of Finance risk:

• criminal tax proceedings if they do not submit a tax return because they think they are below the relevant threshold;
• a rude awakening due to unexpected substantial German taxes.

In order to protect cross-border commuters, this press release therefore aims to present the legal situation accurately.

Example:

Peter is single and received €12,834 in overtime wages and bonuses. The rest of his salary totalled €50,000. Peter has no other German income. The Luxembourg long-term care insurance amounts to €732, there are no other pension expenses.

The €12,834 is in principle taxable in Germany.

Solution according to the Ministry of Finance (incorrect):

Peter may deduct:

• €1,230 flat-rate professional expense allowance;
• €11,604 basic tax-free allowance.

Peter may therefore deduct a total of € 12,834. The taxable income is consequently zero. Peter does not have to pay any taxes in Germany.

Correct solution:

Peter can deduct:

• €1,230 flat-rate professional expense allowance;
• €732 Luxembourg care insurance.

Peter can deduct a total of €1,962. Peter must pay taxes on the remaining €10,872.

The applicable tax rate is calculated on the total income of €12,834 + €50,000 minus income-related expenses of €1,230 and amounts to approx. 24.89%. This tax rate takes into account the basic tax-free allowance. It is applied to the €10,872.

This results in a tax of €2,706 (rounded) plus any church tax for those subject to it, in this case €2,950 (rounded).

• Tax amount according to the Ministry of Finance (incorrect):      €0
• Actual amount of tax payable:                                             €2,706 / €2,950

ALEBA is happy to provide its expertise in German tax law in order to find a solution with the Luxembourg Ministry of Finance that is acceptable to cross-border commuters. It should be noted that the French and Belgians are also likely to be affected in the foreseeable future, as clauses on white income are now standard in DTAs.

The information in this press release is of a general nature. It is not meant as a substitute for tax or legal advice. It is therefore not intended to be used as a basis for decisions based solely on the press release and does not constitute tax or legal advice. Rather, the aim of the press release is to draw attention to current issues and problems so that these can be examined on a case-by-case basis if the issues or problems are relevant.

The press release has been prepared to the best of our knowledge and belief. It is not updated - so if, for example, case law or administrative practice changes, this will not be reflected. No liability is assumed for the content.