Tax changes for German cross-border commuters to Luxembourg in 2024

There have been changes to tax law in both Germany and Luxembourg. The following snapshot is an overview of the amendments that are important for cross-border commuters from Germany to Luxembourg. The snapshot is not comprehensive and cannot replace legal/tax advice.

1. Deadlines for submitting the 2023 income tax return

In Luxembourg, the deadline for submitting the 2023 tax return is December 31, 2024. This also applies if the type of assessment is changed (e.g. changing from joint assessment to individual assessment). If the deadlines are not met, there is a risk: in addition to late payment surcharges, equal treatment with Luxembourgers can also be denied.

In Germany the deadlines are as follows:

• Until September 2nd, 2024, unless you hire a tax advisor.
• If you have hired a tax advisor, the deadline runs until June 2, 2025.

Compliance with German deadlines is important, otherwise there is a risk of late payment surcharges of EUR 25 per month. In such cases, the tax advisor may be cheaper than the late payment surcharges.

2. New concept: Taxing “white income” in Germany

A completely new concept has been introduced in the new Agreement for the Avoidance of Double Taxation (“DTA”): If Luxembourg is allowed to tax income but does not actually tax it, Germany is allowed to tax this income. For tax purposes, this concept is called “white income”.

For employees, this particularly affects overtime and overtime bonuses. According to the current legal situation, these are not taxed at all in Luxembourg. Therefore, they are now taxed in Germany. This applies even if the de minimis limit of 34 days was not exceeded or the overtime was spent in Luxembourg.

However, allowances, business expenses or loss carryforwards granted by Luxembourg are harmless.

If part-time employees work overtime, it could therefore be considered to increase the working hours so that they are no longer overtime, but rather “normal” hours. However, this requires the goodwill of the employer, as social security contributions increase. Furthermore, it should be taken into account that the usual deductions can be claimed in Germany, such as insurance, donations, lump sums for disabilities, single parents, etc.

3. Employees in the private sector (not public service within the meaning of the DTA)

1.1. Increasing the de minimis limit to 34 days

Thanks to the new DTA, it is now possible to work outside Luxembourg for up to 34 days without having to submit a tax return in Germany.

This also applies according to the consultation agreement dated January 11, 2024

• for part-time employees as well as
• when starting work during the year.

1.2. Introduction of a new daily de minimis limit of 29 minutes

A German cross-border commuter can work for up to 29 minutes a day outside Luxembourg - this time is treated as if he had spent it in Luxembourg and is therefore not taxed in Germany.

If the 29 minutes are exceeded, all minutes worked and paid for outside Luxembourg are taxable in Germany.

 1.3. Overnight shift work

Shift workers who work overnight and therefore work outside Luxembourg on 2 calendar days, such as people on call, will in future only receive one counting day under the DTA.

 1.4. Division of wages by minutes

If the de minimis limit is exceeded, a breakdown is made based on minutes (no longer based on hours or days).

 1.5. Split of wages based on actual days instead of agreed days

The split of wages between Germany and Luxembourg when the de minimis limit is exceeded is now based on actual working days and no longer based on agreed working days as before.

Sick days are now particularly irrelevant.

At this point, we advise all employees to carefully check whether the number of working days has been accurately reflected in the income tax certificate. If not, a change should be made within 3 months.

 1.6. Release from work

If an employee is released from work, the wages during the release phase will be divided between Germany and Luxembourg based on past values.

• If the release happens during the first half of the year, it is based on the conditions of the previous year
• Conversely, if the release happens during the 2nd half of the year, the conditions in the 1st half of the year should be taken into account.

 1.7. Severance pay

The taxation of severance payments depends on their classification. If a severance payment is neither of a pension nature nor does it take place as part of a mass layoff, the split of the severance payment between Germany and Luxembourg is based on the circumstances of the previous 5 years. Both Germany and Luxembourg had previously claimed the right to tax.

In many cases, this will likely result in at least a large portion of the severance payment being taxed in Luxembourg.

1.8. Adjusting for inflation

In Luxembourg, the calculation of the employee tax credit (CIS) was changed and the carbon tax credit for employees was introduced (offsetting the social impact of the carbon tax). The CIC tax credit was abolished on December 31, 2023.

From January 2024, the tax table of personal income tax has been adjusted to the development of the consumer price index according to the revaluation coefficient.

• This will be taken into account in the monthly billing for people in tax classes 1, 1A and 2.
• Employees with a fixed tax rate can only receive the benefit as part of their personal tax return.

In Germany, the initial tax rate, progression phase and top tax rate were adjusted to inflation and thus made more dynamic.