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Cross border workers in Luxembourg
Working in Luxembourg while living in France, Belgium, or Germany has become a popular lifestyle choice for many residents of these neighbouring countries. This arrangement allows them to benefit from the higher wages offered in Luxembourg while enjoying the relatively lower cost of living, especially in terms of housing, in their home countries. In this article, we will look at the unique dynamics of cross-border work and its implications.
At the end of June 2023, Luxembourg's workforce comprised 484,285 employees, with a remarkable 227,955 of them being cross-border workers. This significant figure represents 47% of the country's total employment, illustrating the crucial role these workers play in sustaining Luxembourg's labour market and economic vitality.
Cross-border workers in Luxembourg
A cross-border worker in Luxembourg is an individual who resides in one country and commutes daily to work in Luxembourg. This is a common practice among people living in neighbouring countries like France, Belgium, and Germany.
123,645
cross-border workers from France
51,691
cross-border workers from Belgium
52,619
cross-border workers from Germany
Over time, Luxembourg has become a magnet for cross-border workers, a trend reflected in the numbers. As of 2023, out of Luxembourg's total workforce of 484,285 employees, 227,955 were cross-border workers. This means that nearly 47% of the country's labour force is made up of individuals who commute from other countries, highlighting their significant role in the nation's economy.
The phenomenon of cross-border employment has seen a steady increase over the decades. In 1974, there were only around 4,400 cross-border workers from France, 5,700 from Belgium, and 1,300 from Germany. In addition, in recent years this trend has increased considerably, the number of frontier workers in Luxembourg has doubled in the last 20 years. Most of these workers come from France, followed by Belgium and Germany in almost equal shares.
Source: STATEC, frontaliers-grandest.eu
To become a cross-border worker in Luxembourg, the primary requirement is to secure employment in Luxembourg while maintaining residence in a neighbouring country. For European Union (EU) citizens, such as those from France, Belgium, or Germany, no work permit is necessary due to the EU's principle of free movement of labour.
EU nationals can go without work permit
This means that these citizens can freely seek employment, work, and live in Luxembourg without facing any specific work permit restrictions. There is no need for a special Luxembourg cross-border work permit for EU nationals.
However, residents of France, Belgium, or Germany who are not EU citizens but hold a residence permit in these countries must obtain a Luxembourg work permit to be authorised to work in the country. This process should be completed before beginning employment and typically requires a job offer from a Luxembourg employer.
Pros and cons
Salaries in Luxembourg are generally higher than in neighbouring countries, allowing cross-border workers to earn more for similar work, thereby enhancing their quality of life.
Working in Luxembourg while residing in a country with a lower cost of living enables workers to enjoy greater purchasing power, which can result in significant savings or a more comfortable lifestyle.
Luxembourg offers generous social benefits, including robust social security systems, which can be a substantial advantage in terms of pensions, healthcare insurance, and other employment benefits.
Luxembourg’s progressive labour policies, such as parental leave and gender equality measures, can benefit cross-border workers.
Working in Luxembourg, known for its international and multicultural work environment, can provide valuable professional experience and networking opportunities not readily available in one's country of residence.
Cross-border workers often face complex taxation issues, including the risk of double taxation or the need to comply with two different tax systems. For example, the current tax treaty between France and Luxembourg, signed in 2018, is considered less favourable for French cross-border workers.
Although they benefit from higher wages, cross-border workers incur additional transportation costs, such as fuel, tolls, vehicle maintenance, or public transport fares.
The daily commute can be significant, reducing personal and family time and impacting work-life balance. Indeed, it is no secret that it is a hell to commute to work in Luxembourg. Whether by car, train or bus, cross-border workers often spend hours commuting every day.
Some employment and social benefits may not be fully available to cross-border workers, creating potential inequalities compared to local residents. For example, telecommuting arrangements have implications that are often not favourable to frontier workers.
Navigating the cultural and legal differences between Luxembourg and the country of residence can be challenging, affecting both professional and personal aspects of life.
While no work permit is required for EU nationals, cross-border work involves certain administrative considerations, particularly concerning social security and taxes.
What taxes do cross-borders pay and how?
Cross-border workers in Luxembourg must pay taxes on the income they earn within Luxembourg. However, as non-residents, they are not taxed on their worldwide income in Luxembourg.
Tax payments in Luxembourg, unlike other countries, do not always require a tax return as salaries, pensions and other remuneration derived from the exercise of an activity in Luxembourg are subject to the general withholding tax regime.
However, cross-border workers must file an income tax return in Luxembourg if any of the following conditions apply:
- The annual taxable salary income exceeds 100,000 euros.
- The combined annual income from multiple non-exempt sources exceeds 36,000 euros for tax class 1 or 30,000 euros for tax class 1A.
- The taxable income includes income not subject to withholding tax, such as:
Income from self-employment or freelancing, Income from renting property located in Luxembourg, Salaries paid by a foreign employer.
- The taxable income includes net investment income, like dividends, when the debtor is a Luxembourg-based entity.
- The income consists of director's fees exceeding 100,000 euros per year.
- The taxpayer is married to a Luxembourg resident, opts for joint taxation, and has provisionally obtained tax class 2.
Additionally, cross-border workers may need to file a tax return in their country of residence if they or their spouse earn income there.
Avoiding double taxation
To prevent double taxation, Luxembourg has signed double taxation treaties with neighbouring countries France, Belgium, and Germany. These agreements generally ensure that cross-border workers do not pay taxes on the same income in both Luxembourg and their country of residence.
However, these treaties are not always without issues. For instance, the current tax treaty between France and Luxembourg, signed in 2018 and applicable from 2025, presents challenges for some French cross-border workers. Read more about double taxation with other countries in our article.
- French cross-border workers are required to file an annual tax return in France. While their Luxembourg income is not taxed in France, it must be declared. The French tax authorities use this information to determine the overall income of the taxpayer's household, which can increase the tax rate applied to other sources of income, including those earned in France.
- Under the new treaty, which will apply from 2025, France will no longer consider taxes paid in Luxembourg when calculating the tax rate, potentially increasing the tax burden for households with additional income from France or those filing jointly with a partner residing in France.
Working from home
Remote work introduces additional considerations for cross-border taxation. Income earned by cross-border workers on days worked outside Luxembourg, such as teleworking days, is typically taxable in the worker's country of residence.
Luxembourg has established bilateral agreements with its neighbouring countries that allow a limited number of teleworking days without altering the tax liability. Currently, this threshold is set at 34 days per year. If cross-border workers exceed this limit, whether due to teleworking or business travel, the income corresponding to the days worked outside Luxembourg becomes taxable in their country of residence.
Social security for cross-border workers in Luxembourg
All individuals working in Luxembourg are required to be registered with the Centre Commun de la Sécurité Sociale (CCSS). This registration provides cross-border workers with access to Luxembourg's social security benefits, including health and maternity insurance, pension insurance, accident insurance, and nursing insurance.
Healthcare not included
Cross-border workers must also register with the social security system in their country of residence to receive reimbursement for healthcare expenses.
Registering for social security in Luxembourg is straightforward. When starting a new job, the employer must enrol the employee in the Luxembourg Social Security system within eight days of hiring. Once the CCSS completes the registration, the worker receives a social security letter containing a 13-digit identification number.
Cross-border workers must complete a specific form to be submitted to the social security authorities in their country of residence to receive healthcare reimbursements. This form is issued by the Luxembourg National Health Fund (CNS) and is known as the S1 form for French residents and the BL1 form for Belgian residents.
An exception exists for French cross-border workers residing in the Grand Est region; their affiliation documents are sent directly to the Caisses Primaire d'Assurance Maladie (CPAM) in France.
How to get reimbursed as a cross-border worker?
Reimbursement for healthcare expenses depends on where the costs are incurred. The CNS is responsible for reimbursing health care expenses incurred in Luxembourg or any other country, except the worker's country of residence.
For expenses incurred in the worker's country of residence, the local social security system covers these costs, and reimbursements are processed according to that country's rates, tariffs, and conditions. Therefore, to receive reimbursements for healthcare expenses incurred in their country of residence, cross-border workers must contact their local social security office.
How to get compensation for medical expenses in Luxembourg
Transport and mobility
Consider it a crucial aspect for cross-border workers in Luxembourg, as many spend significant time commuting daily. There are traffic jams and the train system is not complicated, but requires some effort to get around with railroad works on the way. Two key points worth mentioning are the availability of free public transport in certain areas and available tax deductions for transportation expenses.
Public transport is free
Luxembourg has offered free public transport throughout the country for the past 4 years. However, cross-border workers often face journeys where only the Luxembourgish part of the route is free, while they must pay for the segments in neighbouring countries.
Recently, some neighbouring French cities with high numbers of cross-border workers have initiated a six-month trial offering free bus services to the Luxembourg border during peak morning and evening hours. This initiative, if successful and expanded to other municipalities, could make the entire commute free, providing significant savings and convenience for cross-border workers.
Tax deductions for transportation
Cross-border workers can benefit from a fixed tax deduction for transportation expenses, deducted at the source by the tax authorities. The Administration des Contributions Directes calculates this deduction based on the straight-line distance in kilometres between the worker's place of residence and their workplace. For cross-border workers, the calculation considers the distance between the capital of the municipality of residence and the point where the worker enters Luxembourg, and then the distance to the workplace.
The maximum compensation available is 2,574 euros per year or approximately 214.50 euros per month. This deduction is reflected in the payroll under the line-item FD (Frais de Déplacement or Travel Expenses) or on the tax withholding statement.
The primary appeal of cross-border work is the economic benefit it offers. Luxembourg has a reputation for higher wages compared to its neighbours, allowing cross-border workers to earn more while benefiting from the relatively lower cost of living in their home countries, particularly in terms of housing expenses.
Frequently Asked Questions (FAQ)
What are the main benefits of being a cross-border worker in Luxembourg?
Cross-border workers in Luxembourg enjoy several advantages, including higher salaries compared to neighbouring countries, which enhances their purchasing power and quality of life. They benefit from Luxembourg's robust social security system, offering comprehensive health insurance, pension benefits, and other social protections. Additionally, living in countries with a lower cost of living while earning Luxembourg wages allows for greater savings or a more comfortable lifestyle. Luxembourg's progressive labour policies, such as generous parental leave and gender equality initiatives, further enhance job satisfaction and work-life balance.
How does teleworking affect taxes for cross-border workers?
Teleworking can influence the tax obligations of cross-border workers. Income earned on days worked outside of Luxembourg, including telework days, is generally taxable in the worker's country of residence. Luxembourg has agreements with neighbouring countries setting a threshold (currently 34 days per year) for telework without changing tax liability. Exceeding this threshold may subject the worker to tax in their home country for income earned on those additional days, potentially complicating tax filings and obligations.
What are the challenges faced by cross-border workers in Luxembourg?
Cross-border workers in Luxembourg encounter challenges such as complex tax situations, including potential double taxation and varying tax rules across countries. Commuting daily can be time-consuming and costly, with additional expenses for transportation not fully covered by tax deductions. Furthermore, differences in social security and healthcare systems between Luxembourg and the workers' countries of residence can complicate access to healthcare services and benefits. Finally, adapting to cultural and legal differences can be challenging, impacting both personal and professional life.
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Source: luxembourg.public.lu, lustat.statec.lu, frontaliers-grandest.eu, guichet.public.lu, guichet.public.lu, infos.rtl.lu, www.francebleu.fr, partir.ouest-france.fr, www.lesfrontaliers.lu, www.luxtimes.lu
We took photos from these sources: bruce mars on Unsplash
Authors: Luz
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