VAT on often cross-border work, a flat-rate scheme that can backfire, the salary-versus-dividend call, margin per engagement: what really sets a consultant's books apart, and how to keep them to steer.

In short. The books of a Luxembourg consulting company stand out less for their volume than for three specific issues: VAT that is often cross-border (a B2B service invoiced without tax to a client in another member state, with the reverse charge accounted for by the buyer), a pay decision between salary and dividends, and a margin that turns on the gap between the time worked and the time billed. The rest, bookkeeping under the PCN 2020, VAT, annual accounts, payroll, is the same base as any SME. At Advena, this support starts from 325 € per month, all in, inside the Odoo we deploy.

Consulting is one of the engines of the Luxembourg economy: IT, management, engineering, communication, regulatory expertise. On paper, a consulting company has simple books, a few dozen entries a month, no stock, little equipment. In practice, this is where the most expensive mistakes hide, because they do not show up straight away. Here is what makes a consultant's accounts specific, and how to keep them to make decisions, not just to stay compliant.

What sets a consultant's accounting apart

A shop lives on known margins and a stock to value. A consultant sells time, and that product cannot be stored: the value of an unbilled day is lost for good. The books therefore carry few lines, but each one weighs heavily. Three areas take up most of the attention: VAT on work that often crosses a border, the pay of a director who is also the main shareholder, and the real profitability of each engagement. Kept well, these books tell you every month whether your day rate truly covers your costs. Kept poorly, they tell you a year too late.

A consultant's VAT: the real trap is cross-border

This is what sets a consulting company apart most from a local shop. A consultant rarely invoices in Luxembourg alone: clients are often in Belgium, France, Germany, sometimes further afield in the Union. A service supplied between VAT-registered businesses of two member states is invoiced without VAT, with the wording Reverse charge, and it is the client who accounts for the tax at home. The mechanism is simple, but it comes with obligations many consultants discover after the fact: validating the client's VAT number on VIES, putting the right wording on the invoice, and filing a recapitulative statement for services before the 25th of the following month. We set it all out in our guide to intra-EU VAT in Luxembourg.

A consulting invoice to a Belgian client with no reverse-charge wording, or with an unvalidated VAT number, is an invoice a tax authority can challenge, and the exemption can fall away. Conversely, a consultant who mainly invoices consumers or Luxembourg clients stays at the standard rate of 17 %, the lowest in the Union, as our article on Luxembourg VAT rates explains. The VAT scheme is set before the first invoice, not after the first audit.

The VAT exemption scheme: a false friend at launch

Many new consultants sign up for the VAT exemption scheme by reflex, because it removes periodic filing as long as turnover stays under 50,000 €. For a consulting activity, that is often a poor call. Under the scheme you recover no VAT on your purchases (computer, software, subcontracting, training), and above all, if your clients are VAT-registered businesses, the VAT you would charge them costs them nothing since they reclaim it. You lose your deductions while no one gains. We run this calculation, with a worked example, in our article on the VAT exemption scheme in Luxembourg. For a consultant, it only makes sense with a consumer clientele and very few purchases, which is rare in this line of work.

The deductible costs specific to a consultant

A consultant has few charges, but almost all of them sit in the grey zone where the professional and private shares are debated. This is exactly where careful bookkeeping saves money, and where a loose approach loses it.

  • The home office: where part of the home is genuinely used for the activity, the corresponding share of costs can be taken on, on a defensible allocation key.
  • Equipment and software: a computer is depreciated over its useful life, not deducted at once; software subscriptions, by contrast, are charges of the year.
  • Professional training: certifications, conferences, keeping skills current, a central item for a knowledge business.
  • Travel and the company car, whose treatment (benefit in kind, VAT) follows its own rules.

The general principle and the list of costs the law expressly excludes (article 168 LIR) are detailed in our article on deductible business expenses in Luxembourg. A useful reminder: deductible does not mean free. A deductible expense lowers tax by the tax rate, roughly 24 % in Luxembourg City; it never makes a pointless purchase worthwhile.

Paying yourself: salary, dividends, and a status that surprises

The consultant is often the manager and main shareholder of their own company. The first surprise for many: in Luxembourg, a manager who holds the company's business permit and more than 25 % of the shares is treated as a self-employed worker, not an employee. They register themselves with the Joint Social Security Centre and pay all of their contributions (source: Guichet.lu). Then comes the classic trade-off between a manager's salary, deductible and building social rights, and dividends, drawn from an already-taxed profit but with a lighter personal tax. Most consultants combine the two, and the right mix is worked out on real figures. We devote a full article to it: paying yourself as a SARL manager in Luxembourg.

Starting or growing a consulting activity and want the right scheme from day one? We set it with you, on your figures.

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The figure that decides everything: margin per engagement

A consultant can show a full order book and still earn little, simply because the engagements consume more days than they bill. The profitability of a consulting company is not read in turnover, it is read in the gap between the time worked and the time billed. A fixed price sold at 20,000 € that takes 30 days instead of the 22 planned is a losing project, and without time tracking per engagement, no one sees it before year-end.

This is where accounting tied to project management changes everything. When timesheets, invoicing and entries live in the same tool, the margin shows up engagement by engagement, along the way, while there is still time to react. We describe this flow, from quote to accounting entry, in our article on Odoo for service companies in Luxembourg. For a consultant, it is not a luxury: it is the instrument that tells you whether the day rate keeps its promise.

The honest counterpoint: reliance on a single client

A common reality of consulting deserves to be said plainly. A consultant who invoices most of their activity to a single client, working alongside them much as an employee would, faces two risks. The first is purely commercial: losing that client wipes out all the turnover at once. The second concerns the reality of the self-employed activity, which assumes genuine autonomy and a client base, the substantive condition behind the business permit. Structuring the activity, diversifying clients and documenting one's independence are not administrative details: they are protections. We inform on these markers; for a borderline case, we point you to specialist advice rather than ruling on it ourselves.

Your accounting obligations as a consulting company

Beyond these specifics, a consulting company remains a Luxembourg business like any other. It keeps books under the standard chart of accounts, the PCN 2020, files VAT at the right frequency through eCDF, runs payroll for any employees, and draws up and files its annual accounts with the trade register on time. The base is the same as for any SME, mapped in our accounting firm guide for an SME.

The Advena difference: books in the tool that tracks your work

We are not a traditional accounting firm and not only an integrator: we do both, in the same tool. For a consultant, that means the invoicing of your engagements, your time tracking and your accounting entries all live in the same Odoo, configured for the PCN 2020, Luxembourg VAT and the intra-EU reverse charge. Your recapitulative statements are prepared from the same data as your invoices, your margin per engagement is readable during the year, and your VAT scheme is set once rather than fixed after the fact. That coupling, described on the tool side in our Odoo in Luxembourg for SMEs guide, is our difference.

Who this model is not for

Let us be plain. Our flat fee and real-time books are built for a consultant or consulting company of 1 to 50 people that wants to steer its margin and stay tidy on cross-border VAT. If you are an international consulting structure with transfer-pricing questions between entities, complex multi-currency invoicing or a consolidation to produce, your needs go beyond an entry-level flat fee and call for dedicated support. And if you just want to drop off a file once a year at the lowest price, never looking at your figures, you will pay for a real-time setup you will not use. We would rather tell you at the first meeting.

Frequently asked questions

How do I invoice VAT when my consulting client is abroad?

For a service to a VAT-registered business in another member state, you invoice without VAT with the wording Reverse charge: the client accounts for the tax at home. You must validate their VAT number on VIES and file a recapitulative statement for services before the 25th of the following month. For a Luxembourg client or a consumer, you apply the standard rate of 17 %.

Is the VAT exemption scheme worthwhile for a consultant?

Rarely. The scheme removes the right to deduct VAT on your purchases, and if your clients are VAT-registered businesses, the VAT you would charge them costs them nothing. It only helps an activity aimed at consumers with very few purchases, which is uncommon in consulting.

Is a consulting company manager an employee or self-employed?

A manager who holds the business permit and more than 25 % of the shares is treated as a self-employed worker. They register with the Joint Social Security Centre and pay their own contributions. This changes the salary-versus-dividend trade-off, which is worked out on their actual situation.

What can a consultant deduct?

Expenses genuinely incurred for the activity and documented: equipment and software, training, travel, a defensible share of a home office, professional fees. Durable equipment is depreciated over its useful life. The article 168 LIR exclusions and the grey zones are detailed in our dedicated article on deductible expenses.

How do I know whether my engagements are profitable?

By tying time tracking, invoicing and accounting into one tool, you compare time worked with time billed, engagement by engagement, during the year. This is what real-time accounting allows, unlike a firm that hands back the result several months after year-end.

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Why Advena?

We keep the books of Luxembourg consulting companies in the management tool we deploy ourselves, intra-EU VAT and time tracking included. A fee announced up front from 325 € per month, all in, a named file manager, books kept current at all times and not a single line billed outside the monthly fee. We inform without standing in for personalised advice, and we tell you plainly when your file goes beyond our model.

Consulting, IT, engineering: tell us what you invoice and to whom, and we frame your VAT and your margin.

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