The employment relationship in Luxembourg is governed by the 2006 Labour Code.
If you’re a national of a European Union (EU) country, you already have the right to work in the Luxembourg under the EU’s freedom of movement provisions. Luxembourg reports around 40 per cent foreigners in the general population. As a matter of fact, the internal market is characterized by the major role played by Belgian, French and German who constitute more than 50% of the labour force in the territory.
The main sources of labour law are international treaties, European law, Luxembourg employment laws and regulations and collective bargaining agreements.
Computed on average income statistics and the income tax rate, the cost of living in Luxembourg is relatively high. Taxes in Luxembourg, however, are lower compared to neighboring European countries.
Given the territoriality of tax, only companies that have a sufficiently strong attachment with Luxembourg have unlimited tax liability.
This is valid for resident companies, i.e. a company who has its registered office or centre of effective management in Luxembourg.
Non-resident companies, i.e. a company whose registered office is not in Luxembourg but who generates Luxembourg income is subject to limited tax liability.
Foreign workers are required to have the proper visas and work permits in Luxembourg, as established by immigration laws. Work permits must be secured for employees, and sponsored by a locally licensed and incorporated entity, which can be a problem for companies just entering the Luxembourg market. If you have yet to complete the incorporation process you can use an outsourced management company or GEO to sponsor the employee for the necessary permits.
A foreign investor who comes to Luxembourg and intends to set up a company must be aware of the possibilities he has. One of the most important things to know is the best suited type of company that fits the interests of the entrepreneur.
The most popular type chosen by foreign investors who want to set up company in Luxembourg is the limited liability company.
There are five main types of business available to foreign companies in Luxembourg, regulated under Luxembourg law on commercial companies (15 August 1915 – the “Companies Law”):
GEO Solutions or DIY Employment
Companies entering Luxembourg must make a decision whether to use their own resources for a Do-It-Yourself (DIY) approach, or to use a Global Employment Organization to handle payroll and employment responsibilities. A GEO or Luxembourg Employer of Record solution makes it faster, easier and cheaper to deploy staff if they don’t have a Luxembourg entity established that can run payroll.
A DIY approach will typically take 6-9 months until there is a properly incorporated WFOE ready to run payroll and cost up to 6 figures if registered capital is required. Shield GEO can deploy foreign staff in 4-6 weeks and local staff in 48 hours. Additionally, Shield GEO is responsible for all compliance issues related to the employment.
|Management Fee for Employer of Record Services / Monthly Payroll Costs||
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Shield GEO pays the employee on a monthly basis, typically on the last working day of the month although we can adapt to your preferred schedule. Income tax and social security (where applicable) are deducted at source and paid to the local tax authorities.
|Tax Returns Supplied||
|Employers Social Security and statutory contributions||
11.05% calculated on gross salary
|Employees Social Security and statutory contributions||
12.72%- 14.89%, calculated on gross salaries
Insurance Contracts: 4% on the insurance premium.
|Corporate Income Tax Rate||
22.47% on taxable profits
Municipal Tax: 6% calculated on taxable profits with an allowance of EUR 17,500.