Luxembourg

Luxembourg is officially known as The Grand Duchy of Luxembourg, and was historically a Roman settlement, which consolidated in 963 AD.

By the Middle Ages, the Counts of Luxembourg had expanded their territory considerably and, in the mid-14th century, established the Duchy of Luxembourg, ruling from the city-fortress of Luxembourg itself.

The Grand Duchy of Luxembourg was formalised in the early 19th century as the country began to integrate with its continental neighbours.

Modern Luxembourg is a prominent presence on the European political landscape: a parliamentary democracy, it is also a founding member of NATO, the European Union and the United Nations.

At the heart of Europe, Luxembourg is landlocked and dominated by hills, mountains and forests, with a temperate, oceanic climate of warm summers and cool winters.

A range of historic attractions and landmarks, and centuries of fascinating heritage attract millions of tourists to Luxembourg each year.

General Information

• General Population: 653,103 (World Bank, 2022)
• Capital: Luxembourg
• Major Languages: French, German and Luxembourgish
• Major Religion: Christianity
• Monetary Unit: 1 Euro = 100 cents
• Main Exports: Steel products, chemicals, rubber products
• GNI Per Capita: $94,720 (World Bank 2022)
• Internet Domain: .lu
• International Dialling Code: +352

How to say:

• Hello Bonjour
• Good Morning Bonjour
• Good evening Bonsoir
• Do you speak English? Parlez-vous anglais?
• Good bye Au revoir
• Thank you Merci
• See you later À plus tard

The Government welcomes foreign investors in Luxembourg.

The Government can provide capital grants for the funding of specific projects in order to complement Government policy, including small and medium-sized companies; companies located in development areas and research and development for new products, services or processes.

Furthermore, medium and long-term loans are available from the National Credit and Investment Corporation (SNCI).

Luxembourg lies at the heart of Western Europe, sharing land borders with Germany, France and Belgium.

Although one of the smallest countries in Europe by population and size, Luxembourg is nonetheless one of the world’s most advanced economies and offers high standards of living, healthcare, and education.

Natural iron-ore deposits fuelled Luxembourg’s industrialisation throughout the 20th century but more recently the country has become a global financial centre boasting one of the world’s highest GDPs per capita.

The country’s growth has been supported by a stable and consistent democratic political system that emphasises free-trade and a low regulation business environment for foreign investment interests.

With high industrial output and a strong services sector, Luxembourg’s economy is diverse and important contributors in the 21st century include the finance, technology, communications, and international banking industries.

In 2022, Luxembourg’s nominal GDP reached an estimated $81.64 billion.

Luxembourg is a member of the EU, the OECD, the United Nations, and Benelux: in 2019, the World Bank ranked Luxembourg 72 on its Ease of Doing Business Survey.

Investors targeting Luxembourg will find a variety of reasons to do business in the country:

• Economic options: Luxembourg’s iron and steel industries remain important to the economy but there are a range of thriving developing sectors to explore, including communications, biotechnology, energy, shipping, and logistics. The financial services sector is a particularly exciting investment area, with Luxembourg developing a reputation as a global hub for banking.
• Government support: Luxembourg’s government promotes a low-regulation, free trade environment for businesses. The government also provides long and medium-term loans to businesses in Luxembourg, along with a range of financial support schemes for investment in research and innovation, which focuses on new products, services or processes.
• European gateway: With Germany to the east, and Belgium and France to the north and west, Luxembourg enjoys a highly advantageous geographic location. Transport infrastructure is also an advantage to businesses in Luxembourg: a network of roads and railways connects to the rest of the continent, while an international airport links to global destinations.
• Favourable tax: With a corporate rate of 29.22% various tax incentives are available for businesses in Luxembourg including a 12% tax credit, and double taxation agreements with a range of countries. The government has announced on-going plans to reduce corporate tax to 18% by 2018.
• Skilled workforce: Luxembourg’s labour force is one of the most well educated and skilled in Europe, and offers businesses a range of skillsets to draw from. The majority of Luxembourg’s citizens speak three languages, representing useful versatility for exploiting European markets.

It is not mandatory in Luxembourg to make payments to either employees or authorities from an in-country bank account, however it is mandatory if you wish to proceed with automatic payment. Both salary and third-party payments can be made on behalf of a client. Only bank transfers are used for making payments to both employees and local authorities. Usually, bank transfers can be made within 72 hours.

Luxembourg offers various business structures, including Public Limited Company (Société Anonyme - SA), Private Limited Company (Société à Responsabilité Limitée - SARL), and Partnerships. Each has its unique features and requirements, suitable for different business needs.

Public Limited Company (Société Anonyme - SA) in Luxembourg

Establishing a Public Limited Company (Société Anonyme - SA) in Luxembourg is a strategic choice for businesses seeking a robust corporate structure.

The process begins with drafting the Articles of Association, which must be notarized and include details about the company's objectives, share capital, and governance.

The minimum share capital requirement for an SA is €30,000, which must be fully subscribed upon incorporation, with at least 25% paid up.

You must register your company with the Luxembourg Trade and Companies Register (Registre de Commerce et des Sociétés - RCS), ensuring legal recognition.

This step involves submitting your notarized Articles of Association, a bank certificate confirming the deposit of the share capital, and the names of the board members and statutory auditors.

Additionally, obtaining a business license from the Ministry of the Economy is crucial, as it verifies the professional qualifications and integrity of the company's managers.

Once these steps are completed, your SA will be a fully-fledged legal entity, ready to operate in Luxembourg’s dynamic business environment.

Private Limited Company (Société à Responsabilité Limitée - SARL) in Luxembourg

Creating a Private Limited Company (Société à Responsabilité Limitée - SARL) in Luxembourg is a popular choice for small to medium-sized businesses due to its flexibility and relatively straightforward setup process.

The first step involves drafting the Articles of Association, which must be notarized. These documents outline the company's purpose, structure, and operational guidelines. Unlike the SA, the SARL has a lower minimum share capital requirement of €12,000, which must be fully subscribed at incorporation, with at least one-fourth of each share paid up.

Once the Articles are prepared, you need to register the company with the Luxembourg Trade and Companies Register (Registre de Commerce et des Sociétés - RCS).

This registration legitimizes your business and involves submitting the notarized Articles of Association, a bank certificate confirming the capital deposit, and information on the company's managers.

SARLs also require a business permit from the Ministry of the Economy, which verifies the professional qualifications and integrity of the management.

This entity type allows for a more straightforward governance structure, making it an attractive option for smaller businesses. After completing these steps, your SARL will be ready to operate, offering a flexible and efficient structure for your business endeavors in Luxembourg.

Establishing a Partnership in Luxembourg

Forming a Partnership in Luxembourg is an attractive option for professionals who wish to collaborate closely while maintaining individual legal identities. There are mainly two types of partnerships in Luxembourg:

The Common Limited Partnership (Société en Commandite Simple - SCS) - The SCS is a flexible business structure in Luxembourg, ideal for small to medium-sized ventures. It involves at least one general partner with unlimited liability for the partnership's obligations and one or more limited partners whose liability is capped at their investment. The general partner has the authority to manage and represent the partnership, while limited partners typically have no active role in management. This structure is often chosen for its simplicity and the ease of managing internal operations.

The Special Limited Partnership (Société en Commandite Spéciale - SCSp) - The SCSp is a modern and adaptable partnership model, increasingly popular in the field of investment funds and asset management. Unlike the SCS, an SCSp allows for all partners to have limited liability, meaning their responsibility for the partnership’s debts is confined to their capital contribution. This type of partnership doesn't have a legal personality, which provides significant flexibility and is exempt from corporate income tax. The SCSp is particularly favored for its regulatory lightness and ease of setting up and managing complex investment structures.

The process starts with drafting a Partnership Agreement, which outlines the roles, contributions, and profit-sharing arrangements of the partners. Unlike corporations, partnerships in Luxembourg do not require a minimum capital contribution, offering greater flexibility in financial arrangements. This agreement must then be registered with the Luxembourg Trade and Companies Register (Registre de Commerce et des Sociétés - RCS), thereby granting legal status to the partnership. It’s essential to clearly define the management structure and the liability of each partner – in SCS, at least one partner has unlimited liability, while in SCSp, all partners can have limited liability. Depending on the nature of the business, certain trade or professional permits may be required. Partnerships are particularly favored in sectors like professional services, where personal liability and direct management involvement are pivotal. Once these steps are completed, your partnership is established and can commence operations, leveraging the combined expertise and resources of its members.

Business Permits in Luxembourg

In Luxembourg, obtaining the right business permit is crucial for legally operating your enterprise.

The types of permits required vary based on the nature and scope of your business. General commercial permits are needed for trading activities, including retail and wholesale. For specific professions such as financial services, legal consultancy, or healthcare, specialised permits are mandatory, governed by relevant regulatory bodies.

For manufacturing or industrial operations, environmental permits might be necessary to ensure compliance with national and EU regulations. These permits ensure that businesses meet the standards for safety, ethics, and professional competence.

The process of obtaining a business permit involves submitting detailed documentation about your business plan, financial projections, and the qualifications of the management team.

To find out more about the specific permits required for your business type in Luxembourg and the application process, you can visit the Luxembourg Business Portal at Guichet.lu, which provides comprehensive information and guidance on business permits and regulations in Luxembourg.

Nationals of EEA countries and Switzerland do not need a work permit. Other foreign nationals need to obtain a work permit before working in the Luxembourg territory.

For anyone living outside the EU/EEA the following paperwork must be provided to apply for a work permit:

• A certified copy of the applicant's full passport

• A certified copy of all relevant professional diplomas

• An explanatory letter from the prospective employer confirming the employment

• The applicant's CV

• A certified copy of the employment contract

The Department of Employment reserves the right to request any additional documents while processing the application. The application process can take anywhere from between 4 to 12 weeks. Once an applicant receives a letter of confirmation, they should then apply for a visa at the Luxembourg Embassy in their country of residence. If the Luxembourg Embassy is not represented in that specific country then the applicant may apply at the Belgian Embassy.

The tax year runs from 1 January to 31 December.

Requirements of the employer:

•      To proceed with the affiliation of the company to the Luxembourg social security authorities

•      To proceed with the affiliation (or disaffiliation) of each employee to the Luxembourg social security authorities

•      To declare and to pay the Luxembourg social security contributions

•      To proceed to the calculation of the withholding tax based on the information mentioned on the employee tax card

•      To proceed to the declaration and the payment of the withholding tax to the Luxembourg tax authorities

•      To prepare an employment contract

Requirements of the employee:

•      To make the necessary formalities in order to obtain a correct Luxembourg tax card

•      To deposit his/her Luxembourg tax return at the end of the year (if mandatory)

Key legislative authorities in Luxembourg include:

Centre Commun de la Sécurité Sociale

4, rue Mercier

L-2144 Luxembourg

Caisse Nationale de Santé

4, rue Mercier

L-2144 Luxembourg

Administration des Contributions

18, rue du Fort Wedell

L-2982 Luxembourg

Caisse Nationale d’Assurance Pension

1A, Boulevard Prince Henri

L-2096 Luxembourg

Income Tax

Monthly income tax contributions are paid on the 10th of the following month. Late-payment interests related to Luxembourg tax invoices is 0.6 %.

In order to proceed with the registration of a company, a document called “Déclaration d’exploitation” must be forwarded to the Luxembourg social security authorities within 24 hours.

In order to make any tax filing on behalf of a client, the service provider must detail a “business license” delivered by the Ministry of Middle Classes on the basis of professional qualifications.

Calculation Example

Contribution rates

As of 1 February, 1 April and 1 September 2023, there was a statutory indexation per employee in Luxembourg, the increase is fixed at 2.5%. Indexation is a mechanism for keeping earnings in Luxembourg in line with inflation. Each time it occurs, wages and pensions increase by 2.5%.

Monthly social security contributions are paid on the 20th of the following month. Late-payment interest related to Luxembourg social security invoices is 0.6%.

In order to make any social security filing on behalf of the client, the service provider must detail a “business license” delivered by the Ministry of Middle Classes on the basis of professional qualifications.

In order to be eligible for a pension from the Luxembourg Pension Insurance Scheme, you need to have contributed to the Pension Insurance for a period of at least one year in Luxembourg.

Furthermore, you need to have contributed to a pension scheme in Luxembourg and/or another Member State of the EU (including Switzerland) for at least 120 months (or 10 years).

If the retirement age is reached, and the minimum contribution period of 10 years is not met, entitlement to a pension from Luxembourg is refused. Contributions made are reimbursed after adaptation to the Luxembourg cost of living index.

Normal retirement age in Luxembourg is 65. Early retirement is permitted at the age of 60 (57 if contributions were made for at least 480 months (in or out of Luxembourg). From the age of 60 onward, the years of university studies and military service are also included for the computation of the 40 years period.

For pension contributions paid during 40 years, monthly minimum pension is approx. €1.956 and the maximum pension €9.056.

In Luxembourg, both employers and employees are required to make social security contributions. The exact rates of these contributions can vary based on different factors and are expressed as a percentage. The contributions cover various social insurance classes and include accident insurance, mutual insurance for different classes, and occupational health. These contributions are essential for financing Luxembourg's comprehensive social security system, which offers a wide range of benefits, including healthcare, unemployment, and pension benefits.

Monthly

•                     Luxembourg payslip

•                     Monthly tax declaration

•                     Monthly social security declaration (online formalities)

Payslip: Name of the employee, social security number of employee, name of employer, social security number of employer, tax card information (tax class and deductions), monthly gross salary, social security contributions (employee part), withholding tax.

Monthly Tax Declaration: Tax amount to be declared to the Luxembourg tax authorities.

Monthly Social Security Declaration: Contribution to be declared to the Luxembourg social security authorities.

The payroll provider submits all of the documents mentioned above. The employer does not need to sign the forms.

New starts need to be registered to the Luxembourg social security authorities (CCSS) and need to ask for a Luxembourg tax card (Luxembourg tax card authorities or Municipality). This is to be done within eight days of starting work.

The procedure for expats is the same as for other Luxembourg employees if they are subjected to the Luxembourg social security regime within eight days of starting work.

Payment for leavers must be closed before the end of employment.

Notification of a leaver must be made to Luxembourg social security authorities (“Déclaration de sortie”).

It is legally acceptable in Luxembourg to provide employees with online payslips.

Reports

Payroll reports must be kept for at least 10 years.

Luxembourg Payslip example

English language example:

French language example:

The working week in Luxembourg is Monday to Friday. There are no specific rules concerning the daily hours in Luxembourg. Office hours are typically 0800 – 1700 (one-hour lunchtime included) or 0900 – 1800 (one-hour lunchtime included).

Holiday Accrual and Calculations

Legal annual paid holiday is fixed to a minimum of 26 days per year. Holidays are paid as normal working days.

Maternity Leave

 Stage 1 - Prenatal leave

Pregnant employees are not allowed to work during the eight weeks before the presumed date of birth. The Luxembourg social security authorities will be responsible for paying the salary to the employee during the prenatal leave.

Stage 2 - Postnatal leave

Employees may not work during the twelve weeks following the birth of the child.

An indemnity corresponding to the normal salary (up to a maximum level of € 12,854.64 per month) is paid during the entire period of maternity leave by the Luxembourg social security authorities.

Paternity Leave

10 days leave are granted to the father at the birth of a legitimate child and at adoption. Paternity leave has to be taken within two months of birth. The employer must be informed, in writing, with a notice period of two months before the predicted dates on which the employee intends to take his paternity leave. A copy of the medical certificate attesting the presumed date of birth must accompany this written information.

Without notifications, the leave may be reduced to two days at the employer’s discretion.

The employer supports the first two days of paternity leave and from the third day the paternity leave will be charged to the state budget. The reimbursement is limited to five times the minimum social wage for unskilled employees. A request has to been sent to the authorities.

Parental Leave

Both mother and father are entitled to parental leave when a child is born or adopted.

Full-time, part-time or split leave

Whether it is the first or second parental leave, the parent can request full-time parental leave of four or six months per child.

 Parents who do not wish to take full-time parental leave can, with the employer's approval, apply for parental leave under the following conditions:

• If the employee's working hours are equal to the standard working hours:
  • a part-time leave of eight or 12 months during which the employee reduces by half the hours usually worked before the parental leave
  • a split parental leave during which the employee can reduce the working time by 20% per week over a period of 20 months
  • or a parental leave split into four periods of one month during a maximum period of 20 months

• If the employee's working hours are equal to or higher than half of the standard working hours:

  • a part-time parental leave of eight or 12 months during which the employee reduces by half the hours usually worked before the parental leave.

 If the employee's standard working hours represent less than half of the normal working hours, the employee can apply for full-time parental leave.

 The same applies if the employee has several employers.

In order to be granted the right to take parental leave, the parent must:

• Have been affiliated to the Luxembourg social security at the time the child is born or adopted for at least 12 continuous months prior to the parental leave; the 12-month period may not be interrupted for a maximum period of more than seven days
• If the parent is a salaried worker: have one or more employment contracts totaling at least 10 hours of employed work per week and not 20 hours as before the reform

Extension of the leave to the six years of the child in place of five years

Both parents have the choice to take the parental leave simultaneously

Parental Leave Benefit

During the compensated parental leave, the employee is entitled to a monthly parental leave allowance paid by “Children’s Future Fund” (CAE) which replaces the salaried income. This allowance is subject to social security contributions and taxes. The employee will receive an updated tax card from the tax office without any intervention. The CAE will be the new employer during the parental leave.

The parent will now receive a replacement income, which is calculated on the salary of the 12 months before the beginning of the parental leave. It is a fixed amount which amounts between 2.570,93 € (minimum statutory wage for non-qualified workers as of 1 September 2023) and 4.284,89 € (5/3 of the minimum statutory wage).

In order to be eligible for leave benefits, the parent must send a written request to the CAE together where applicable, the parental leave plan within 15 days from the notification of the request to the employer. Once the CAE has approved and the employee has received the agreement by post, the choice of parental leave is final and cannot be changed anymore.

Sickness

 Salary continuance applies until the end of the month in which the 77th day of work incapacity occurs, with 80% of the salary being paid by the employer is reimbursed by the CCSS to the employer during this period. The social security authorities refund this. Eligibility for a cash sickness benefit applies from the first day of illness after salary ceases to be legally or conventionally required.

National Service

There is no mandatory National Service in Luxembourg.

The minimum social wage for a worker is €3,085.11 gross per month in Luxembourg. This figure may be subject to adjustments and it's important to note that Luxembourg is required to ensure its minimum social wage complies with the new EU Directive on adequate minimum wages by November 2024. The directive aims to promote adequate minimum wages in the EU, taking into account various economic factors and ensuring decent living and working conditions

There are no specific benefits offered to the employees in Luxembourg.

Expenses

Expenses incurred are reimbursed to the employee by the employer based on the corresponding vouchers.

Tax-free reimbursement of €0.30 per km is permitted if the employee uses their private car for business travel.

A company car is defined as a vehicle belonging to the employer or having been leased by the employer for professional use but which may also be used by an employee for private use. Travel between home and the work place is considered to be private use.

The monthly lump-sum taxable benefit of a percentage depending on the characteristics of the new vehicle cost incl. options and VAT and this is taxed at ordinary progressive tax rates.

Other common expenses in Luxembourg

Housing Benefit

Two situations need to be assessed in order to determine the taxable benefit:

• The rental agreement is signed by the employee, the employer provides the employee with a housing allowance which will constitute a benefit in kind which is fully taxable at ordinary progressive tax rates;

• The rental is agreement signed by the employer and the house is made available to the employee. The monthly fringe taxable figure corresponds to 75% of the rent paid by the employer (increased by 10% if furnished).

Lunch Vouchers

Employers can grant their employee’s lunch vouchers and there are two options for this;

• Based on a full time contract the employee can get up to 18 luncheon vouchers per month. The face value of each luncheon voucher varies between €8.40 and €10.80 up to €15. €2.80 is paid and deducted from the employee’s net salary (€50.40 per month) and the employer pays 2/3 (most common practice)
• The employee can get up to 18 luncheon vouchers per month. The face value of each luncheon voucher varies between €8.40 and €10.80 up to €15. The employer pays 100% and there is no deduction from the employee’s salary.

Beneficial Loans

Interest-free or low-interest loans from an employer are considered to include a fringe benefit. This is calculated as the difference between the market rate and the actual interest paid. A deduction is available for the fringe benefit as follows:

• € 3.000,00 (€ 6.000,00 for married taxpayers) if the loan is granted to finance the principal residence of the taxpayer;

• € 500,00 (€ 1.000,00 for married taxpayers) for all other loans

For information in relation to Government Pension Schemes please refer to social security section.

In 2024, Luxembourg is introducing several key changes in regulations and legislation affecting income tax, social security, and employment law:

Income Tax Changes:

• A new CO2 tax credit will be introduced from January 1, 2024. This credit aims to offset the cost of the CO2 tax for those with lower salaries. For instance, a worker earning the minimum social wage will receive a monthly CO2 tax credit of €14. However, the credit decreases with higher incomes and is not available for those earning above €79,999 annually.
• The personal income tax brackets will be adjusted, resulting in potential tax decreases, depending on the income level and tax class of individuals.
• The maximum tax credit for employees will be reduced from €696 to €600 per year​​​​.

Social Security Updates:

• The social security system in Luxembourg will continue to cover various areas including health care, pension, accidental insurance, and mutuality benefits. The standard monthly minimum and maximum contribution bases for 2024 are set at €2,571 and €12,855, respectively​​.

Employment Law Changes:

• Meal vouchers value will increase to €15 from January 1, 2024. These vouchers can now be used for a broader range of foodstuffs and will be digitized for convenience.
• For cross-border workers, especially those from Germany, the number of workdays allowed for teleworking without additional tax implications will increase from 19 to 34 days per year.
• A new law for sports leave will be introduced, offering clearer guidelines on eligibility and circumstances for benefiting from it​​.

Other Relevant Changes:

• There will be new regulations affecting environmental and technological aspects, such as mandatory tethered caps for plastic bottles and standard USB-C charging ports for electronic devices.
• Housing-related changes include measures to stimulate the construction market for new units, such as an accelerated depreciation rate for rental housing and an increase in the "Bëllegen Akt” tax credit for the purchase of a main residence​​.

Please note that this document gives general guidance only and should not be regarded as an authoritative or complete statement of the law, regulations or tax position in any country. You should always seek specific advice for each specific situation. This document should not be relied upon as professional advice and activpayroll accepts no liability for reliance on its contents.