IT Contracting in Luxembourg: Money & Tax
Profile written by Matt Walters of Capital GES (Updated September 2016).
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.
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 39% dependant on income. An average 4% contribution to the unemployment fund must also be made.
Luxembourg tax allowances:
i. "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 24’000.
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.
ii. 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.
iii. 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 under certain conditions.
iv. Compensatory deduction for employees
Salaried employees receive a tax credit of EUR 300 paid by the employer providing they are earning a minimum salary of EUR 936.
v. 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.
For 2012, employees can expect to pay an average of 11.05% and employers an average of 12.93%.
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.
Capital GES 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.