Employer's National Insurance in Luxembourg

[kuma]

I've recently finished a contract in Luxembourg and believe I may have been ripped off by my management company - my understanding having done some investigation is that Luxembourg National Insurance for employers is 11.89-19.27% with a typical rate for an IT worker being 12.5%. However I have been charged 24.5% which the management company (PBP) have been refusing to explain (aside from this there is a balance of 1400EU still missing from my payments which again they have not explained).

One thing that may affect this is that my salary was structured as part income and part COLA (Cost of Living Allowance) which covers the fact that I am living in a hotel and paying for a house in the UK (I was told that it was not possible for me to claim business expenses while living in Luxembourg - annoying as my business expenses exceeded my COLA by 500EU a month); evidently this was not included in employee's NI payments but I was wondering if anyone knows whether the COLA portion would be liable for employer's NI payments in Luxembourg?

[donkeykungpochicken]

ripped off by management company? - that sounds highly unlikely

The short answer is that around 24.5% SS costs before tax is/was normal.

I presume that the manco took you on as an employee otherwise they wouldn't be paying employers SS. If so, costs for employers should be 11.89%, but you are also stuck with the employee's share which is 2.95% for sickness, 8% for pension and 1.4% for 'assurance dependence'. Add it up and you're close to the 24.5% you quoted. There is a ceiling for the social security payments so any proportion of a monthly salary over €8,413 will only have the 1.4% applied to it.

You then apply the tax rates on whatever is left https://saturn.etat.lu/cobar/baremePP.jsp

With a genuine residence in the UK you would likely have been better to pay NI in the UK and avoiding doing so in lux. If you were only there for a few months, you would certainly have been better avoiding the manco and local bureaucracy entirely.

How were you being paid your COLA? If you were being paid this separately from the salary without deduction of SS or tax it was probably dodgy. The manco may dress it up to sound legit, but a COLA paid to an employee is subject to both employers and employees social security and tax as if it was salary. Ask them to show you some proof otherwise (or maybe not ).

There are simple guides to personal taxation available in english that explain the taxes and allowances for those classified as employees: http://www.gtlux.lu/uploads/media/Lu...ition_2008.pdf

Search the forums and you will see that many manco's in europe rely on contractors who are either naive and ignorant of local rules or prepared to risk some fairly transparent tax evasion schemes. They are too lazy to even bother trying to get you allowable deductions.

The company you dealt with may of course be 100% above board and have some fully compliant solution, and equally my info on how things work in lux could be outdated now.

[kuma]

Thanks for the reply. The 24.5% cost is in addition to 11.8% employee's NI, not including it. I have no problems with the employee's NI and tax I was charged for these exactly as I expected (however the overtime I worked was mostly included in regular salary and taxed, despite me telling them that overtime was not taxable). It was the employer's NI that seemed excessive.

The COLA solution was arrived at because they told me there was no way I could claim business expenses whilst employed in Luxembourg - with these coming in at around 3000EU paying tax on this first would be pretty painful and I would not have been able to take the job (I actually ended up living a very basic existence and using some savings to survive the 6 months out there as I was told by the agency when I verbally accepted the job that I would see a retention of 80%) - all other mancos offered a solution where I was paid minimum wage and it was my choice whether I declared the rest which I was not happy with (particularly as some of them wanted close to 1000EU a month to do this). Several contractors who I met out there regarded me as being strange for bothering to pay tax and told me they hadn't paid tax for years but I prefer to play safe as I know what the authorities can be like when I return to the UK!

They initially wanted to set me up in the UK paying NI there but the Luxembourg authorities had recently changed the rules and employees cannot be seconded from abroad unless they have worked for that company for a minimum of 2 months so that is why I was set up in Lux paying tax/NI.

"If you were only there for a few months, you would certainly have been better avoiding the manco and local bureaucracy entirely."

Unfortunately the agency I worked through insisted I go through one of their "approved" mancos, something I was not entirely happy about, particularly with the limited professionalism I encountered. The local bureaucracy was even worse - it took me 5.5 months to get a tax card meaning I paid a flat rate of 30% tax while I was there.

If COLA payments are subject to taxation what is the point in them? The COLA is paid in the UK which may be how they avoid the taxation but they were unable to tell me whether I should declare it in the UK as income or not; however if I did declare in the UK I assume I can offset my business expenses that I could not claim in Lux against it (which exceed the COLA amount by about 25%)?

BTW I've seen the document you attached and several more detailed documents which is what has led me to believe made me think that not everything is above board - particularly with them evading providing information whenever I ask for it.