New Tax Agreement Impacts German Border Workers in Luxembourg

Luxembourg, March 27, 2024 - A new tax agreement between Germany and Luxembourg, effective since January 1, 2024, is bringing significant changes for cross-border workers, particularly those employed in Luxembourg. One of the notable changes is the inclusion of overtime pay for German border workers in Luxembourg under taxation.

Previously, overtime hours worked in Luxembourg were not subject to taxation, with the German government treating them as tax-exempt income. However, the new agreement mandates that these overtime hours can now be subject to taxation in Germany, where no double taxation will occur, effectively aligning practices between the two countries.

"This essentially means that the tax liability initially lies with Luxembourg. If Luxembourg decides that overtime is exempt from taxation, it shouldn't encourage Germany to exploit this and claim it for its own benefit," remarked Stephan Wonnebauer, a German tax law expert.

Furthermore, German border workers find themselves in a disadvantaged position compared to residents of Luxembourg, as well as border workers in Belgium and France. Stephan Wonnebauer questions the rationale behind this decision, raising doubts whether Luc Schmit, the interim director of Luxembourg's Department of Direct Contributions, was fully aware of the details of the agreement when signing it. For Luxembourg, these regulations bring no advantages.

Gilles Roth, Luxembourg's Minister of Finance, emphasized that these regulations are not supplementary but rather pertaining to overtime. He defended the agreement, stating it's not an error but rather a result of negotiations. Germany sought clarification on tax laws regarding overtime pay for 34 days of remote work. The purpose of the double taxation treaty is to prevent double taxation, not to evade taxation entirely. Gilles Roth refutes claims of discrimination against German border workers:

"In fact, there can be no discrimination, as in Luxembourg, we apply the same taxation principles to citizens, whether they are French, German, or Belgian, meaning we do not tax overtime. Indeed, we do not have such stringent taxations in Luxembourg. And this agreement is influenced by the situation vis-à-vis the EU member countries, where, as I mentioned, various countries are influential."