The virtual workplace: key tax and legal aspects

This article was first published on HR One

Julien Treffort, Partner at PwC Luxembourg and Marielle Stevenot, Partner at PwC Legal talk about the key tax and legal aspects of home working.

What is the biggest challenge your clients have been facing during the Covid crisis and employees working from home?

The first main challenge for our clients has been to render home-based working possible from a practical perspective (e.g. making sure employees are equipped in terms of IT, that enough VPN connections are available etc.) with limited time for preparation because the confinement was implemented so quickly. Then, tax questions arose in connection with employees being confined abroad.

It has also been challenging for companies to onboard new joiners remotely, especially for people living abroad, who were prevented from moving to Luxembourg.

In your opinion, what are the key tax and legal aspects when setting up a virtual workplace? In Luxembourg, we have the specificity that a very significant portion of the workforce is composed of employees residing in neighbouring countries. These cross-border situations trigger substantial tax, social security and legal questions, which must be anticipated and adequately tackled by companies willing to allow employees working remotely. The key aspects are:

• Employment taxation: is the compensation of employees residing and working abroad taxable abroad?
• Social security: should the employees residing and working abroad remain registered with Luxembourg social security or should they become registered with the home country social security regime?
• Payroll: as a Luxembourg employer, what are the consequences on the Luxembourg payroll? Am I subject to payroll obligations abroad in connection with employees residing abroad and working remotely?
• Company taxation: is there a risk that my employees working abroad create a taxable presence of the company abroad (the so-called “permanent establishment”)?

On the legal side, companies need to define and implement a remote working policy, involving employees’ representatives. It is key to set up a frame and determine respective rights and obligations when working remotely:

• What are the prerequisites to benefit from home-based working, for instance in terms of seniority, working environment at home, etc.?
• What are the limits in terms of percentage of working time (regardless of tax and social security considerations)?

Special attention should also be paid to data security, and IT policy may therefore have to be revised to adapt employees' obligations to remote working.

Are there any points of attention companies are often not aware of?

Companies should not underestimate the need to provide enough support to managers when implementing remote working solutions /virtual workplaces. Going remote, whether partially or fully, is a significant change to a business organisation, which will likely require the company to provide managers with the right learning, training and coaching solutions for them to manage their virtual teams successfully.

On the tax side, we have noticed that the permanent establishment risk stemming from employees working from abroad is not always identified immediately by companies engaging in such projects.  

A point which is rarely considered is that of a possible coexistence between Luxembourg labour laws and some public order rules which may apply to employees working abroad.

In general, would you say that companies in Luxembourg handled the challenges well so far?

It is impressive how companies have managed to cope so suddenly with, in some cases, almost the entire workforce working remotely. Very few Luxembourg companies had implemented remote working solutions and home-based working policies prior to the COVID crisis. In our view they have done very well in adapting quickly to the situation. 

Since the end of the lockdown, how do you see the situation evolving, and what can we expect in the next few weeks?

We see that companies are bringing employees back to the office very progressively, in order to ensure that employees are enjoying proper health and safety conditions at the office.

In addition, the confinement made certain companies realise that home-based working is possible, despite all the challenges that it may raise. And many of them are now looking at designing and implementing remote working solutions going forward with the right governance framework.

Expectations are also high on the employees’ side, so it is most probably a topic that will be put on the agenda of the staff representatives in the coming weeks or months.