Contractors’ Questions: What’s best for a three-month contract in Luxembourg?

Contractor’s Question: I have my own limited company which was recently offered a 3-month contract in Luxembourg. Under it, the suggestion is that I would be contracted out to an agency yet remain an employee of my own company.

But I’m confused because the agency says I will have hardly any tax requirements due to me being freelance, whereas an outsourcing firm is suggesting I must obtain a tax ID card and register with the local commune, among other obligations. Can you settle this for me?

Expert’s Answer: I can completely understand why you could be confused based on the conflicting information you have found. Unfortunately, I am unable to say exactly where they are getting their information from, although registration in Luxembourg is at your local ‘Administration Communale.’

Please note, you can only contract through your own UK limited company if your company is registered in Luxembourg. So with this in mind to be compliant, you have three options.

Option 1 -- be employed by an umbrella company (where you will be classified as an employee, paying tax and social security in Luxembourg).

Option 2 -- register a new company in Luxembourg.

Option 3 -- operate as self-employed (the UK equivalent of a sole trader) in Luxembourg.

If you use a compliant and competent umbrella company, it will ensure that you are set up correctly ‘in-country’ and take care of the requirements you will face when working in Luxembourg. The umbrella will make automatic tax and social security deduction from your monthly, guaranteed pay.

In this sense, Option 1 will probably be the least hassle for you, especially as you will only be there for three months, and would have the admin/ HR aspects of your contract taken care of. Then, you can completely focus on your core business. The umbrella route is additionally appealing because, once your work is complete, you can simply leave the country straight away with no further concerns.

Under Option 2, closing down the company after you have completed the work and before you return to the UK would need to be a consideration. But we are unable to provide you with details on the cost of setting up a company in Luxembourg. To find out if it this route would be more financially-advantageous than Option 1 and Option 3, you should talk to an accountant.

Generally-speaking though, and based on what contractors tell us, the hassle and the time it takes to register, set up and make sure all is compliant, and then to close down your business when you leave, is not usually worth it for such a short contact.

The expert was Lucy Peel, global employment specialist at Capital GES.

Thursday 18th Apr 2019
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Written by Simon Moore

Simon writes impartial news and engaging features for the contractor industry, covering, IR35, the loan charge and general tax and legislation.
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