Becoming an IT freelancer offers invaluable professional freedom, but choosing the right tax environment is a strategic decision that can directly impact net income and social security . France and Luxembourg , two popular destinations for freelancers in the IT sector, have major tax differences that are essential to understand. The IT sector , characterized by high mobility and international assignments , requires a thorough analysis of tax regimes and social security obligations . This article offers a detailed comparison to help you make the most appropriate tax choice for your situation.
Tax and legal frameworks of reference
Freelance status in France
In France, an IT freelancer can work under different statuses: micro-entrepreneur, EURL, SASU, or via payroll management. The choice of status has a direct impact on taxes, social security contributions, and administrative management. The micro-enterprise is often prized for its simplicity, but it imposes turnover caps and payment of expenses based on gross turnover.
Freelance status in Luxembourg
In Luxembourg, the status of self-employed worker is similar to that of a French self-employed entrepreneur, although the administrative and social obligations differ. It is also possible to opt for salary portage or to create a company such as an SARL, SARLs, or SA.
Tax rates and social security contributions: the comparison
Tax scales in France and Luxembourg
One of the determining factors in choosing a country of practice is income tax. In France, taxation follows a progressive scale, with brackets ranging from 0% to 45% depending on net taxable income. Social security contributions represent a significant burden, ranging between 25% and 45% of income.
In Luxembourg, income tax also operates in brackets, but with generally more favorable rates for IT freelancers, particularly for those with intermediate incomes.
Impact of social security contributions on net income
Social security contributions are a determining factor in choosing a country for an IT freelancer to work in. In France, they are calculated based on turnover or net income, depending on the legal status chosen. They include contributions for health insurance, retirement, and family allowances. The overall percentage of social security contributions in France can represent a significant portion of a freelancer’s income, thus reducing their purchasing power.
In Luxembourg, these contributions are lower, particularly for self-employed workers. This means that an IT freelancer will retain a greater portion of their income after paying expenses. However, this reduction in contributions can also imply less extensive social security coverage compared to the French system. It is therefore crucial for freelancers wishing to settle in Luxembourg to evaluate all the advantages and disadvantages, particularly in terms of social security and pension rights.
VAT, reporting obligations and administrative procedures
VAT management in France
VAT management in France depends on the freelancer’s tax status. Currently, a micro-entrepreneur is exempt from VAT as long as their annual turnover does not exceed €37,500 for services. However, the new law, which was initially scheduled to come into effect in 2024 but has been postponed to June 2025, would lower this threshold to €25,000. This change aims to align the taxation of micro-enterprises with that of their European counterparts and limit abuses related to VAT exemption. Once this threshold is exceeded, the micro-entrepreneur will have to charge VAT to their clients, which implies an increase in the prices charged or a reduction in their margin if rates remain unchanged.
Freelancers operating under other statuses, such as EURL or SASU, are subject to VAT from the first euro of turnover. They must declare and remit the applicable VAT, generally 20% for services provided in France. Declaring VAT involves regular administrative obligations: self-employed individuals operating under the real regime must submit monthly or quarterly declarations via the business tax service (SIE). In return, they have the option to reclaim VAT on their business expenses, which can represent a significant financial advantage for those with significant expenses.
VAT rules in Luxembourg
In Luxembourg, VAT applies to most self-employed activities from the first euro of turnover, except for certain specific exempt activities. VAT rates vary depending on the nature of the services: the standard rate is 17%, but there are reduced rates (14%, 8%, 3%) for certain services or products. Unlike in France, where an exemption threshold exists for small businesses, Luxembourg freelancers must systematically register for VAT and invoice it to their clients.
The VAT registration process involves filing a declaration with the Registration and Estates Administration (AED). Once registered, freelancers must submit periodic declarations, usually quarterly, based on their turnover. Tax regularization obligations are also stricter in Luxembourg, with increased oversight of invoicing and compliance with reporting requirements.
France-Luxembourg tax treaty: avoiding double taxation
Principle of the tax treaty
Working between France and Luxembourg raises the issue of double taxation. The tax treaty signed between the two countries aims to prevent IT freelancers from being taxed twice on the same income. It is based on the principle of attribution of tax residence and the allocation of tax rights.
According to the treaty, a freelancer domiciled for tax purposes in France, but providing services to Luxembourg clients, remains taxable in France on all of their worldwide income. However, if this income was subject to tax in Luxembourg, a tax credit is applied in France to avoid double taxation.
The reform planned for 2025 introduces clarifications regarding cross-border workers and self-employed workers working in several countries. From now on, freelancers working occasionally in Luxembourg will have to declare these periods of activity to the tax authorities of both countries in order to benefit from the regularization mechanisms provided for by the convention.
Practical cases for IT freelancers
A freelancer domiciled in France, but with several Luxembourg clients, must declare all of their turnover in France. If their services are subject to tax in Luxembourg, they can benefit from a tax credit equal to the tax paid in Luxembourg, thus avoiding double taxation.
In the case of a freelancer who regularly works on-site in Luxembourg, the situation becomes more complicated. If the activity exceeds a certain threshold of days spent on-site, the Luxembourg tax authorities may consider that the income must be partially taxed in Luxembourg. This measure aims to regulate cross-border freelancers working on-site in Luxembourg companies.
To avoid any risk of tax adjustment, IT freelancers working between France and Luxembourg are advised to keep detailed accounts of their assignments, clearly establish their tax residence and, if necessary, consult an accountant specializing in international taxation.
The advantages and disadvantages of each country
Why choose France?
Benefits :
- Simplified access to entrepreneurship, particularly with micro-entrepreneur status, allowing for rapid and inexpensive creation.
- Extensive social protection with solid health coverage, pensions and family allowances.
- A dynamic job market with a strong demand for IT freelancers, making it easier to find assignments.
- Aid schemes such as ACRE, allowing a temporary reduction in social security contributions for new entrepreneurs.
Disadvantages:
- High social security contributions that can represent between 25% and 45% of income, reducing net profitability.
- Progressive taxation that can become burdensome for freelancers with high incomes.
- Strict regulations with regular administrative obligations (tax returns, VAT, URSSAF).
- Limited turnover thresholds for micro-entrepreneurs, requiring a change of status if exceeded.
Why choose Luxembourg?
Benefits :
- More advantageous taxation with generally lower tax rates than in France, particularly for freelancers with high incomes.
- Lower social security contributions, allowing you to keep a greater portion of your net income.
- An international market with a strong presence of technology and financial companies looking for IT freelancers.
- A more flexible tax framework offering more interesting optimization opportunities than in France.
Disadvantages:
- A high cost of living, particularly for housing and professional expenses, can affect the profitability of the freelancer.
- Social protection is less than in France, sometimes requiring additional insurance.
- Greater administrative complexity to establish and comply with Luxembourg tax obligations.
- Increased tax regularization requirements for cross-border freelancers working between France and Luxembourg.
Practical advice and resources
The importance of support
Before choosing a country of practice, it is strongly recommended that you consult a certified public accountant specializing in international taxation. A professional can advise you on the best legal status and help you optimize your tax situation while complying with legal obligations.
In addition to accountants, there are support organizations such as chambers of commerce, freelance networks, and professional associations. These organizations offer advice on current regulations, administrative procedures, and tax systems adapted to self-employed workers.
It’s also essential to keep up with tax law updates. Several reforms are planned for 2025, including a reduction in the VAT exemption threshold in France. Staying informed about these developments allows you to anticipate changes and adapt your business accordingly.
Optimize your taxes
Good tax planning is based on several strategies:
- Choosing the right legal status : An IT freelancer can opt for a micro-enterprise, a sole proprietorship (SASU, EURL), or a salary portage. Each of these options has different tax and social security implications.
- Manage VAT effectively : Depending on your turnover and the country you operate in, you may need to invoice and declare VAT. Anticipating these obligations helps avoid unpleasant surprises and optimize your cash flow.
- Use available tax deductions : Whether in France or Luxembourg, certain professional expenses (purchase of equipment, software subscriptions, training) can be deducted from taxable income, thus reducing the tax payable.
- Anticipate reporting obligations : In both France and Luxembourg, it is crucial to meet tax deadlines to avoid penalties. Good administrative organization and the use of accounting software can greatly simplify this task.
Finally, for freelancers who work across borders or with foreign clients, it is important to understand international tax treaties in order to avoid double taxation and optimize their income legally.
The choice between France and Luxembourg for an IT freelancer therefore rests on several determining criteria, including taxation, social security contributions, and administrative obligations. While France offers a more accessible structure for getting started, with a protective social framework, Luxembourg appeals with its lighter tax system and dynamic international market. Each freelancer must evaluate their priorities in terms of costs, administrative simplification, and long-term planning. The evolution of tax regulations in 2025 will require increased vigilance to optimize their status and maximize their income. Expert support remains a key lever for success.