Imagine you’re an employee at a company, and one day a revolutionary business idea comes to you in a completely different field. It seems watertight, and you want to see if you can make a success of it by working for yourself part-time alongside your current job (at least for the time being). Can it be done? As long as you have a good understanding of what this means, we see no reason why not!
There are a number of reasons why you might want to pursue self-employment alongside your current job, whether it’s to make ends meet, make money from a hobby or pivot to a different career. But is this legally possible? What are the tax implications? What about social security contributions? myLIFE has all the answers!
Can I combine multiple business activities?
In short, yes! You can hold as many jobs as you like, as long as you do not exceed the normal legal working time of 40 hours a week. If you exceed this amount, you’ll need to notify the Inspectorate of Labour and Mines (ITM) by mail. You could be fined anywhere between €251 and €5,000 if you don’t notify the ITM, plus between €251 and €2,500 if the information you provide is incomplete, inaccurate or late.
Make sure your current employment contract doesn’t expressly forbid you from taking on more work. Even without a non-competition clause, the general principle of good faith applies when executing an employment contract. This prohibits employees from taking advantage of the company’s infrastructure or the knowledge they have acquired while working there in order to compete with their company or divert its clients without their employer’s knowledge. As a rule, don’t bite the hand that feeds you! To avoid being accused of a breach of faith or being slapped with an exclusivity clause, the best approach is to discuss your project with your employer before you start and act accordingly based on their reaction.
Each income stream is taxed based on the category to which it belongs.
How does it work in terms of taxes?
As you might expect, each income stream is taxed based on the category to which it belongs. In Luxembourg, an ancillary activity is carried out on a self-employed basis if it falls into one of the following income categories: commercial profit, agricultural and forestry profit, or earnings from self-employment. For example, this would apply to a bank employee who also teaches on a part-time basis at the University of Luxembourg.
To calculate the profit from your second activity, simply compare your income and operating expenses. Operating expenses may be evaluated on a flat-rate basis, within the limits set out in the table below.
|Total income for the tax year||Flat-rate operating expenses|
|up to €2,000||30%|
|€2,000 to €6,000||€600 + 25% (income - €2,000)|
|€6,000 to €15,000||€1,600 + 20% (income - €6,000)|
|more than €15,000||€3,400|
This flat-rate deduction for operating expenses is optional. If your expenses exceed this rate, you might want to calculate them yourself. Don’t forget that the flat-rate deduction is based on the income received in the tax year coinciding with the calendar year.
If your second job is considered employment rather than self-employment, ordinary tax law applies. In practice, this means you benefit from the minimum flat-rate amount of €540 for work-related expenses and the flat-rate deduction for travel expenses. Disabled and handicapped employees can request to increase their work-related expenses.
But what if, for example, you are salaried in Luxembourg and working as a self-employed professional in France? For ancillary self-employment, you are always taxed based on the country where this activity is conducted rather than your country of residence. In this example, if the person resides in Luxembourg, they will therefore be taxed in Luxembourg on their salaried activity, but in France for any additional self-employed activity. Remember, however, that the total income received from all activities must be declared to both tax authorities. Your country of tax residence will only tax you on the income generated in that country, but note that it applies the tax rate in force based on your total income. This is not the case in the country where the activity is carried out – unless there is an exception such as in Luxembourg where non-residents may apply to be treated as tax residents subject to certain conditions.
According to European legislation, you cannot be covered by the social security system of multiple countries at once.
You are eligible for social security, but which one?
If all of your business activities take place in Luxembourg, then there is nothing more to worry about. But what if your self-employed activity is carried out in another country? To answer this question, a distinction must be made between combining two salaried jobs and working as a self-employed professional in addition to your salaried job. Before we continue, remember that European legislation stipulates that you cannot be covered by the social security system of multiple countries at once.
- You have two salaried jobs, one of which is in your country of residence You pay your social security contributions and are covered by the social security system of your country of residence for all your professional activities, provided that you work at least 25% of your total professional time or receive 25% or more of your total income in that country. Otherwise, you are exclusively affiliated with the other country.
- You have two salaried jobs, both in another EU member state outside your country of residence You pay your social security contributions and are covered by the social security system of your country of residence for all your professional activities. For example, if you are a Luxembourg resident with one job in Germany and the other in Belgium, you will be affiliated with the Luxembourg social security system.
- You have one salaried job and a complementary self-employed activity Affiliation with the social security system and social security contributions for all your business activities are only subject to the legislation of the country of your salaried job. If you are an employee in Luxembourg, all your contributions will therefore be paid to the CCSS.
Note that, under certain conditions, individuals carrying out supplementary self-employed activity may be exempt from health, pension and even accident insurance contributions.
Combining income from work and a pension
Whether it’s to make up for a drop in income or keep one foot in the world of work, some people may want to receive money from employment and a pension at the same time. Certain legal provisions also apply here. For more information about this particular subject, read the myLIFE article “How to combine income from your work and your pension”.