Employing in Luxembourg

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Expanding into
Luxembourg

Global expansion is a step to make for any business, regardless of what you wish to achieve. The opportunities that can come with an expansion can be both incredibly exciting as well as intimidating and confusing, especially when you consider all of the registration procedures that needs to be done and documentation required.

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Expanding to countries such as Luxembourg – which is characterized by a multicultural and multilingual workforce, multifaceted employment and tax laws, a robust infrastructure network, and leading sectors in finance, agriculture, creative industries, automotives, and information technology – can bring both excitement to the possibilities, but also significant stress to ensuring the entity with the country’s rigorous legal structures and laws.

Ensuring compliance without the sufficient knowledge of the country’s laws also adds to the stress of getting your new entity off the ground and ready to test new markets. Going at it without the proper support can increase the costs, time and risks involved.

Each new markets bring new challenges, and these can be worked through more efficiently and cost-effectively with the support of an International Professional Employer Organization (PEO) such as Bradford Jacobs, especially through our Employer of Record (EOR) framework.

This can be best utilized when businesses are just beginning their expansion process and require more information before committing to incorporating an entity and fully establishing themselves in that market.

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Country EOR Guide - Bradford Jacobs

Download our Guide to Luxembourg

Learn all about expanding into Luxembourg and see what we can do to make your expansion easier.

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Download our Guide to Luxembourg

Learn all about expanding into Luxembourg and see what we can do to make your expansion easier.

Country EOR Guide - Bradford Jacobs
DOWNLOAD GUIDE

Hiring Staff
in Luxembourg

Luxembourg’s economy is characterized by its fiscal system and a high degree of international openness. The financial sector is the main driving force behind the Grand Duchy’s economy, representing about one-third of the country’s GDP, making the country vulnerable to external shocks.

Luxembourg is the second-wealthiest country in the world in terms of GDP per capita (the first in the EU – PPP) and has one of the highest current account surpluses as a share of GDP in the eurozone. It generally maintains a healthy budgetary position, nevertheless, the measures taken to address the pandemic, partially offset by an increase in revenues, caused the general government balance to slip into a deficit of -1% of GDP in 2021.

Although Luxembourg in tourist literature is aptly called the “Green Heart of Europe”, its pastoral land coexists with a highly industrialized and export-intensive area. Luxembourg’s economy is quite similar to Germany’s. Luxembourg enjoys a degree of economic prosperity very rare among industrialized democracies.

The economy of Luxembourg is largely dependent on the banking, steel, and industrial sectors. Luxembourgers enjoy the highest per capita gross domestic product in the world (CIA 2018 est.).

The government has been aiming at economic diversification for a few years and has been encouraging the development of sectors such as communication and information technologies, logistics, e-commerce, and biotechnologies. The number of foreign citizens in the labor market outweighs the number of Luxembourgish nationals.

Luxembourg is a founding member of the European Union, OECD, United Nations, NATO, and Benelux. The city of Luxembourg, which is the country’s capital and largest city, is the seat of several institutions and agencies of the EU.

Luxembourg served on the United Nations Security Council for the years 2013 and 2014, which was a first in the country’s history. As of 2020, Luxembourg citizens had visa-free or visa-on-arrival access to 187 countries and territories, ranking the Luxembourgish passport fifth in the world, tied with Denmark and Spain.

SMEs in Luxembourg play an important role in the non-financial business economy, especially in terms of their contribution to total value added, which at 67.7% is substantially higher than the EU average of 56.4%.

The SME contribution of 67.0% to employment is exactly in line with the EU average, however, indicating that SME productivity, measured as value added per person employed, is substantially higher in Luxembourg than in the EU as a whole.

SMEs in Luxembourg also employ more people, an average of 5.5 compared with the EU average of 3.9. SMEs in Luxembourg’s non-financial business economy have generated solid growth in recent years, with SME value added rising by 14.4% and employment by 11.8% in 2014-2018. In 2017-2018, overall SME growth has been strong, with growth in value added of 8.7% and in employment of 3.3%.

Country:
Luxembourg
Local Currency:
Euro (EUR)
Time Zone:
Central European Summer Time (GMT+2)
Country Dial Code:
+352
Tax Year:
1 January – 31 December (calendar year)
VAT:
17%
National Minimum Wage:
€2,257 per month
Taxpayer Identification Numbers:
Tax Identification Number
Social Security Number/Card
Luxembourg National Identification Number (LNIDN)
VAT Number
Main trading partners:
Germany, Belgium, France, Netherlands, China and Italy.

Hiring Staff
in Luxembourg

Luxembourg’s economy is characterized by its fiscal system and a high degree of international openness. The financial sector is the main driving force behind the Grand Duchy’s economy, representing about one-third of the country’s GDP, making the country vulnerable to external shocks.

Luxembourg is the second-wealthiest country in the world in terms of GDP per capita (the first in the EU – PPP) and has one of the highest current account surpluses as a share of GDP in the eurozone. It generally maintains a healthy budgetary position, nevertheless, the measures taken to address the pandemic, partially offset by an increase in revenues, caused the general government balance to slip into a deficit of -1% of GDP in 2021.

Although Luxembourg in tourist literature is aptly called the “Green Heart of Europe”, its pastoral land coexists with a highly industrialized and export-intensive area. Luxembourg’s economy is quite similar to Germany’s. Luxembourg enjoys a degree of economic prosperity very rare among industrialized democracies.

The economy of Luxembourg is largely dependent on the banking, steel, and industrial sectors. Luxembourgers enjoy the highest per capita gross domestic product in the world (CIA 2018 est.).

The government has been aiming at economic diversification for a few years and has been encouraging the development of sectors such as communication and information technologies, logistics, e-commerce, and biotechnologies. The number of foreign citizens in the labor market outweighs the number of Luxembourgish nationals.

Luxembourg is a founding member of the European Union, OECD, United Nations, NATO, and Benelux. The city of Luxembourg, which is the country’s capital and largest city, is the seat of several institutions and agencies of the EU.

Luxembourg served on the United Nations Security Council for the years 2013 and 2014, which was a first in the country’s history. As of 2020, Luxembourg citizens had visa-free or visa-on-arrival access to 187 countries and territories, ranking the Luxembourgish passport fifth in the world, tied with Denmark and Spain.

SMEs in Luxembourg play an important role in the non-financial business economy, especially in terms of their contribution to total value added, which at 67.7% is substantially higher than the EU average of 56.4%.

The SME contribution of 67.0% to employment is exactly in line with the EU average, however, indicating that SME productivity, measured as value added per person employed, is substantially higher in Luxembourg than in the EU as a whole.

SMEs in Luxembourg also employ more people, an average of 5.5 compared with the EU average of 3.9. SMEs in Luxembourg’s non-financial business economy have generated solid growth in recent years, with SME value added rising by 14.4% and employment by 11.8% in 2014-2018. In 2017-2018, overall SME growth has been strong, with growth in value added of 8.7% and in employment of 3.3%.

Country:
Luxembourg
Local Currency:
Euro (EUR)
Time Zone:
Central European Summer Time (GMT+2)
Country Dial Code:
+352
Tax Year:
1 January – 31 December (calendar year)
VAT:
17%
National Minimum Wage:
€2,257 per month
Taxpayer Identification Numbers:
Tax Identification Number
Social Security Number/Card
Luxembourg National Identification Number (LNIDN)
VAT Number
Main trading partners:
Germany, Belgium, France, Netherlands, China and Italy.

The Main Sectors of the Luxembourg Economy

The country focuses on the following key sectors, which all have a significant impact on the country’s economy:

Banking and Finance

Luxembourg has synonymous with finance, a reputation that is well deserved.

The banking sector is the biggest industry in Luxembourg. Luxembourg was ranked as the third most-competitive financial centre in the continent right after Zurich and London and the world’s eighteenth most-competitive by the 2017 Global-Financial Centres Index.

The country has specialized in international fund-administration business, with a reputation of being the number one fund center in Europe.

Since its domestic market is small, Luxembourg’s financial centre is international. Luxembourg had 152 banks in 2009 which had employed about 27,000 employees. Cross-border financial ability, political stability, skilled staff, and excellent communication skills have contributed to their success in the financial industry.

In the last few decades, over 200 financial institutions have contributed to the fast transformation of Luxembourg’s economy from an agrarian economy to a service sector.

The number of farms in the region reduced from 1970 (7,600 farms) to 2,600 farms in 2011. Over 126,000 hectares of land in Luxembourg is still used for agriculture.

Dairy farming plays a vital role in the country’s agricultural sector with several farms having over 50 dairy cows in 60 hectares of land.

With the greatest concentration of Tier IV data centres in Europe and the second highest level of digital connectivity, Luxembourg has developed a reputation as a country that prioritizes information and communication technology (ICT) and data security, and leaders are keen to maintain the country’s competitive edge and transform it into a data-driven economy.

The industry employees approximately 19,966 workers.

The tourism industry is a crucial part of the economy of Luxembourg that employs over 25,000 people and contributes approximately 8.3% of Luxembourg’s GDP.

Luxembourg receives more than 900,000 tourists annually who spend at least two and a half days in hostels, camping sites or hotels. Business travels represent over 44% of the overnight stays in Luxembourg.

Steel

The steel industry is still one of the largest manufacturing sectors in Luxembourg even after the numerous industrial-reforms that have transpired in various parts of the world since the 1960s. The introduction of the metallurgy in 1876 was a significant event in the history of Luxembourg’s economy.

Steel accounts for 29% of all exports (excluding services), 1.8% of GDP, 22% of industrial employment, and 3.9% of the work force.

Ever since the creation in the early 20th century of Arbed, which would go on to become steel giant ArcelorMittal, Luxembourg’s manufacturing sector has been a major economic driver of the country. Today there are dozens of important manufacturers in the country, producing a wide array of products including tires, electromechanical components, gas valves, and cigarettes.

The country also has a thriving materials industry responsible for high-performance steel, plastics, composites, glass, and adhesives.

Several international manufacturing companies are headquartered in Luxembourg, and the country is home to many R&D facilities and publicly funded research centres that support the industry.

These include the Materials Research and Technology Department (MRT) at the Luxembourg Institute of Science and Technology (LIST) as well as the University of Luxembourg, which houses a Physics and Material Sciences Research Unit and a Research Unit in Engineering.

Ever since the sector was created in 1990 with the Maritime Act, Luxembourg’s reputation as an attractive location for registering ships and shipping companies has grown significantly. Today it offers a wide range of services for shipping companies, operators, and other industry players.

The sector and its regulatory body adheres to applicable laws, regulations, and standards while at the same time showing great sensitivity toward the industry, which is why a great number of companies have chosen to base their operations in the Grand Duchy.

The sector comprises around 300 companies active in transport, dredging, and logistics, and plenty others provide ancillary services like financing, legal services, and insurance. In 2008, an official Maritime Cluster was established, and it currently has around 60 members.

The Main Sectors of the Luxembourg Economy

The country focuses on the following key sectors, which all have a significant impact on the country’s economy:

panoramic view of the city of Luxembourg, on a cloudy day

Banking and Finance

Luxembourg has synonymous with finance, a reputation that is well deserved.

The banking sector is the biggest industry in Luxembourg. Luxembourg was ranked as the third most-competitive financial centre in the continent right after Zurich and London and the world’s eighteenth most-competitive by the 2017 Global-Financial Centres Index.

The country has specialized in international fund-administration business, with a reputation of being the number one fund center in Europe.

Since its domestic market is small, Luxembourg’s financial centre is international. Luxembourg had 152 banks in 2009 which had employed about 27,000 employees. Cross-border financial ability, political stability, skilled staff, and excellent communication skills have contributed to their success in the financial industry.

In the last few decades, over 200 financial institutions have contributed to the fast transformation of Luxembourg’s economy from an agrarian economy to a service sector.

The number of farms in the region reduced from 1970 (7,600 farms) to 2,600 farms in 2011. Over 126,000 hectares of land in Luxembourg is still used for agriculture.

Dairy farming plays a vital role in the country’s agricultural sector with several farms having over 50 dairy cows in 60 hectares of land.

With the greatest concentration of Tier IV data centres in Europe and the second highest level of digital connectivity, Luxembourg has developed a reputation as a country that prioritizes information and communication technology (ICT) and data security, and leaders are keen to maintain the country’s competitive edge and transform it into a data-driven economy.

The industry employees approximately 19,966 workers.

The tourism industry is a crucial part of the economy of Luxembourg that employs over 25,000 people and contributes approximately 8.3% of Luxembourg’s GDP.

Luxembourg receives more than 900,000 tourists annually who spend at least two and a half days in hostels, camping sites or hotels. Business travels represent over 44% of the overnight stays in Luxembourg.

Steel

The steel industry is still one of the largest manufacturing sectors in Luxembourg even after the numerous industrial-reforms that have transpired in various parts of the world since the 1960s. The introduction of the metallurgy in 1876 was a significant event in the history of Luxembourg’s economy.

Steel accounts for 29% of all exports (excluding services), 1.8% of GDP, 22% of industrial employment, and 3.9% of the work force.

Ever since the creation in the early 20th century of Arbed, which would go on to become steel giant ArcelorMittal, Luxembourg’s manufacturing sector has been a major economic driver of the country. Today there are dozens of important manufacturers in the country, producing a wide array of products including tires, electromechanical components, gas valves, and cigarettes.

The country also has a thriving materials industry responsible for high-performance steel, plastics, composites, glass, and adhesives.

Several international manufacturing companies are headquartered in Luxembourg, and the country is home to many R&D facilities and publicly funded research centres that support the industry.

These include the Materials Research and Technology Department (MRT) at the Luxembourg Institute of Science and Technology (LIST) as well as the University of Luxembourg, which houses a Physics and Material Sciences Research Unit and a Research Unit in Engineering.

Ever since the sector was created in 1990 with the Maritime Act, Luxembourg’s reputation as an attractive location for registering ships and shipping companies has grown significantly. Today it offers a wide range of services for shipping companies, operators, and other industry players.

The sector and its regulatory body adheres to applicable laws, regulations, and standards while at the same time showing great sensitivity toward the industry, which is why a great number of companies have chosen to base their operations in the Grand Duchy.

The sector comprises around 300 companies active in transport, dredging, and logistics, and plenty others provide ancillary services like financing, legal services, and insurance. In 2008, an official Maritime Cluster was established, and it currently has around 60 members.

Commercial Laws in
Luxembourg

Compliance Highlights

  • The Luxembourg Inland Revenue (Administration des contributions directes – ACD) – one of 3 tax authorities in the Grand Duchy of Luxembourg, alongside the Registration Duties, Estates and VAT Authority (Administration de l’enregistrement, des domaines et de la TVA – AED) and the Customs and Excise Agency (Administration des douanes et accises).The main objective of the Luxembourg Inland Revenue is to implement the legislation related to direct taxation, such as:
    • deciding and collecting direct taxes (personal income tax, corporate income tax, business tax, withholding tax on wages, salaries, and pensions, etc.)
    • deciding the basis of collection for property tax (tax valuation on all real estate properties in the country)
    • deciding and collecting various taxes and duties.
  • The Ministry of Labor, Employment and the Social and Solidarity Economy – The Ministry manages three distinct fields of policy: employment policies, labor law and industrial relations, and social and solidarity economy. The Ministry defines the strategic goals within these fields and coordinates their implementation.The following three administrations also fall under the remit of the Ministry: The National Employment Agency, the Inspectorate of Labour and Mines, and the Labour College.

Most aspects of employment contract compliance in Luxembourg are covered by the Labor Code (Code du Travail, Arbeitsgesetzbuch). Additionally, Collective Bargaining Agreements (CBAs) also affect the contractual relationship between employer and employees. CBAs or trade union agreements can enhance statutory minimums covered by the Labor Code, but they cannot undercut them.

General requirements apply to all contracts. These include:

  • Each employee must be given a written contract no later than the first day of employment
  • Contracts must be in a language understood by all parties, although there are no specific regulations. English is commonly used and generally accepted in courts
  • Mandatory information required for all contracts includes identities and addresses of all parties, employment start date, place, and type of work, working hours, annual leave, notice periods, any trial period
  • There must be two copies, each signed by both parties
  • Oral agreements are considered to be permanent contracts
  • The standard contract is open-ended, indefinite. The Labor Code allows fixed-term contracts only in certain cases and they cannot exceed a total of 24 months, including a maximum two renewals. A trial period can be written into a contract before employment starts.

For more information on labour contracts law in Luxembourg Download our Luxembourg Country Guide…

Income Tax: Tax liability is based on residency and with three different classes depending on status. Residents are taxed on their worldwide income in a tax year running from January 1 until December 31, while non-residents are taxed on certain categories of their Luxembourg-sourced income, or income that is paid into Luxembourg.

Tax rates are progressive from 0% to 45.78%, with identical rates applying to Classes 1 and 1a, but with different bands for Class 2 payers. By the end of February following the tax year, employers must provide the tax authorities with information on salaries paid to their employees. Under European Union directives this information is shared with EU member states in June of that year.

For more information on tax contributions and benefits in Luxembourg Download our Luxembourg Country Guide…

Commercial Laws in
Luxembourg

Panorama of Luxembourg garden with statues, flowers and building of Luxembourg Palace

Compliance Highlights

  • The Luxembourg Inland Revenue (Administration des contributions directes – ACD) – one of 3 tax authorities in the Grand Duchy of Luxembourg, alongside the Registration Duties, Estates and VAT Authority (Administration de l’enregistrement, des domaines et de la TVA – AED) and the Customs and Excise Agency (Administration des douanes et accises).The main objective of the Luxembourg Inland Revenue is to implement the legislation related to direct taxation, such as:
    • deciding and collecting direct taxes (personal income tax, corporate income tax, business tax, withholding tax on wages, salaries, and pensions, etc.)
    • deciding the basis of collection for property tax (tax valuation on all real estate properties in the country)
    • deciding and collecting various taxes and duties.
  • The Ministry of Labor, Employment and the Social and Solidarity Economy – The Ministry manages three distinct fields of policy: employment policies, labor law and industrial relations, and social and solidarity economy. The Ministry defines the strategic goals within these fields and coordinates their implementation.The following three administrations also fall under the remit of the Ministry: The National Employment Agency, the Inspectorate of Labour and Mines, and the Labour College.

Most aspects of employment contract compliance in Luxembourg are covered by the Labor Code (Code du Travail, Arbeitsgesetzbuch). Additionally, Collective Bargaining Agreements (CBAs) also affect the contractual relationship between employer and employees. CBAs or trade union agreements can enhance statutory minimums covered by the Labor Code, but they cannot undercut them.

General requirements apply to all contracts. These include:

  • Each employee must be given a written contract no later than the first day of employment
  • Contracts must be in a language understood by all parties, although there are no specific regulations. English is commonly used and generally accepted in courts
  • Mandatory information required for all contracts includes identities and addresses of all parties, employment start date, place, and type of work, working hours, annual leave, notice periods, any trial period
  • There must be two copies, each signed by both parties
  • Oral agreements are considered to be permanent contracts
  • The standard contract is open-ended, indefinite. The Labor Code allows fixed-term contracts only in certain cases and they cannot exceed a total of 24 months, including a maximum two renewals. A trial period can be written into a contract before employment starts.

For more information on labour contracts law in Luxembourg Download our Luxembourg Country Guide…

Income Tax: Tax liability is based on residency and with three different classes depending on status. Residents are taxed on their worldwide income in a tax year running from January 1 until December 31, while non-residents are taxed on certain categories of their Luxembourg-sourced income, or income that is paid into Luxembourg.

Tax rates are progressive from 0% to 45.78%, with identical rates applying to Classes 1 and 1a, but with different bands for Class 2 payers. By the end of February following the tax year, employers must provide the tax authorities with information on salaries paid to their employees. Under European Union directives this information is shared with EU member states in June of that year.

For more information on tax contributions and benefits in Luxembourg Download our Luxembourg Country Guide…

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