In the initial stages, the USFM’s Luxembourg footprint is often limited to 2 or 3 employees while there are (many) more LuxCos. On the other hand, for operational, tax and/or regulatory reasons, it may be desirable for all or most of the LuxCos to have staff on the payroll even if it is on a part-time basis or for a limited number of hours per week. This can be structured efficiently by using a ‘global employment contract’ (GEC). A GEC is an alternative to a service fee model to accomplish the foregoing and has certain advantages over a service fee model (see below).

Under a GEC, a single staff member is employed by multiple related LuxCos. LuxCos are generally considered as related if they are owned or controlled by different funds whose general partner entities are controlled by the same USFM (i.e., a GEC can be used across different fund complexes).

A GEC is entered into between the relevant employing LuxCos and an employee. Separately, the employing LuxCos enter into a contract among themselves whereby one of them is appointed as the representative (the Rep) for the administrative obligations, including payroll formalities. 

Under a GEC arrangement, the Rep makes a single salary payment to the employee on behalf of all the employing LuxCos. Subject to a routine confirmation by the Luxembourg wage tax authorities, the Rep withholds the applicable taxes and social security charges, and pays them to the Luxembourg authorities, on behalf of all the employing LuxCos. Under a GEC arrangement, all the employing LuxCos are jointly liable for the applicable taxes and social security charges. In its balance sheet, the Rep books receivables against the other employing LuxCos for the amounts paid on their behalf. The other employing LuxCos book their own portion of the salary costs in their P&L. Salary costs in the P&L (as opposed to service fees) may bolster the robustness of the Luxembourg footprint.

No VAT is due on the salary paid or the repayments made to the Rep by the other employing LuxCos (which is an advantage over a service fee model).

Other models to arrange for a limited number of Luxembourg employees to service numerous LuxCos include service fee contracts and cost sharing arrangements. When choosing the most appropriate model, USFM should also consider a GEC.

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