What does it mean to be self-employed in Luxembourg?
Working as a self-employed person means being your own boss. This definition is accurate in the sense that you do not work for any particular company, however, it is a little less so in terms of the legal form under which you operate.
In this sense, in Luxembourg there is no special status of “independent entrepreneur” as there is in other countries such as France, so the term self-employed gives rise to two forms of operation: operating as an independent individual or operating under the cover of a company.
In the first case, given that there is no separate legal entity, all profits are classified and taxed as personal income, while in the second case the self-employed must deal with personal taxation on the one hand and company taxation on the other, as the company constitutes a separate legal entity.
In the following sections we will look at the basic principles of taxation for self-employed workers who decide to operate in one way or the other.
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Learn moreTaxes for self-employed people working as independent individuals
There is no freelancer's tax in Luxembourg, nor a self-employment tax or a special tax regime for this group of people. In Luxembourg, the profits of self-employed people working as independent individuals are classified and taxed as personal income and the tax return has the same form as the return for employees. This makes things much easier for people who want to start working independently as there are no major changes, procedures or extra taxes for the self-employed.
Self-employed workers must file a personal income tax return once a year and pay accordingly. The tax is calculated on the basis of the tax class and gross taxable income according to a progressive income tax system. Below we will examine both elements in detail along with information on tax deductions and the procedures for filing a tax return.
The progressive income tax system
In Luxembourg, all income from self-employed persons working independently must be added to other personal income such as income from real estate or income from movable capital to constitute a tax base that will be taxed according to the progressive system. This system establishes different and progressive tax rates according to the level of income as shown in the following table:
| From – To (EUR) | Tax rate (%) | Employment fund surcharge (%) | Effective tax rate (%) |
| 0 – 13,230 | 0 | 7 | 0.00 |
| 13,230 – 15,435 | 8 | 7 | 8.56 |
| 15,435 – 17,640 | 9 | 7 | 9.63 |
| 17,640 – 19,845 | 10 | 7 | 10.70 |
| 19,845 – 22,050 | 11 | 7 | 11.77 |
| 22,050 – 24,255 | 12 | 7 | 12.84 |
| 24,255 – 26,550 | 14 | 7 | 14.98 |
| 26,550 – 28,845 | 16 | 7 | 17.12 |
| 28,845 – 31,140 | 18 | 7 | 19.26 |
| 31,140 – 33,435 | 20 | 7 | 21.40 |
| 33,435 – 35,730 | 22 | 7 | 23.54 |
| 35,730 – 38,025 | 24 | 7 | 25.68 |
| 38,025 – 40,320 | 26 | 7 | 27.82 |
| 40,320 – 42,615 | 28 | 7 | 29.96 |
| 42,615 – 44,910 | 30 | 7 | 32.10 |
| 44,910 – 47,205 | 32 | 7 | 34.24 |
| 47,205 – 49,500 | 34 | 7 | 36.38 |
| 49,500 – 51,795 | 36 | 7 | 38.52 |
| 51,795 – 54,090 | 38 | 7 | 40.66 |
| 54,090 – 117,450 | 39 | 7 | 41.73 |
| 117,450 – 176,160 | 40 | 7 | 42.80 |
| 176,160 – 234,870 | 41 | 9 | 44.69 |
| Over 234,870 | 42 | 9 | 45.78 |
In order to use this table it is necessary to understand that the tax is calculated progressively. A very common mistake is to think that an income of, for example, 18,000 euros is taxed at the 11% corresponding to it in the table. In reality, this percentage is not applied to the totality of the 18,000, but only to the range of incomes found at this level.
This will be much clearer with an example. The following table shows how the tax would be calculated for a taxable income of 18,000 euros with Employment fund surcharge 7%:
| Bracket | Imposable income | Tax rate (%) | Tax | Employment fund surcharge |
| 0 – 13,230 | 13230 | 0 | - | - |
| 13,230 – 15,435 | 2205 | 8 | 176.40 | 12.35 |
| 15,435 – 17,640 | 2205 | 9 | 198.45 | 13.89 |
| 17,640 – 19,845 | 2205 | 10 | 36.00 | 2.52 |
| TOTAL | 410 | 28 |
Taxable classes
The above table serves as a basis for calculating the taxes to which the self-employed in Luxembourg are subject, however, it is not the only element to be taken into account, as it is also necessary to consider the personal situation. On this basis, each individual can fall into one of three possible categories according to the following table:
| Without dependent children | With dependent children | > 64 years old | |
| Single | 1 | 1A | 1A |
| Married | 2 | 2 | 2 |
| Partnered | 1 | 1A | 1A |
| Divorced/separated > 3 years | 1 | 1A | 1A |
| Divorced/separated < 3 years | 2 | 2 | 2 |
| Widowed > 3 years | 1A | 1A | 1A |
| Widowed < 3 years | 2 | 2 | 2 |
These categories will affect the calculation of their taxes in the following way:
- Category 1: the tax rate is applied to all your income.
- Category 1a: if you earn more than 45,000 euros a year, tax will be applied to your entire net salary, otherwise your annual income will be reduced to half the difference between your actual annual income and the threshold of 45,000 euros.
- Class 2: taxes are based on half of the combined family income, but the amount of tax is multiplied by 2 in the end.
Tax deductions
In addition to this, the self-employed, like all other individuals in the country, are entitled to certain tax deductions. Here we briefly mention some of the most relevant ones, but it must be borne in mind that there are conditions and limits for each case.
- 🏥 Contributions to private insurance. Payments for life, disability, unemployment, sickness and personal liability insurance are deductible, although this is subject to annual limits depending on the taxpayer's marital status.
- 📈 Interest on personal loans and credit. Interest paid on personal loans, consumer credit, vehicle loans or securities investments is deductible as a “special expense”.
- 💸 Obligatory alimony. Alimony established by court decision or contract (for example, after a divorce or termination of a civil union) is deductible from taxable income.
- 🏦 Supplementary pension plans. Contributions to private pension funds are deductible within established limits, allowing for retirement planning while reducing the tax base.
- 🎁 Donations and charitable contributions. Contributions to recognized and approved organizations may be deductible under certain conditions and limits.
Tax return submission
To declare income as a self-employed person, it is necessary to fill in Form 100 and declare income from all sources, including both income from professional activity and other personal income. Depending on your situation, you may also have to or want to file jointly with your partner.
This form must be submitted before March 31st of the year following the tax year, that is, for tax year N, the tax return must be submitted before March 31st of year N+1. If an extension is needed to file the tax return, it is possible to request it from the competent tax office by mail. Late filing can result in additional taxes, a late payment fee or an enforcement penalty imposed by the tax office.
For practical purposes, although the return can be made by filling in the form on paper and sending it to the competent tax office, the most practical procedure is to fill it in online via the platform MyGuichet.lu. In this case, you must first create a MyGuichet account and then follow the instructions provided on the platform.
In any case, every February each taxpayer should receive communication with the appropriate instructions and an invitation to complete the tax return form electronically or a paper form to be sent by post.
Taxes for self-employed people working under a company
Self-employed workers who wish to operate under a company must deal with their personal taxation on the one hand and the taxation of the company on the other, as the company constitutes a separate legal entity. Personal taxes must be levied according to the scheme mentioned above, while corporate income is subject to multiple taxes, mainly corporation tax, the municipal business tax and net wealth tax.
- Corporate income tax: From 2025 the tax rate will be reduced by one percentage point to 14% for companies with a tax base of less than 175,000 euros and 16% for those with a tax base of more than 200,000 euros. Between these two income levels there is a smoothing mechanism.
- Municipal business tax: Another tax that companies in Luxembourg have to pay is the municipal business tax or MBT. The rate of this tax depends on the municipality, in the municipality of Luxembourg it amounts to 6.75%. However, a deduction of 17,500 euros from taxable profits must be taken into account.
- Net wealth tax: A third tax that companies in Luxembourg must pay is the Net Wealth Tax, which is applied to the company's net worth and is 0.5% on the part of the net worth less than or equal to 500,000,000 euros and 0.05% on the part of the net worth greater than 500,000,000 euros.
In addition, it should be borne in mind that there is a minimum wealth tax structured on three levels: 535 euros for balance sheets ≤ 350,000 euros, 1,605 euros for balance sheets between 350,000 euros and 2 million euros and 4,815 euros for balance sheets > 2 million euros.
Another important point to bear in mind is that a self-employed person working under the legal structure of a company cannot simply use the company's income to cover their personal expenses. In order to obtain remuneration, a self-employed person has two main options: to receive a salary (which generates additional social security costs and personal income tax) or to distribute dividends.
Dividends present the problem of double taxation: first, the company's profits are subject to corporation tax and municipal business tax, then the dividends distributed to the owner are subject to personal income tax.
