Cross-border workers from Germany in Luxembourg and their taxes

How to become a cross-border worker from Germany in Luxembourg

First of all, let's first define what a cross-border worker is. A cross-border worker is someone who resides in one country but commutes daily to work in another. In the case of Luxembourg and its neighboring countries, this primarily refers to individuals living in France, Germany, or Belgium, who travel across the border to work in Luxembourg.

As for German cross-border workers, the statistics show that Germany was the second largest source of cross-border workers in Luxembourg, with 52,619 Germans commuting to Luxembourg for work. France leads with 123,645 cross-border workers, followed by Belgium with 51,691. 

This cross-border workforce continues to grow steadily year after year. In fact, over the past 20 years, the number of cross-border workers in Luxembourg has nearly doubled. Several factors make this mode of work attractive to people living in neighboring countries, particularly Germany, where the appeal of Luxembourg’s higher wages and tax benefits is hard to resist.

Benefits of cross-border work

Higher wages

Luxembourg is known for offering significantly higher salaries compared to Germany, particularly in fields such as finance, technology, and other specialized professions. This is a strong incentive for German cross-border workers seeking better pay.

Lower income taxes

Although cross-border workers are subject to special taxation and must file tax returns in both Luxembourg and Germany, Luxembourg generally has lower income taxes. This allows workers to retain more of their earnings.

Lower cost of living

While Luxembourg has a high cost of living, especially regarding housing, German cross-border workers can continue to live in Germany, where housing costs are typically lower. This helps them maximize their purchasing power.

Luxembourgish family benefits

Even though cross-border workers don’t live in Luxembourg, they are entitled to various benefits from Luxembourg’s social security system, such as family allowances. Some of these benefits are more generous in Luxembourg than in Germany.

Opportunities in specialized sectors

Luxembourg is home to many international companies and specialized industries such as banking, finance, logistics, IT, and consulting. Many Germans take advantage of these opportunities to build careers in sectors that may offer more growth potential than similar industries in Germany.

Easy access and mobility

Cities in Germany close to the Luxembourg border are well-connected by highways and railroads, making it easy for cross-border workers to commute daily between their homes in Germany and their workplaces in Luxembourg.

Job growth and stability

Luxembourg’s economy, which is heavily based on banking, finance, technology, and European administration, offers a more dynamic labor market with plenty of growth opportunities. This provides more job stability and career advancement for qualified professionals.

Diverse and international work environment

Working in Luxembourg offers German cross-border workers the chance to be part of a multilingual, multicultural work environment. This is especially valuable for those seeking to develop intercultural and language skills, giving them a competitive edge in the European job market.

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What documents are necessary for German cross-border workers

The good news is that German citizens do not need any special documents or permits. The only real requirement is to secure a job in Luxembourg and make the daily commute to your workplace.

In general, citizens of European Union (EU) member states do not require a work permit to work in other EU countries, including Luxembourg. This means that German citizens are free to search for jobs, work, and even live in Luxembourg without facing any specific employment restrictions.

Remote cross-border work limits in Luxembourg

It's important to remember that while no special work permit is needed for EU citizens, working as a cross-border worker does come with some implications regarding social security and taxes. Most of these implications are rather positive, but some might need consideration.

One key issue is remote work. Teleworking can have an impact on the taxation of German workers employed in Luxembourg. Luxembourg has bilateral double taxation agreements with neighboring countries, including Germany. This sets a limit of 19 days per year for remote work without affecting the worker's tax status. 

This means that if cross-border workers do not exceed this threshold, they remain taxable in Luxembourg. However, if they work remotely beyond that limit, they may need to pay taxes in Germany for those extra days of comfortable working from home office.

How do cross-border workers from Germany pay taxes

In the last section, we talked about taxes for cross-border workers. Now, we will answer some detailed questions that come with the topic.

Where should taxes be paid?

The first question to answer is where German cross-border workers need to declare and pay taxes. As a general rule, taxes must be declared and paid in the country where one is considered a tax resident. However, determining tax residency is not always straightforward, it’s not simply where you live. Tax residency can be influenced by various factors, such as the amount of time spent in each country and other personal circumstances.

In Germany, you are considered a tax resident if you have your domicile or habitual residence there. Here’s how these terms are defined:

German tax residents must declare their income in Germany. However, cross-border workers are subject to another key tax rule: income is always taxed in the country where the work is performed. This means that even if you are a tax resident in Germany, if you work in Luxembourg, your income will be taxed there.

How is double taxation avoided?

Since German cross-border workers must pay taxes in Luxembourg for the work done there and also declare their income in Germany, both countries have established treaties to prevent double taxation. Although income must be declared in Germany, it is not taxable there.

Filing taxes in Germany is still necessary because Luxembourg's income is used to determine the overall tax rate that applies to any additional German-sourced income. In other words, Luxembourg's income will increase the total income used to calculate the applicable tax rate in Germany, and this higher rate will be applied to any taxable income earned in Germany.

How does tax filing work in Luxembourg for German cross-border workers?

In Luxembourg, taxes on salaries, pensions, and other employment-related income are generally withheld at source, meaning that workers do not always need to file a tax return. However, German cross-border workers may still be required to file a tax return in Luxembourg if any of the following conditions apply:

• Their annual taxable income in Luxembourg exceeds 100,000 euros.
• They have multiple sources of income, and their total annual income exceeds 36,000 euros (tax class 1) or 30,000 euros (tax class 1A).
• They earn Luxembourg income that is not subject to withholding, such as income from self-employment, rental income, or foreign employers.
• Their income includes dividends or other capital gains, where the payer is located in Luxembourg.
• They receive director’s fees exceeding 100,000 euros per year.
• They are married to a Luxembourg resident and opt for joint taxation (tax class 2).

The tax rates in Luxembourg are progressive, meaning the more you earn, the higher the percentage of income tax you pay, just like Luxembourg residents. If you'd like to find out more about how income tax works in Luxembourg, we recommend our dedicated article. 

German cross-border workers who are tax residents in Germany and work in Luxembourg must still file an income tax return in Germany. Although their Luxembourg salary is not taxed in Germany, it will affect the overall tax rate used for other taxable income.

Further information about the German tax system can be found on the website of the Federal Ministry of Finance or through Germany’s tax portal, Elster.

Transport, social services and healthcare

Transportation is a crucial topic for cross-border workers, as they must spend several hours commuting between their homes in Germany and their workplaces in Luxembourg each day. Another common question for cross-border workers is how social security and healthcare function for them. Where should one go if they fall ill, Germany or Luxembourg? We have put it together.

Many people like the idea of working in Luxembourg but living in Germany. You can earn more, live cheaper and pay less tax. Luxembourg also offers great career opportunities in finance, technology and international business.

But being a cross-border worker has its challenges. The daily commute is tiring and traffic is often bad. Also, cross-border workers can only work remotely for up to 19 days a year without it affecting their taxes.

Most people think the advantages outweigh the disadvantages. This is shown by the growing number of cross-border workers each year. If you're interested in this way of life, it's important to know the pros and cons and think about how they'll affect you.