Luxembourg

Registrations and Establishing an Entity

The employer may be a legal entity or a private person, established in Luxembourg or abroad, and must register for social security. It is worth noting that there may be a requirement to obtain a business license. If a business license is required and all substantiating documents are available, it can take less than two weeks to get all registrations in place.

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.

To operate in Luxembourg:

• Register the company at the Trade and Companies Register (RCS)
• Obtain a business license, if required
• Register with the Luxembourg social security system (Centre Commun de la Sécurité Sociale - CCSS)
• Register for tax purposes (Administration des Contributions)

Banking While not mandatory, in-country accounts facilitate payroll and tax obligations. Only bank transfers are accepted for payments to employees and authorities.

Working Week

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).

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

Standard working hours are Monday to Friday, typically 8 hours per day. Workweek is 40 hours.

Employment Law is governed by the Labour Code and collective agreements.

Holiday Accrual Employees receive a minimum of 26 days of paid annual leave.

Maternity Leave 8 weeks pre-natal and 12 weeks post-natal leave. Social security pays maternity indemnity up to a capped level.

Paternity Leave 10 days within two months of birth. First 2 days paid by employer; remainder reimbursed by state.

Sick Leave Paid sick leave until the end of the month of the 77th day of absence. Reimbursement by social security afterwards.

National Service No national service obligation in Luxembourg.

Taxation & Social security

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 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
Caisse Nationale de Santé
Administration des Contributions
Caisse Nationale d’Assurance Pension

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 %.

Calculation Example

Income tax calculation example

Monthly Gross Salary: €3,000.00
Lux. Soc. Sec. Contributions: €331.50
Withholding Tax (single): €193.50
Dependence Insurance: €32.77
Monthly net Salary: €2,589.23

Digital tax cards

As from 2022, it is an obligation of the employer to check monthly the tax cards of its employees on the website of MyGuichet.

To do so, the employer needs to obtain a token which can be requested online. This is an alphanumeric code sent to the registered office of the company.

The employer can opt for the provider to perform the monthly check on its behalf.

Social Security

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 onwards, 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. €2,293.55 and the maximum pension €10,618.30.

Payroll

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

Reporting

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.

Reports

Payroll reports must be kept for at least 10 years.

Payslip Example

New Employees

• New starts need to be registered to the Luxembourg social security authorities (CCSS).
• 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.

Leavers

• Payment for leavers must be closed before the end of the employment.
• Notification of a leaver must be made to Luxembourg social security authorities (“Déclaration de sortie”)

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 € 13,188.96 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.

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;

Additional Notes:

• 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 2.637,79 € (minimum statutory wage for non-qualified workers as of 1 January 2025) and 4.396,32 € (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 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.

Employee Benefits

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.

Company Car

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 agreement is 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:

1. 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 €15.00. €2.80 is paid and deducted from the employee’s net salary (€50.40 per month) and the employer pays 2/3.
2. The employee can get up to 18 luncheon vouchers per month. The face value of each luncheon voucher varies between €8.40 and €15.00. The employer pays 100% and there is no net deduction from the employee’s salary and a benefit in kind is applied on the payslip of the employee.
   
   

Option number 1 is the most common practice.

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

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.

Teleworking

Social aspect
Except in Covid period, a cross-border employee who would work more than 25% of his working time in his residency country would no longer be registered under the Luxembourg social security system, but would be affiliated under the social security system in his residence country.

Tax aspect

The tax tolerance thresholds for neighbor countries will be the following as from January 1, 2024:

• 34 days for France
• 34 days for Belgium
• 34 days for Germany

It should be remembered that all the days worked outside of Luxembourg must be taken into account for the calculation of these thresholds.

The calculation covers all days spent outside the Grand Duchy of Luxembourg (training, seminars, business trips, homeworking...)

It is the employer's responsibility to monitor all of those days and to ensure compliance with social and tax measures in case the thresholds are exceeded.

Further Information For more information, or assistance with Luxembourg tax enquiries please contact: gi@activpayroll.com

About This Payroll and Tax Overview 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