Germany, Luxembourg Ink Salaries Agreement

By Editorial 07 June, 2011

In order to avoid double taxation, Germany’s Finance Minister Wolfgang Schäuble and his Luxembourg counterpart Luc Frieden have announced agreement on more precise provisions pertaining to the taxation of cross-border workers.

Following a series of meetings, the ministers signed a memorandum of understanding on the bilateral agreement of August 23, 1958, as modified by the supplementary protocol of June 15, 1973, which aims to avoid the double taxation of cross-border salaries.

In its official release, the German finance ministry explains that in accordance with the existing bilateral double taxation agreement in place between Germany and Luxembourg, employees are basically taxed in the country of their employment or activity (Tätigkeitsstaat). Until now, however, it has been unclear, as to whether or not payments for so-called ‘unproductive’ activities are also included under the provision, for example payments made in the event of sickness, training and business trips.

The ministry reveals that in the memorandum of understanding there is a new provision according to which the country of residence (Wohnsitzstaat) allows payments made in that state to be tax free for up to 20 days, irrespective of whether or not they are considered to be productive or unproductive, provided that those payments are taxed by the country of activity.

It has also been agreed that salary payments linked to illness or to maternity leave are basically taxed in the country of activity.

According to the Luxembourg finance ministry, the agreement entered into force on May 27, 2011.

A comprehensive report in our Intelligence Report series devoted to a study of the ways in which expatriate executives and employees can optimise their remuneration and taxation situations in a number of the main English-speaking countries is available in the Lowtax Library at and a description of the report can be seen at

Tags: Individuals | Expatriates | Tax | Business | Double Tax Agreement (DTA) | Employees | Luxembourg | Agreements | Memorandum Of Understanding (MOU) | Germany | Individual Income Tax |


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