EMPLOY IN LUXEMBOURG WITH EASE
- Access and hire global talent & deploy them anywhere in the world
- Remove restriction from only hiring from local markets
- Enter any international market without the requirement of opening a local entity
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.
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.
Luxembourg – The Economy
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.
Small and Medium-Sized Companies
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%.
|No. of States/Provinces||12 cantons|
|Principal Cities||Luxembourg City, Esch-sur-Alzette, Differdange, Dudelange, Ettelbruck, Diekirch, Wiltz, Rumelange|
|Language(s)||Luxembourgish, French, German|
|Local Currency||Euro (EUR)|
|Major Religion||Roman Catholic|
|Date Format||dd/mm/yyyy (French), dd.mm.yyyy (German)|
|Time Zone||Central European Summer Time (GMT+2)|
|Country Dial Code||+352|
|Border Countries||Belgium (west and north), France (south), and Germany (east).|
|Tax Year||1 January to 31 December|
|Minimum Wage||€2,257 per month|
|Taxpayer Identification Numbers||Tax Identification Number|
Social Security Number/Card
Luxembourg National Identification Number (LNIDN)
|Leading Sectors||banking and financial services, construction, real estate services, information technology, telecommunications, cargo transportation and logistics, chemicals, engineering, tourism, biotechnology|
|Main imports||Cars, Refined Petroleum, Packaged Medicaments, Scrap Iron, and Planes, Helicopters, and/or Spacecraft|
|Main exports||Iron Blocks, Cars, Rubber Tires, Iron Sheet Piling, and Cellulose Fibers Paper|
|Main trading partners||Germany, Belgium, France, Netherlands, China, and Italy|
|Government Type||Unitary parliamentary constitutional monarchy|
|Current Monarch/Prime Minister/President||Henri (Monarch), Xavier Bettel (Prime Minister)|
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.
- Agriculture – 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.
- Information and Communication Technology (ICT) – 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.
- Tourism – 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.
- Manufacturing – 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.
- Maritime – 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 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.
Labor Contracts Law
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.
The main types of contracts and significant factors are also seen below:
- Open-ended, Permanent, Indefinite Employment Contracts (CDIs): The typical and preferred contract type in Luxembourg. Regulations for terminating a permanent contract are laid down by the Labor Code.
- Fixed-term Employment Contracts (CDDs): These are permitted only for specific tasks or timescale, as strictly defined by the Labor Code, such as seasonal work or temporary replacement of staff. They cannot exceed 24 months, including the possibility of two renewals. If employers enter into a fixed-term contract outside the regulations, the agreement automatically becomes open-ended and permanent.
- Part-time Employment Contracts: Can be either permanent or fixed term, following the required regulations.
- Seasonal Employment Contracts: Permitted where a company’s operations (harvests or tourism for example), require employees on a repeated annual basis. They cannot exceed 10 months within any 12-month period.
- Apprenticeship Employment Contracts: Drawn up between employer and apprentice, or the apprentice’s legal representative if they are a minor, and must be registered with the Ministry of Education, Children and Youth. Can be either an initial apprenticeship contract in the case of a minor, or adult apprenticeship contract.
- Probation or Trial Period Employment Contracts: Trial periods can be written into the employment contract and are generally for between two weeks and six months. The probation period can be up to 12 months if the contract stipulates a monthly salary exceeding €4,474.31 (US$5,280).
- Collective Bargaining Agreements (CBAs): Collective bargaining and trade union agreements cover a significant proportion of workers in Luxembourg, in such areas as wages, working hours, notice periods, overtime, general working conditions and vacations. Such agreements overwrite other statutory minimums where they provide a higher level of benefits. Employers are required to enter into negotiations with representative trade unions if requested.
CBAs operate at industry or company level in Luxembourg. Industry-level agreements apply to companies that belong to employers’ associations who have signed CBAs, although the government can expand these agreements for an entire sector. In practice, more agreements are signed at company level, and it is estimated that over 60% of workers are covered by industry or company CBAs.
Payroll – Tax Contributions and Benefits
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.
Health and Social Insurance: Luxembourg’s highly developed health and social care programs provide for all residents. The system is supervised by the Ministry of Social Security and the Inspector General of Social Security. All residents must be members of one of the social security funds according to their occupations and register through the Joint Social Security Center (Centre commun de la sécurité social, CCSS).
The employer is responsible for declaring the employee to the CCSS and obtaining their national insurance card with their 13-digit social security number.
The system provides benefits related to illness, workplace accidents and occupational diseases. It also covers insurances related to maternity, old-age, disability, survival, unemployment, nursing care, early retirement, guaranteed minimum wages as well as family benefits. The National Health Fund (Caisse nationale de santé, CNS) is the health fund for the private sector.
Membership of the funds enables residents to be largely reimbursed for such costs as prescriptions, doctors’ appointments, dental care, and physio treatments. Fuller coverage can be obtained by optional membership of a complementary health insurance fund. The system does not differentiate between white- and blue-collar workers; all are ‘employees’ (salariés).
Sick Leave: The employer is responsible for paying sickness benefits while the employee is unable to work until the 77th day, after which the National Health Fund Caisse Nationale de Santé (CNS) or Gesondheetskeess steps in.
- Employees should inform their employer as soon as possible. Failure to do so could lead to dismissal
- Employees must produce a signed medical certificate if the absence is likely be longer than two days
- The original certificate should be sent to the CNS before day three of absence unless the employee is in hospital, when the period of grace is eight days. Both the employer and employee should keep a copy
- Employees are not allowed outside of the home during the first five days of sick leave and after that only during certain hours of the day: 10-12noon and 2 to 6pm, unless the doctor has advised against mobility
- Full details of where the employee will be convalescing should be given to the CNS. They may well visit during the first 24 hours or by written request of the employer
- Any change in circumstances or extension of sick leave must be reported to the CNS and employer. Extended medical certificates within three days of the previous note expiring should be supplied
Employees are protected from dismissal during the first 26 weeksand any accrued vacation cannot be deducted as a result of their illness.
Sickness Benefit: The entitlement is 11 weeks in an 18-month period plus any extra days due till the end of the calendar month in which the employee became unable to work. This is paid by the employer at 100% of net salary plus any benefits (up to a certain limit). The employer can recoup up to 80% of the cost through the Employer’s Mutual Insurance Scheme to which all employees are required to contribute.
If the employee is still sick at the end of this period, the CNS pays 100% of basic salary (with some exclusions and capped to a specified limit) for up to 78 weeks during a two-year period. When this entitlement is over, the employment contract is automatically terminated.
The employer must notify the appropriate Occupational Health Practitioner if an employee returns to work after an absence due to illness of six weeks or more. There may be an assessment as to whether the employee is fit to return to their regular work or be given other duties.
Paid Vacations: In Luxembourg, all salaried workers, or apprentices with a fixed or permanent contract are entitled to annual leave – however, it is not accrued while on parental leave.
Holiday leave is generally a minimum of 26 working days, adjusted pro rata for part-time workers.
Employees usually choose when they take their holidays, with consideration for other employees. This may be all at once – shorter breaks should include one period of two calendar weeks. An employer cannot stipulate certain vacation dates unless approved by the employee.
New employees, unless the employer agrees, must work for three months before they can take accrued vacation which is at the rate of 2.167 days per month over a 12-month period. Any additional leave may be written into CBAs.
Extra days are also given to special categories or sectors e.g., the disabled, mining industry, or for those employees who have not received their continuous minimum breaks of 44 hours in a week over an eight-week period.
No other work should be carried out during the holiday period. Also, employees cannot be made to take unpaid leave. Extra leave should be given for certain occasions such as a marriage or death in the family.
Public Holidays: There are eleven public holidays in Luxembourg, which include Europe Day.
- New Year’s Day – January 1
- Easter Monday – March/April
- Labor Day – May 1
- Europe Day – May 9
- Ascension Day – April/May (39 days after Easter Sunday)
- Whit Monday – May/June (10 days after Ascension)
- National Day – June 23
- Assumption of Mary – August 15
- All Saints Day – November 1
- Christmas Day – December 25
- St. Etienne / Boxing Day – December 26
If a holiday falls on a Sunday or other day off, employees get an added day off which shall be taken within 3 months from the date of a public holiday.
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