Legal framework and self-employment advantages
When operating on a self-employed basis in Luxembourg it is not necessary to acquire any special status as is the case in some neighboring countries, there is no official “self-employed” status. This means that there is no separate legal entity and there is no distinction between the personal property of the self-employed and the property used by the self-employed for professional purposes.
By not requiring any particular status, this way of operating makes it much easier to start working as a freelancer. However, it must be kept in mind that depending on the activity to be carried out, it may be necessary to obtain certain authorizations and to carry out certain administrative procedures. In addition, foreigners wishing to set up in the country as self-employed entrepreneurs must also bear in mind that before being able to do so, they must apply for a self-employed visa in Luxembourg.
Before going into details about the procedures and requirements to work in this way, let's examine some of the advantages of this way of working in Luxembourg. Some of the main advantages lie in the fact that, unlike other countries, self-employed workers in Luxembourg enjoy the same benefits as employees in terms of social security coverage. Let's look at this in more detail:
Pension insurance for the self-employed in Luxembourg.
Luxembourg self-employed people enjoy the same rights as employees in terms of old-age pension insurance. By joining the general pension insurance scheme, self-employed persons benefit from:
- Entitlement to an old-age pension, which is paid from the age of 65, provided that the person has been insured for at least 120 months.
- Entitlement to an early old-age pension provided that the requirements are met.
- Entitlement to a disability pension in the event of having to cease professional activity for health reasons before the normal retirement age.
Incapacity for work
In case of incapacity for work self-employed persons in Luxembourg are also entitled to an allowance, however, this will only be paid from the fourth month following the onset of incapacity. To compensate for the loss of income due to incapacity for work during these first four months, self-employed workers can register with the employers' mutual insurance.
Maternity and paternity leave for self-employed workers in Luxembourg
Self-employed workers are entitled to maternity and parental leave in the same way as an employee.
Unemployment insurance
Self-employed workers who have had to cease their activity due to economic or financial difficulties, medical reasons, the action of a third party or major force, are entitled to unemployment benefits, but certain conditions must be met. To be eligible for unemployment benefits in Luxembourg a self-employed person must:
- Be domiciled in Luxembourg at the time of cessation of his or her activity.
- Be registered as a job seeker with the ADEM.
- Have been self-employed for at least six months before registering as a job seeker.
- Have paid Luxembourg social security contributions for at least 2 years, either as an employee or as a self-employed person.
Steps to become self-employed in Luxembourg
Moving on, we will now see the necessary steps to be taken by an individual in Luxembourg in order to become self-employed. Note, however, that these will vary from one person to another depending on the activity to be carried out, as not all activities have the same requirements and do not require the same formalities.
Obtaining an establishment authorization if necessary
The first step in becoming self-employed in Luxembourg is to determine whether it is necessary to obtain an establishment permit and, if so, to take the administrative steps to obtain one.
An establishment permit must be applied for by those wishing to engage in a commercial activity, craft activity or certain liberal professions of a predominantly intellectual nature. Commercial activities include the purchase and sale of goods or services for profit such as retail stores, e-commerce and travel agencies. Craft activities involve manual or technical work requiring specific skills such as carpentry, plumbing, baking or hairdressing. Liberal activities, on the other hand, are intellectual or knowledge-based professions such as doctors, lawyers, architects or consultants.
It should also be noted that some activities do not follow this rule and do not require an establishment permit:
- Salaried representatives of self-employed commercial agents.
- Lawyers, doctors, dentists, veterinarians or company auditors.
- People who sell their own products such as handicraft manufacturers.
- Community companies providing services on an occasional and temporary basis in Luxembourg.
- Those who carry out journalistic activities or books that are not self-published.
If you are not sure whether or not an activity requires an establishment permit in Luxembourg, it is best to consult the full list of activities requiring an establishment permit available on Guichet.lu.
To obtain an establishment permit it is necessary to apply online through the MyGuichet.lu portal or send an application by post to the Ministry of Economy. To successfully complete this process the following documents are required:
- Application form: if the application is made online, through the MyGuichet.lu site the form is filled in directly at the time of making the application, otherwise it is necessary to download and complete the form in PDF format.
- Proof of payment: the establishment permit has a cost of 50 euros so it is necessary to attach proof of payment of this fee. This can be done in three ways:
By presenting a “Droit de Chancellerie” stamp of 50 euros.
By presenting a copy of a bank transfer to the account BCEE LU76 0019 5955 4404 7000 of the Diekirch office - recette-droits de timbre. Proof of payment must include the name, surname and address of the applicant and bear the words “autorization d'établissement”.
By making the payment online during the establishment authorization application process through MyGuichet.lu.
- Criminal record: extract from the Luxembourg criminal record less than 6 months old (bulletin no. 3).
- Identity document: copy of the identity card or residence permit on both sides.
- Diplomas and certificates: depending on the type of activity to be exercised, diplomas or certificates may or may not be required:
List C commercial or craft activities: no document is required except for activities in the horeca, transport and real estate sectors.
Craft activities on list A or B and liberal professions: must be added copies of diplomas, a certificate of affiliation to the Social Security Center and an EC certificate following the Directive 2005/36/EC of September 7, 2005, relating to the activities exercised in the country of origin.
In addition, those who are not Luxembourg residents or have been residents for less than 10 years must also add the following two documents:
- Background record: An extract from the criminal record less than 6 months old issued by the State(s) in which the person has resided for the last 10 years or if not possible an affidavit.
- Bankruptcy statement: A statement less than 6 months old made under oath before a notary providing information about any bankruptcy in which you have been involved either in your personal capacity, as a trustee or as a person in a position to significantly influence the management or administration of the company must be attached.
Registering the activity
If the activity to be carried out on a self-employed basis is a commercial activity, the independent entrepreneur must register in the Trade and Companies Register (RCS). This procedure must be done online using a LuxTrust certificate. To complete the procedure successfully it is necessary to have the following documents:
- The application form generated by the system duly completed.
- The establishment authorization.
- The marriage certificate or family book.
- The marriage contract.
- An identity document.
Register with the Social Security for self-employed persons.
Self-employed persons in Luxembourg must register themselves with the Centre Commun de la Sécurité Sociale (CCSS) and pay contributions according to their situation. This department is responsible for the management of the social security system in Luxembourg, including health insurance, pension insurance and other social benefits.
To register with the CCSS as a self-employed entrepreneur, it is necessary to send a declaration of self-employment to the CCSS. However, if you had to apply for an establishment authorization and you did it through MyGuichet.lu, you can also register with the CCSS on MyGuichet.lu using the pre-filled form that is automatically generated in the professional space.
Obtaining a TVA number
This step is not always compulsory as self-employed people whose annual turnover excluding taxes during a calendar year has not exceeded 35,000 euros benefit from a VAT exemption. However, determining whether or not a VAT number is needed is not so simple as there are some cases in which it will be necessary even if it is below this limit depending on the operations carried out or to be carried out by the company. Moreover, although it is not necessary to apply VAT in some cases it is advisable, for example if you plan to offer a B2B product or service, it is advisable to apply VAT regardless of the expected turnover.
To register as a VAT taxpayer, it is necessary to file an initial declaration or an option declaration with the Registration Duties, Estates and VAT Authority (AED). This procedure can be completed online at MyGuichet.lu.
Financial and tax considerations
To conclude we will mention some financial and tax considerations that self-employed workers must take into account. We will discuss the need to open a bank account dedicated to the professional activity, review the need for self-employed entrepreneurs to contribute to the social security system, and close by addressing the topic of financial and tax responsibilities.
Opening a professional bank account.
When operating as a self-employed entrepreneur some people may be tempted at first to use their personal bank account for professional purposes. While this is possible, it is highly advisable to open a business-specific bank account; maintaining separate accounts for personal and business finances facilitates accounting and financial management and avoids confusion.
In addition, although technically self-employed entrepreneurs in Luxembourg can also operate using a personal bank account dedicated exclusively to their business activity, opting for a professional account offers multiple advantages that facilitate business management and enhance business development.
Contributions to the Social Security System
As we have seen in the previous section, self-employed workers in Luxembourg must be affiliated to the social security system on their own account, this implies that they must also pay contributions to it. The basis for the calculation of these contributions is the professional income, which is made up of the profit resulting from the commercial or artisanal activity exercised on a self-employed basis. Various contribution rates apply to this base and they vary annually. For 2024, the rates are as follows:
- Health Care: 5.60%
- Cash Benefits for Illness: 0.50%
- Dependency: 1.40%
- Pension: 16.00%
- Accident: 0.70%
This adds up to a total of 24.2%, which means that, for example, for a professional income of 3000 euros in a month, 726 euros would have to be paid to the CCSS for that month. This is however an oversimplified example, the calculation of the contribution base is not done on a month-by-month basis.
Contributions for the coming year are calculated provisionally based on the last known net taxable base or, in the case of a newly insured person, based on the minimum social wage of an unskilled worker. Each year, the CCSS sends a letter indicating the income used to calculate contributions and invites insured persons to adjust their contribution base if necessary. It is important to adjust these income forecasts to avoid a very large contribution adjustment.
The exact income is only determined once the Direct Contributions Administration (ACD) has issued the tax bulletin for the year in question, at which time the corresponding social security contributions are recalculated to produce the final tax bulletin. More information on this point can be found on the CCSS website.
Financial and tax responsibilities
Regarding the financial responsibilities of self-employed workers, it is important to remember that they act on their own account and there is no independent legal entity, therefore, these persons must respond indefinitely to their debts and commitments with their personal assets. As regards taxation, the entrepreneur must be taxed on his income as a natural person.
