Podcast — 26 min
Luxembourg — 10 min
Are you ready to say goodbye to traditional work practices — and become your own boss?
If so, Luxembourg is an ideal place to start your self-employment journey. Whether you want to set up shop in the bustling cafes and markets of the Grund district, or pass your working days amidst the tranquil grandeur of the Moselle Valley, this small — but important — duchy has something for everyone.
Before you get started, though, you’ll need to understand how to:
Register your business in Luxembourg
Avoid misclassification as an employee
Create compliant contracts that protect you
Invoice and collect payments from around the world
In this article, we’ll cover all these things. We’ll also help you navigate your tax obligations as a self-employed worker, and discuss some of the other risks and liabilities you should be aware of.
But first, it’s important to clarify how Luxembourg defines independent contractors.
Independent contractors are workers who provide paid services (or products) to another party. However, they are classified differently to employees, and are usually not entitled to the same benefits, such as paid leave, sick days, and minimum wage. On the flip side, contractors have more freedom and flexibility in the way they work.
See also: Why businesses hire contractors vs. international employees
In Luxembourg, you are generally considered a contractor if you:
Determine your own work schedule and location
Work without direction or supervision
Supply and use your own tools, materials, and equipment
Are able to perform work for other companies simultaneously
Set your own pay rate
Are able to delegate or subcontract work
When you work with clients, it’s important to be correctly classified to avoid penalties and fines.
To begin working as an independent contractor in Luxembourg, you’ll first need to choose a legal structure for your business. Some of the most popular models include:
Sole proprietorship: A simple structure that is ideal for independent, individual contractors. You have full control of the enterprise, although there is no legal separation between you (the owner) and the business; you are personally responsible for all its debts and liabilities.
Partnership (SENC): A simple partnership agreement. Again, there is no legal separation between the individual and the business; you and your partners are personally responsible for any debts and liabilities. To mitigate this, you can create a limited partnership (SCS).
Private limited liability company (SARL): A formal, legal entity that is separate from you, the individual. All income and losses are attributed to the company as opposed to you personally (you are only liable for the capital you invest in the company).
There are pros and cons to each structure, but most independent contractors choose the sole proprietor model, as it is fairly simple to set up and operate.
If you do opt for this structure, your obligations will depend on your business activities. As a sole proprietor, you will fall into one of three categories:
Traders (i.e. retailers, wholesalers, hospitality providers, and travel agents)
Craftspeople (i.e. mechanics, hairdressers, electricians, and beauticians)
Self-employed “intellectual” workers (also known as liberal professionals, such as accountants, lawyers, doctors, and architects)
Only traders need to register with the Trade and Companies Register (Registre de commerce et des sociétés, or RCS). This can be done online or in person. Traders can also use a business (or “trading-as”) name, which will be checked during the registration process.
All sole proprietors must register with the Joint Social Security Centre (Centre commun de la sécurité sociale, or CCSS). You can also opt to register with the Employers’ Mutual Insurance Scheme (Mutualité des employeurs, or MDE) to cover losses of income caused by sickness, although this is not mandatory.
If you estimate that your annual revenue will be €35,000 or more, you will also need to register for VAT with the Registration Duties, Estates, and VAT Authority (AED). We will discuss VAT in more detail in the taxation section of this article.
As an independent contractor, it’s down to you to handle your invoices and payment collection. Unfortunately, this means billing each client individually and collecting payment through their preferred payment method — which can be inefficient and time-consuming.
Some of the most common ways to collect payments include:
Digital transfer services like PayPal and Wise
These methods all have their own pros and cons. For instance, bank and digital transfers can be pretty quick, but often come with hefty service fees. And if you have clients in other countries besides Luxembourg, the payment collection process can be even more complicated.
Alternatively, you can use a trusted solution like Remote. Our platform is a simple, secure, and reliable way to get paid quickly in euros — and with no hidden fees. Learn more about how our platform can help.
As an independent contractor, you’re also responsible for paying your own taxes and social security contributions. Like most countries, Luxembourg has a progressive income tax rate; you start paying tax (at the lowest rate of 8%) once you earn more than €11,265, with a top rate of 42% on earnings over €200,004.
As a sole proprietor, you pay personal income tax on your business profits. Therefore, you do not need to fill out a separate tax return, or pay any corporate tax. Usually, you need to submit your tax return (form 100) by March 31 the following year, although this deadline has been extended to December 31 for 2023.
Note that, in some cases, the Inland Revenue (Administration des contributions directes) may ask you to make quarterly advance payments on your taxes.
You will also need to make social insurance contributions. As you are self-employed, you will need to cover both the employer and employee’s share, meaning you will likely have to pay around 24% to 28% of your income.
In your first year of business, the amount you owe will likely be calculated based on the social minimum wage. For each year after, it will be calculated based on your previous year’s income.
On the flip side, you can claim tax deductions for multiple business expenses, including:
Travel expenses (capped at €2,574 per year)
Professional membership fees
Equipment and tools
Uniforms (including maintenance and cleaning, if relevant)
Books and journals
Office and home office costs, including utility bills
As mentioned previously, you need to register for — and charge your clients — VAT if your revenue exceeds €35,000. You can do this by filing an initial declaration with the AED, either in person or online.
Luxembourg has a standard VAT rate of 17%, although some goods and services are charged at lower rates of:
14% for firewood, print advertising, and cleaning products
8% for leather items and clothing, natural gas, and electricity distribution
3% for foodstuffs, medicines, and water
VAT laws and regulations in Luxembourg can be complex and change regularly. You can learn more about your potential VAT obligations on the government’s website.
As a sole proprietor, you are personally liable for finance and tax debts, which means your private assets can be forcibly used to settle your business debts. Many independent contractors purchase liability insurance to help mitigate this risk.
It’s also important to cover yourself when drafting and signing agreements with clients. Our legal experts can provide you with fully compliant contract templates, for both Luxembourg-based and international clients.
As a sole proprietor, you do not need to publish financial statements each year. However, you do need to keep records of your accounts, including all your client invoices and business purchases.
You can either manage these records yourself, or hire a bookkeeper or accountant.
Note that, if you are categorized as a trader and you earn more than €100,000 in a year (exclusive of VAT), you must use the uniform chart of accounts and file your accounts with the RCS.
As we’ve mentioned, independent contractors are classified differently to employees. Many of the protections and benefits employees enjoy do not typically apply to contractors.
As a result, companies may deliberately misclassify you to circumvent their legal obligations, while at other times, it may happen accidentally. Whether it’s intentional or not, misclassification can result in penalties and fines for both you and your client.
As an independent contractor, you can work with your clients to ensure this doesn’t happen. Discuss your role and responsibilities with them, and review the working arrangement regularly.
If your working relationship changes over time and you become more integrated into a client’s company, you can ask to be converted into an employee.
Open a dialogue with your client and carefully discuss the risks and benefits of moving to an employer-employee relationship. In particular, be clear about how it can benefit both parties — not just you.
You can even suggest the help of a third-party solution, such as Remote, to ease the transition. Our global employment services help both parties stay compliant by taking care of key HR functions (like payroll management and benefits administration) in line with Luxembourg law.
As you can see, there’s a lot to take on board when setting up as an independent contractor. Remote can help you with many of these challenges, allowing you to focus on growing your business and delivering to your clients. Here’s how:
Navigating all of your clients’ different invoicing, approvals, and payments systems can be complicated and time-consuming. And manual methods of invoicing and collecting payments can increase the risk of fees, errors, and delays.
Remote gives you access to a highly secure, streamlined dashboard that makes invoice management and international payments cost-effective and efficient. You can use our platform to get paid in euros hassle-free, without any hidden fees.
When you draft agreements and contracts for your clients, you run the risk of non-compliance with local labor laws — especially when working with international clients. Remote offers localized contracts tailored to Luxembourg laws, ensuring that you stay compliant. Our legal experts can also provide guidance on complex issues, such as local classification and intellectual property protections.
With Remote, you no longer need to rely on spreadsheets and other manual tools to invoice for payments; we remove many of the inaccuracies and delays caused by archaic processes and manual management. Our platform lets you create invoices, submit them for approval, and subsequently get paid in your local currency without needing to switch to any other tool or software.
Tax management is notoriously complex work. Remote helps you quickly and efficiently deal with tax management by compiling data about your income based on your invoices and payments received.
Having the freedom and flexibility to work on your own terms is liberating. But your administrative responsibilities can distract from what you really want to be doing: helping your clients, delivering great work, and collecting invoices.
By using a stable, trusted platform like Remote, you can manage these obligations quickly and efficiently, allowing you to focus on your business goals. Specifically, we can help you:
Avoid intermediary fees and delays with international client payments
Draft compliant contracts for Luxembourg and foreign clients
Enhance your invoice management and avoid manual processes
Comply with local labor laws regarding work practices
Our platform makes it quick, simple, and seamless to get started as an independent contractor. Learn more about how our expertise can save you time and resources today.
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