Various proposals would affect Luxembourg employers of French cross-border workers

During a working visit to Paris on 1 October 2022, Luxembourg’s Minister of Finance Yuriko Backes and France’s Minister of Finance Bruno Le Maire agreed on an amendment to the France-Luxembourg tax treaty that would increase the workdays tax tolerance threshold for cross-border workers from 29 to 34 days as from 1 January 2023. Proposed changes in France’s 2023 draft finance bill also would affect Luxembourg employers of French tax residents, as further explained below.

PASRAU update

The French 2023 draft budget bill provides some important adjustments to the current “PASRAU,” i.e., the French withholding tax for other income. As a reminder, this withholding tax has been applied since 1 January 2019 and is the responsibility of foreign employers.

The proposed adjustments for calendar year 2023 would apply to Luxembourg companies that employ French tax residents:

• Working for a Luxembourg employer out of Luxembourg, or out of Luxembourg and France;
• Beyond the tolerance threshold of the relevant calendar year; and
• Remaining affiliated to the Luxembourg social security regime.

As from 1 January 2023, the French withholding tax on Luxembourg salaries taxable in France would be replaced by a direct withholding of the French personal income tax (as estimated by the French tax authorities based on the income available at that time) from the employee’s personal bank account. The responsibility of the Luxembourg employer in the new process would be limited to an annual reporting of salary amounts taxable in France (assessed based on the French tax regulations).

Subject to further clarifications by the French tax authorities, it seems that this change would only affect French cross-border workers who exceed for the “first time” the workdays tolerance threshold after 2022.

The proposed changes are welcome but still require clarification regarding the responsibilities of Luxembourg-based employers taking part in the process and regarding the correct treatment of past situations (i.e., what is within the scope of the draft bill or not).

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