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| CURRENT SECTION :: Overseas Guides | UK's most visited IT Contractor Site - 250k unique visitors March 2008 |
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Profile written by Matt Walters of Capital Consulting (October 2008). Introduction Although often overlooked by contractors, Luxembourg’s physical proximity to Belgium and close ties with the EU, as well as its prominent banking sector, make it a prime destination for contractors. I. Registration Upon arrival in Luxembourg, you must register at your local Administration Communale, taking all relevant documents with you. You should also request at this time une fiche de retenue d'impôt (a tax deduction slip) and present any documentation required for married persons and/or children’s allowances. II. Taxation in Luxembourg The Luxembourg tax year is the calendar year, and tax returns must be filed by March 31st of the following year. Tax rates are banded between 0% and 38% dependant on income. A 2.5% contribution to the unemployment fund also applies, so that the marginal income tax rate amounts to 38.95%. Luxembourg tax allowances: i. “Extraordinary expenses” These are costs that must be incurred in order to obtain or preserve income: a. Childcare costs up to EUR 3’600. b. Other “extraordinary expenses” also exist. ii. “Special expenses” a. Premiums for life, health, accident disability or liability insurance (Luxembourg or EU only), up to EUR 672, plus the same for spouse and each jointly assessed child. b. Alimony (enforced or voluntary) up to EUR 21’600. c. Other “special expenses” also exist. If a taxpayer has less than EUR 480 in special expenses in a tax year, a fixed deduction of EUR 480 is granted. iii. Professional expenses and commuting costs Professional expenses related to the acquisition of employment income are tax deductible. A yearly lump sum deduction of EUR 540 is available. Commuting expenses are deductible based on the distance between the employee’s home and workplace up to a maximum amount of EUR 2’970. iv. Education and maintenance costs for non dependent children Education and maintenance costs paid for children who do not qualify as dependent can be tax deductible up to EUR 3’480 per year per child. v. Compensatory deduction for employees Employees are entitled up to EUR 600 tax deduction on a yearly basis (applicable to each married spouse deriving a taxable salaried income). vi. Extra-professional deduction Married taxpayers are entitled to EUR 4’500 tax deduction on a yearly basis provided that they are filing jointly and both derive professional income taxable in Luxembourg. III. Social Security Social security must be paid on your salary in Luxembourg unless your employer can detach you from another EU country by means of an E101 certificate. Care must be taken here, and it is worth taking advice, as detachment by means of an E101 may not be the best solution in all cases due to either a) the duration of your intended stay in the country, b) the level of cover provided, or c) the cost of said contributions. It is also worth noting that, under the EU social charter, social security contributions made within an EU country will count towards your time stamp for the UK. IV: Work permits Citizens of EU countries, with the exceptions of Romania and Bulgaria, do not need a work permit to take up employment in Luxembourg. This also goes for citizens of Switzerland, Liechtenstein, Iceland and Norway. Romanians and Bulgarians still need work permits but the procedures have been simplified in sectors like agriculture, viticulture and hotel and catering. For skilled workers with specific qualifications in the banking sector there is also some flexibility. Citizens of all other countries must go through a full registration and work permit process. A work permit can only be obtained if no suitable candidate can be found in Luxembourg or another Member State of the EU. Dependant on your personal circumstances, income and where you are contracting, you may be liable for additional tax in other countries where you are tax-resident (your home country, for example). Before taking any contract overseas, you should always seek professional advice from advisors with experience in the field of international and cross-border taxation. Capital Consulting is an international payroll and contract-management company providing tailor-made tax planning services to contractors working overseas. For more detailed information on your personal situation, please contact Capital on +41 32 732 97 00. Previous Page
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