So you’ve decided to set up something of your own and start freelancing in Luxembourg – where to start? In this article, we will take you through the process of setting up your freelancing business.
Setting up a business or going solo?
Early entrants often get confused about the architecture of the business they choose. Should I register myself as a solopreneur or set up a small company to conduct all the operations?
In Luxembourg, a freelancer typically operates as a solo proprietor – meaning the individual and the business are the same entity. This is often seen as a challenge in managing your finances, but allows the freelancer to have complete freedom and control over their professional life, from setting the work schedule to determining their pay.
Contrary to being a solopreneur, a business in Luxembourg is usually chosen when the operations go beyond a single person. You want to hire people. You want to outsource work. Here, your business can take various forms such as a limited company or a partnership.
Unlike a freelancer, a company has a separate legal identity from its owners, which provides limited liability protection. Additionally, the tax and social security implications differ for self-employed individuals and companies in Luxembourg. Don’t worry, we’ll talk about it soon.
How to start as a freelancer?
Once you’ve identified what service you want to offer as a freelancer, the next step is to register yourself legally so you can start reaching out to potential clients. Do understand that before anyone gets into business with you, they require registration details to proceed, therefore the next steps are crucial.
Obtaining a business permit
Depending on the nature of your service, you will need to acquire a business permit. This legal form allows for easy documentation, registration, and administration activities. As a sole proprietor, there is no clear distinction between personal and professional holdings, meaning the individual and the business are the same. Read more about it here.
Luxembourg residents or those who have lived in the country for 5+ years need to submit a completed business permit form, proof of qualification, proof of integrity (including a recent criminal record in Luxembourg), a copy of their ID card/passport or residence permit, and proof of payment of the €24 stamp duty.
For residents with less than 5 years of residence, additional requirements include providing recent criminal records from the countries of previous residence and a notarial declaration of non-bankruptcy. It’s advisable to seek guidance from a legal or business professional to ensure compliance with the specific regulations.
Selection of legal entity
Earlier we touched upon the difference between registering as a solopreneur or as an entity. This selection can be pretty tricky – but comes with a variety of benefits and challenges. So in case you’ve decided to register yourself as a solopreneur – which is the easiest way to get into the freelancing business, here’s where you can register.
To register as a company, you have 3 options – SA (public company), SARL (private limited liability company), & SARLs (simplified limited liability company).
These types of companies have different capital requirements, with the minimum share capital fixed at EUR 30,000 for the SA, EUR 12,000 for the SARL, and between EUR 1 and EUR 12,000 for the SARL-S. A portion of the capital must be paid when the company is formed.
For more information, read here.
Obtaining your VAT
This is probably the last leg of legal documentation will come your way before you can start with your business, but both obtaining VAT and registration for social security are pertinent.
To procure a VAT number, you need to register with the AED (the tax office), regardless of whether you intend to charge for VAT or not. The need for VAT is as much for you as it is for your vendors.
If you plan to offer a B2B service/product, it’s advised to charge VAT regardless of your expected turnover. There are a few exceptions to VAT, for instance, if your service is directly to individual customers, you are exempted. To learn more about it, read here.
Registration for Social Security
Registering with CCSS for your social security number as a self-employed or freelancer requires obtaining the necessary documents, and the actual registration with CCSS is not particularly difficult.
Self-employed individuals in Luxembourg are responsible for paying social security contributions ranging from around 24% to 28%. This covers them with risks of sickness, maternity, disability or death. As a freelancer or self-employed, you will receive a letter once a year that lays out the calculation of your contributions. If you see any discrepancy, you can also request a recalculation.
When you’re self-employed, you’re considered both the employee and the employer, and you are responsible for withholding 12.4% of Social Security taxes on up to $168,600 of your net earnings.
What are your taxes like?
To ensure that freelancers get nearly the same benefits as any employed professional, and have access to proper health care, freelancers have to pay both, their taxes and their social security contributions.
For self-employed and solopreneurs, the tax slabs depend on their selection of business (type of company). Tax for self-employed sole traders and freelancers is as follows:
- All profits are classified and taxed as personal income
- They are required to submit a personal tax return once a year & pay accordingly
- Although solopreneurs are not liable for corporate tax, they may be liable to pay property tax on owned properties and communal business tax
It is recommended that solopreneurs remain in touch with the Administration des Contributions directes or ACD regarding their tax implications. In some cases, ACD also needs solopreneurs to make quarterly advance payments on their bills.
All freelancers must pay tax within a month of receiving any notice of their tax assessment, or else they’ll be liable to a 0.6% penalty for each month. For those who are liable to pay tax quarterly, they must take note of the following dates: 10 March, 10 June, 10 September, and 10 December of the tax year. You can also apply for an extension, in which you do not have to pay your taxes for 4 months.
In Luxembourg, freelance income tax rates are categorized into 23 tax brackets. Do note that freelancers only need to start paying taxes when they make €11,266 (at the lowest rate of 8.56%) and it can go up to over €200,005 (at a tax rate of 45.78%).
Combining freelancing with your job
The great thing about being in Luxembourg is you can hold multiple jobs at a time, as long as you do not exceed the legal working time of 40 hours per week. Each stream of your income will have its tax slab – for self-employed it would range between 24% to 28%.
So you have a business idea or a consulting project in mind, don’t hesitate and go ahead. Launching your business in Luxembourg is incredibly straightforward. Once you have all the documentations ready, you just need to register with the legal bodies and in no time you will be up and running.
