Employer of Record vs Luxembourg company: the honest comparison

There are two ways to put someone on a Luxembourg payroll: employ them through an Employer of Record, or form a Luxembourg company and become the employer yourself. Both produce a Luxembourg employment contract, Luxembourg social security cover and a Luxembourg payslip. What differs is who carries the entity, the capital, the monthly filings and the years of obligations that follow.

Under the first route the EOR is the legal employer of the person you have chosen, which is the model we set out in what an Employer of Record in Luxembourg is. The contract is with the EOR, the employee is declared to the Centre commun de la sécurité sociale (CCSS), payroll runs through the EOR, and you keep the commercial side: the role, the salary, the direction of the work and the decision to continue it. Employer of Record Luxembourg is registered to employ in Luxembourg, which is what allows a contract to be issued and a first payroll to run in days rather than months.

Under the second route everything sits inside a structure you own and fund. For a foreign business the realistic form is the société à responsabilité limitée (SARL), which carries €12,000 of minimum share capital. The cheaper SARL-S, with capital from €1, is reserved to individual shareholders, so a UK, US or German parent company has no route into it. A société anonyme at €30,000 of capital is the other option, usually where an investor-facing structure is wanted.

Forming a SARL is a fixed sequence of steps that typically takes eight to fourteen weeks before a first legal payroll can run. The order matters, because the business permit comes before registration at the Registre de commerce et des sociétés (RCS) wherever the activity is regulated.

The autorisation d’établissement (business permit) usually sets the pace. It is applied for at the Ministère de l’Économie, costs €50 in droits de chancellerie, and the file is in principle processed within three months of arriving complete. That three-month figure is a published target rather than an average, and it runs from the day the file is complete, which is the part applicants tend to underestimate.

The rest of the sequence is more predictable. A name availability certificate costs €4.75 electronically. The €12,000 of capital is subscribed at incorporation, and under the law of 18 May 2026 the cash portion may now be paid up within twelve months afterwards instead of before, which removes the old wait for a Luxembourg bank account and a blocking certificate. The money is still owed; it is owed later. The statutes are signed before a notary and carry a fixed registration duty of €75, and the company is then filed at the RCS for €123.92 including VAT, plus €12 per document and a €5 administrative charge. VAT registration follows within fifteen days of the activity starting, and both the CCSS employer registration and the employee’s déclaration d’entrée fall due within eight days of the start date.

State fees across the whole sequence come to roughly €270, which is the one hard number in the exercise. Everything else is quoted rather than published. Notary fees for a SARL incorporation follow the Chambre des Notaires scale but no figure is published, and the working estimate for 2026 is €1,200 to €3,000. Timings behave the same way: around six weeks where the file is clean and the permit moves quickly, four to six months where the permit raises queries or bank checks on a non-EU parent take time. No Luxembourg authority publishes an average, so treat every range here as an estimate rather than a promise.

A SARL costs roughly €3,300 to €17,000 in year one outside the share capital and outside salary, against €5,988 for twelve months of EOR fees at €499 per employee per month. Those ranges overlap, and the honest reading is that at a single employee a lean company of your own, at the bottom of that range, can come out cheaper over a year than an EOR. A provider who argues the EOR case on cost alone at one head is overstating it.

The range is wide because most of it is quoted rather than fixed. State fees are about €270 and are confirmed. Notary fees run €1,200 to €3,000. A registered office costs nothing if you already have premises and up to around €6,000 a year if you do not. Bookkeeping with annual accounts, eCDF validation and the tax returns runs roughly €1,500 to €4,500, payroll administration for one employee adds €300 to €1,200, and formation advice reaches €2,000 where it is taken. Those are market estimates from Luxembourg providers, not official tariffs, so get written quotes before you budget on them.

What does not change between the routes is the cost of the employment itself. Employer social security is around 13.29% of gross for a standard commercial employer, the employee pays 12.95%, and both are set by Luxembourg law rather than by who the employer happens to be. On a gross salary of €90,000 the total employer cost is €101,961 either way. The arithmetic behind that figure is in our guide to the cost of hiring in Luxembourg.

Headcount then pulls the two curves apart. A fee of €5,988 a year is charged per employee and rises in a straight line, while the fixed part of running a company hardly moves: the accounts, the returns and the registered office cost much the same for five employees as for one. Current fee levels are on our pricing page.

A Luxembourg company files every month and every year for as long as it exists, and those duties do not pause when headcount does. This is the part of the decision that gets costed least often and lasts longest.

Monthly, an employing company sends the salary declaration and pays social contributions to the CCSS, and declares and pays wage withholding tax to the Administration des contributions directes (ACD), at a frequency set by the amount withheld. VAT returns are monthly, quarterly or annual depending on turnover.

Annually, the accounts have to be approved within six months of the financial year end, validated on eCDF, the State platform for financial data, in the standardised Luxembourg chart of accounts, and filed at the RCS within one month of approval, so within seven months of year end at the latest. Filing on time costs €19 excluding VAT. Filing late costs €50 in the eighth month after year end, €200 from the ninth to the eleventh and €500 from the twelfth. The company also files corporate income tax, municipal business tax and net wealth tax returns. Corporate income tax is 14% up to €175,000 of taxable income and 16% above €200,000, with a 7% employment fund surcharge on the tax due, and municipal business tax in Luxembourg City is 6.75%, giving a combined effective rate of about 23.87% in 2026. A small employing company with a modest balance sheet normally pays the €535 minimum net wealth tax.

That last point is the compliance tail. A Luxembourg company keeps filing accounts and returns until it is wound up, and winding it up is itself a notarised and filed procedure with its own cost. An EOR engagement stops when the employment stops.

Four arguments for an EOR in Luxembourg hold up under scrutiny: speed, no dependency on a business permit, no capital tied up, and no compliance tail. Cost is not one of them at a single employee, and we would rather say so here than have you work it out from an accountant’s quote later.

Speed is the most concrete of the four. A Luxembourg contract is usually ready within hours of the salary and start date being agreed, onboarding typically takes one to two days for EU nationals once the employee’s details are in, and the déclaration d’entrée reaches the CCSS within eight days of the start date. Set against eight to fourteen weeks for a company, that is often the difference between a candidate starting next month and a candidate accepting another offer.

The permit point matters because it sits outside your control. A business permit is granted on a file that the Ministère de l’Économie assesses against a three-month target, and no later step in the sequence can start until it is granted. Employing through an EOR takes that dependency out of your plan, because no Luxembourg company is being formed. The capital point is smaller than it first looks, since the €12,000 is the company’s own money and may now be paid up within twelve months, but it is still €12,000 committed to a structure you may not want in three years.

The compliance tail is the quiet one. An EOR arrangement ends when the employment ends: no accounts to file for the years afterwards, no returns, no liquidation. Against that, an EOR adds a party between you and the employee, so the working relationship has to be documented properly and the fee is permanent while the employment lasts. Our EOR services in Luxembourg page sets out what the monthly fee covers.

Your own Luxembourg entity starts to make sense once Luxembourg is a permanent part of the business rather than one hire. The usual trigger is a combination rather than a single number: several employees you expect to keep for years, a reason for the company to exist beyond employment such as invoicing, contracting or holding a licence locally, and a finance function with room to absorb the monthly and annual filings.

Headcount moves the arithmetic in both directions. Fees are charged per employee, so five people at €499 a month come to €29,940 a year while the fixed running costs of a company barely change. Headcount also brings statutory structure with it: an employer with fifteen employees must have a délégation du personnel (staff delegation) elected, and an employer with 150 or more must hold an entretien préalable before dismissing anyone. Those are commitments to a permanent employing structure rather than administrative chores.

Plenty of companies use both routes in sequence. They hire the first one or two people through an EOR while the SARL is formed, then transfer them across once the company can pay them. That protects the candidate and the start date while the permit, the notary and the bank run their course, and it means the entity decision is taken on the strength of the business in Luxembourg rather than under time pressure from a signed offer. The practical steps for either route are in our guide to hiring an employee in Luxembourg.