Earnings from self-employment must be reported by taxpayers (both residents and non-residents) on their income tax return.

Tax return obligations also apply to taxpayers who conduct one or more secondary activities independently of their primary occupation (e.g., a self-employed person who teaches courses at the Chamber of Trades (Chambre des Métiers), or employees who teach evening classes at the Chamber of Commerce).

Who is concerned

The following categories of taxpayers:

• residents who exercise a self-employed activity in Luxembourg or abroad who are required to file an income tax return;
• non-residents who exercise a self-employed activity in Luxembourg and who are required to file an income tax return;
• non-residents who exercise a self-employed activity in Luxembourg and abroad, who opt to be treated as Luxembourg tax residents and therefore file a tax return.

How to proceed

Definition of the types of income to be reported

Income from the activities listed below and conducted independently are considered as earnings from self-employment:

• scientific, artistic, literary, teaching or educational activities;
• the professional activity of doctors, dentists, veterinary surgeons, midwives, physiotherapists, masseurs and the medical or paramedical professions;
• the professional activity of lawyers, notaries, bailiffs, asset managers, accountants and tax advisers and the legal professions;
• the professional activity of engineers, architects, urban planners, surveyors, landscapers, chemists, inventors, consultants, journalists, photographic reporters, interpreters and translators;
• similar professional activities;
• the activity of administrator and auditor or similar functions with joint-stock companies (sociétés par actions), limited liability companies (sociétés à responsabilité limitée) or other national authorities.

It should be noted that the compensation paid to directors who are involved in the daily management of collective bodies (capital companies, etc.) is considered as income from paid employment.

Earnings from self-employment also include profits from the sale of net assets used for the purpose of conducting a self-employed business, or on the permanent cessation of the self-employed business.

Activities exercised through unlimited companies—partnerships (société en nom collectif), limited partnerships (société en commandite simple), economic interest group (groupement d’intérêt économique), 'civil-law' companies (société civile), joint ventures (association en participation), temporary partnerships (associations momentanées) or de facto companies (société de fait)—are classified in principle as self-employment businesses. The share of taxable profit for each member or partner is therefore considered to be earnings from self-employment.

However, a self-employment activity exercised through a collective body (such as a capital company or limited liability company) is considered commercial in nature based on the legal form of the company.

Resident taxpayer scenario

Earnings from self-employment are determined using one of the following methods:

• the balance sheet and profit and loss accounts (except for secondary activities);
• comparison between receipts and operating expenses.

Taxpayers who determine their earnings from self-employment by comparison of receipts and operating expenses must complete form 152 and break down the receipts and expenses by category, origin and allocation in relation to their activity.

For certain professional categories, the breakdown of operating expenses must be provided on a special form:

• lawyers: form 153;
• artists and casual entertainment-industry worker(s): form 145.

Taxpayers who, in addition to their primary source of employment, are engaged in one or more secondary self-employed activities must determine their earnings by comparing receipts and operating expenses. In that case, operating expenses include, in particular, travel expenses and out-of-pocket expenses. The taxpayer may benefit from a flat-rate allowance, which is calculated as follows:

When the flat-rate allowance does not cover the actual operating expenses, the taxpayer may claim actual expenses. In that case, they must attach the corresponding supporting documents to their tax return.

If earnings from self-employment are determined according to the "balance sheet method", the taxpayer is required to include the balance sheet with the profit and loss account and the breakdown of the private current account with their income tax return.

Earnings from self-employment in Luxembourg (non-exempt income) are taxable at ordinary progressive rates. The maximum marginal tax rate (including the solidarity tax) is either 42.80 % or 43.60 %.

Profits from the sale or the cessation of a self-employment business are taxable at half of the global rate (maximum rate of 21.40 %, or 21.80 %).

Earnings from self-employment abroad through a fixed business base are, in principle, taxable in the country in which the business base is established and exempt in Luxembourg. If the taxpayer has a fixed base abroad for the purpose of conducting their business, profits from the sale or on the cessation of the business are in principle taxable in the source country.

Procedure

Taxpayers must file an income tax return as a resident and report the earnings received in the year from self-employment in Luxembourg or abroad on page 6 of the income tax return (Form 100 – Section "Earnings from self-employment").

The first two columns relate to non-exempt earnings and the following two columns to exempt earnings (earnings from self-employment abroad through a fixed business base are in principle exempt in Luxembourg).

Non-exempt earnings: taxpayers engaged in a self-employment activity in Luxembourg (primary or secondary source of income) on an individual basis

The amount of earnings from self-employment determined by the balance sheet method is reported in Boxes 601 / 602 (row A1).

Taxpayers who determine their earnings from self-employed work which is their main source of income by comparing their receipts and operating expenses must report the amounts as follows:

• Boxes 605 / 606 (row A2) for receipts;
• Boxes 609 / 610 (row A2) for operating expenses.

Earnings from one or more secondary self-employment activities are also determined by comparing receipts and operating expenses, and are reported as above. Taxpayers may deduct actual operating expenses (with supporting documents) or a flat-rate allowance (without supporting documents).

Profits from the sale or cessation of a self-employment business are to be reported in Boxes 626 / 627. The taxpayer must also complete the section entitled "Extraordinary income" on page 12 of the income tax return in order for profits from the sale or cessation of a self-employment business conducted in Luxembourg to be taxed at half the global rate. The taxpayer specifies the nature of the earnings (profit from sale or cessation) in Box 1201 and reports the amount in Boxes 1202 / 1203 and in Box 1216.

Non-exempt earnings: taxpayers engaged in a self-employment activity in Luxembourg through a company (of associates)

Taxpayers report their share in the profits of the company in Boxes 613 / 614. They also need to specify their profession (Box 617), tax number (Box 618) and tax office (Box 619) to to which the company is attached.

Exempt earnings: taxpayers engaged in a self-employment activity abroad (primary or secondary source of income) on an individual basis

The amount of earnings from the self-employment activity determined by the balance sheet method is reported in Boxes 603 / 604 (row A1).

Taxpayers who determine the earnings from a primary self-employment activity by comparing their receipts and operating expenses must report the amounts as follows:

• Boxes 607 / 608 (row A2) for receipts;
• Boxes 611 / 612 (row A2) for operating expenses.

Earnings from one or more secondary self-employment activities are also determined by comparing receipts and operating expenses, and are reported as above. Taxpayers may deduct actual operating expenses (with supporting documents) or a flat-rate allowance (without supporting documents).

Exempt earnings: taxpayers engaged in a self-employment activity abroad through a company (of associates)

Taxpayers report their share in the profit of the company in Boxes 615 / 616. They also need to specify their profession (Box 617) and the name and address of the company (Box 618).

Non-resident taxpayer scenario

Earnings from self-employment are determined according to one of the following methods:

• the balance sheet and profit and loss accounts (except for secondary activities);
• comparison between receipts and operating expenses.

Taxpayers who determine their earnings from self-employment by comparison of receipts and operating expenses must complete form 152 and break down the receipts and expenses by category, origin and allocation in relation to their activity.

For certain professional categories, the breakdown of operating expenses must be provided on a special form:

• lawyers: form 153;
• artists and casual entertainment-industry worker(s): form 145.

Taxpayers who, in addition to their primary source of employment, are engaged in one or more secondary self-employed activities must determine their earnings by comparing receipts and operating expenses. In that case, operating expenses include, in particular, travel expenses and out-of-pocket expenses. The taxpayer may benefit from a flat-rate allowance, which is calculated as follows:

When the flat-rate allowance does not cover the actual operating expenses, the taxpayer may claim actual expenses. In that case, they must attach the corresponding supporting documents to their tax return.

If earnings from self-employment are determined according to the "balance sheet method", the taxpayer is required to include the balance sheet with the profit and loss account and the breakdown of the private current account with their income tax return.

Earnings from self-employment in Luxembourg (non-exempt income) are taxable at ordinary progressive rates. The maximum marginal tax rate (including the solidarity tax) is either 42.80 %, or 43.60 %.

Profits on sale or cessation are taxable at half of the global rate (maximum rate of 21.40 %, or 21.80 %).

From 1 January 2010, earnings from self-employment in Luxembourg are taxed at a minimum rate which varies according to the level of the earnings.

Earnings from self-employment abroad through a fixed business base are, in principle, taxable in the country in which the base is established and exempt in Luxembourg. If the taxpayer has a fixed base abroad for the purpose of conducting their business, profits from the sale or on the cessation of the business are in principle taxable in the source country.

Procedure

If filing an income tax return as a non-resident, taxpayers must report the earnings for the year from self-employment in Luxembourg or abroad (where applicable) on page 6 of the income tax return (Form 100 – Section "Earnings from self-employment").

The first 2 columns on page 6 of the income tax return form are for non-exempt income, and the next 2 columns are for exempt income. Earnings from self-employment abroad through a fixed business base are in principle tax-exempt in Luxembourg and are consequently reported on page 6 of the income tax return in the exempt income column, but only if the non-resident taxpayer opts to be treated a resident for tax purposes.

Non-exempt earnings: taxpayers engaged in a self-employment activity in Luxembourg (primary or secondary source of income) on an individual basis

The amount of earnings from self-employment determined by the balance sheet method is reported in Boxes 601 / 602 (row A1).

Taxpayers who determine their earnings from self-employed work which is their main source of income by comparing their receipts and operating expenses must report the amounts as follows:

• Boxes 605 / 606 (row A2) for receipts;
• Boxes 609 / 610 (row A2) for operating expenses.

Earnings from one or more secondary self-employment activities are also determined by comparing receipts and operating expenses, and are reported as above. Taxpayers may deduct actual operating expenses (with supporting documents) or a flat-rate allowance (without supporting documents).

Profits from the sale or cessation of a self-employment business are to be reported in Boxes 626 / 627. The taxpayer must also complete the section entitled "Extraordinary income" on page 12 of the income tax return in order for profits from the sale or cessation of a self-employment business conducted in Luxembourg to be taxed at half the global rate. The taxpayer specifies the nature of the earnings (profit from sale or cessation) in Box 1201 and reports the amount in Boxes 1202 / 1203 and in Box 1216.

Non-exempt earnings: taxpayers engaged in a self-employment activity in Luxembourg through a company (of associates)

Taxpayers report their share in the profits of the company in Boxes 613 / 614. They also need to specify their profession (Box 617), tax number (Box 618) and tax office (Box 619) to to which the company is attached.

Exempt earnings: taxpayers engaged in a self-employment activity abroad (primary or secondary source of income) on an individual basis

The amount of earnings from the self-employment activity determined by the balance sheet method is reported in Boxes 603 / 604 (row A1).

Taxpayers who determine the earnings from a primary self-employment activity by comparing their receipts and operating expenses must report the amounts as follows:

• Boxes 607 / 608 (row A2) for receipts;
• Boxes 611 / 612 (row A2) for operating expenses.

Earnings from one or more secondary self-employment activities are also determined by comparing receipts and operating expenses, and are reported as above. Taxpayers may deduct actual operating expenses (with supporting documents) or a flat-rate allowance (without supporting documents).

Exempt earnings: taxpayers engaged in a self-employment activity abroad through a company (of associates)

Taxpayers report their share in the profit of the company in Boxes 615 / 616. They also need to specify their profession (Box 617) and the name and address of the company (Box 618).

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