The Grand Duchy of Luxembourg, despite its high-profile name, is a rather small European jurisdiction. However, its modest size has not prevented Luxembourg from becoming a country with a large gross domestic product per capita.
The Duchy offers optimal conditions for banks and investment funds. Registering a company in Luxembourg opens up new opportunities for foreign entrepreneurs to develop their business.
The Duchy values its impeccable business reputation. That is why you will never find Luxembourg on the black and grey lists of international organisations fighting the laundering of illegal proceeds. Major international corporations open their European offices in this jurisdiction. Luxembourg is a prestigious “home port” for your foreign company with an unblemished reputation.
Luxembourg is also known worldwide as one of the largest financial centres in Europe, second only to the United States in terms of the number of registered investment funds and management companies. The Duchy has huge business potential due to its economic stability, lenient tax laws and favourable legal framework for both local and foreign entrepreneurs.
Foreign investors in Luxembourg can carry out their activities in any economic sphere of interest, but the optimal choice is undoubtedly the financial sector. According to some data, there are currently more than 4.5 trillion euros under the management of Luxembourg funds, which invest in promising projects around the world.
Luxembourg cannot be called an offshore zone or a tax haven. However, some peculiarities of the local tax legislation allow:
Certain types of companies do not have to pay tax on profits earned;
Open companies and partnerships subject to the principle of “pass-through taxation”, where tax liabilities are imposed only on the beneficiaries after the distribution of profits;
Use the benefits and deductions provided by the state.
In addition to these opportunities, foreign entrepreneurs can take advantage of the numerous double taxation treaties signed between Luxembourg and other countries.
Luxembourg is located in the centre of Western Europe and borders Belgium, France and Germany. The compactness of the territory together with a well-developed transport infrastructure allows Luxembourg entrepreneurs to hire highly qualified specialists from neighbouring countries.
The laws that regulate commercial activity in Luxembourg allow to register a company, change its legal form, restructure the business, change owners, introduce new founders and even transfer a foreign company to the jurisdiction of the Duchy in a relatively simple and reasonable time.
Not all Luxembourg companies need to be economically present in their country of incorporation. But even if you need to set up a “sabstens”, office space for rent in this country is available to you in any size: from a modest workplace to a large administrative centre.
If you need to purchase an office, warehouse or production facilities in Luxembourg for your work, your property in the Duchy will be well protected by the laws of the Duchy.
As a full member of the European Union, Luxembourg attracts those foreign entrepreneurs who plan to offer their products or services in the huge solvent markets of Europe.
According to some sources, there are about 200 financial institutions in Luxembourg, including branches of major international banks. Luxembourg banks are on par with the best foreign competitors in terms of reliability, customer focus and convenience.
A sceptic will say that financial institutions in Luxembourg are overly sensitive to their potential clients, which makes the process of signing a service agreement longer. But when all formalities and checks are over, you will not only get a convenient tool for settlements with suppliers and clients, but also access to relatively inexpensive credit facilities.
Out of the variety of legal forms available for business registration in Luxembourg, foreign entrepreneurs limit their choice to corporate structures and partnerships:
Corporate forms of doing business. These are usually limited liability companies or publicly traded joint stock companies.
Different types of partnerships: from general partnerships to partnerships where the liability of the participants is limited to shares or their interest in the assets of the organisation.
The many types of Luxembourg investment funds deserve a separate discussion, but before that we will look at companies and partnerships in more detail.
Most commercial organisations registered in Luxembourg are limited liability companies. In SaRL, the liability of its founders is limited only by the amount of their share in the authorised capital.
In Luxembourg, SaRL is required to pay the authorised capital in full. For this purpose, a special account is opened in a Luxembourg bank, where the funds are then transferred. The amount of the authorised capital is €12500 (minimum). The shares of a limited liability company are non-tradable, so they cannot be issued to bearer. In order to transfer the shares to a new SaRL participant, the consent of the other shareholders whose aggregate share in the company’s share capital is at least 75 per cent is required.
For registration, 1 shareholder and 1 director are sufficient. Thereafter, the number of shareholders in such a company may vary from 2 to 100. If there are more than 60 shareholders in a limited liability company, a general meeting of shareholders must be held at least once a year. If the company has more than 100 shareholders, it will be necessary to change the legal form of organisation.
If all shares in the organisation are held by only one founder, a special type of company — SaRL with one member — should be selected for registration.
The second most popular type of company in the country. Suitable for incorporation of medium and large businesses in Luxembourg. With the help of Société Anonyme it is possible to attract additional investments. It is easier for SA beneficiaries to maintain their anonymity because such a firm can issue un-named shares and trade them freely on the stock market.
To establish a public limited company, at least 1 director and 1 shareholder are required. Founders may be individuals and organisations, including those of foreign origin. The statutory documents of such companies are usually drawn up individually. The number of SE shareholders is not limited, and their liability is limited to the market value of the shares owned.
Luxembourg SAs are subject to the requirement to deposit the share capital in a blocked account with a local bank until the company’s incorporation is finalised. The minimum share capital of a public company is €30,000, of which €7,500 is payable immediately and the remainder can be paid in equal instalments over several years.
A public company may be managed by 1 director. However, if the company has more than 1 shareholder, it will be managed by a board of directors consisting of 3 directors (minimum), one of whom is appointed as chairman.
IMPORTANT: You do not need to rent an office in Luxembourg or hire a local nominee director to register a SaRL or SA company.
Limited liability companies and public limited companies use to register in the Duchy:
Investment Funds;
Trading companies;
High-tech manufacturing companies;
Rights holders and licence companies;
Holdings;
SPF Management Companies.
It is much less common for foreign entrepreneurs to use such corporate forms to register their business in Luxembourg as:
Most aspects of this type of business organisation are regulated by EU legislation. An SE must have at least 2 business structures located in different EU countries. As a rule, the same rules apply to the registration of European companies in Luxembourg as to public limited companies, but the minimum share capital in this case will be €120,000.
The characteristic features of this type of company are: an unfixed number of founders, the same variable size of the share capital and the impossibility of transferring shares to third parties.
A Société Coopérative requires at least 2 partners (legal or natural persons). The share capital of a co-operative company increases as new founders are admitted and decreases when some partners leave and take their share.
Such structures are opened by individuals and legal entities to engage in non-commercial activities, such as owning and managing assets. A Société Civile is not intended for commercial activities. Société Civile requires at least 2 founders.
Luxembourg-registered partnerships are subject to the principle of pass-through taxation, where the partnerships themselves do not pay tax on the profits made, but the partners are taxed after the profits have been distributed to them. There is one small exception to this rule, which concerns commercial partnerships operating in the capital of the Duchy whose co-founders are public limited companies.
Foreign investors usually use some form of partnership to establish regulated or unregulated investment funds in Luxembourg. To launch a partnership in this country, 2 founders are sufficient. These can be either individuals or organisations.
A general partnership is a commercial organisation characterised by the full and joint liability of the partners for all obligations arising from its activities. A SENC is characterised by the fact that all partners can carry on independent business in their own name.
Full partnerships are of interest to those registering a small or medium-sized family business in Luxembourg. As a rule, it is important for such entrepreneurs:
Reduce the company’s operating costs;
Gain more freedom to draft the statute;
Not to be dependent on the minimum permissible amount of authorised capital.
All participants in such an organisation are divided into general partners and limited partners. The former take part in the management of the company and are fully jointly and severally liable for its debts. The liability of the latter extends only to their contribution to the partnership.
SCS partners can be individuals as well as other companies. The founding document of such an organisation is a partnership agreement. In a société en commandite simple there are no restrictions on the amount of the authorised capital.
Combines the properties of a limited liability partnership and a public limited company. But whereas in SCS the partners’ shares are not freely tradable, in SCA they are expressed in shares and can be freely transferred to third parties.
Partners in an SCA are called shareholders and are divided into general shareholders and limited shareholders. The principle of distribution of responsibility between these two types of partners is approximately the same as in a simple limited partnership.
The establishment of a partnership limited by shares requires at least 25% payment of the minimum authorised capital of €30,000. The notarised memorandum of association is the document confirming the establishment of the SCA.
As for investment funds, they may operate as a form of joint ownership. However, investors often register them as joint stock companies, which differ from each other either in terms of capital or investment methods:
Société D’Investissement à Capital Variable / SICAV is an open-ended investment fund with variable capital. The main purpose of such a company is to invest in financial assets;
Societe D’investissement A Capital Fixe / SICAF is a fixed capital investment company. It is a closed-end fund investing mainly in private businesses and reliable commercial projects;
Société D’investissement en capital à risqué / SICAR is an investment fund with venture capital. It is usually used for high-yield investments, for example, in promising but not yet launched start-ups. Investors should consider that the high income of fund participants is usually associated with a certain risk;
Specialised Investment Fund / SIF is a specialised investment fund based on an equity capital of at least €1.25 million, payable within one year of the establishment of the organisation. This is an extremely favourable fund structure for investors as SIFs are exempt from capital gains tax, dividend tax and qualified income tax in Luxembourg;
Société de gestion de Patrimoine Familial / SPF is a special status for those Luxembourg limited liability companies and public limited companies that manage private or family capital. The Luxembourg SPF allows wealthy individuals as well as trusts and private foundations to legally avoid paying taxes on passive income.
To incorporate a Luxembourg company, you will need the support of competent corporate lawyers as well as the services of a local notary. Once the company has been notarised, the state records the incorporation and makes the appropriate entries in the Register of Beneficiaries and the Commercial Register.
Do not believe those experts who seriously write that it is possible to launch a business in the Duchy within 8 working days. Yes, it is true that the meeting with the notary (almost the final stage) usually takes about a week. However, before the notary there are at least 2 more important steps, which take the beginning entrepreneur more than a month.
Most entrepreneurs know in advance where and what their company will do. It is necessary to choose and agree with the founders already at the preliminary stage:
Place of incorporation of the firm;
The corporate structure of the company, be it the composition of the founders or the future directors;
Organisational and legal form of the future enterprise;
Sources of additional funding (if necessary and if their origin can be verified);
The name of your company.
Also at the preparation stage, the founding documents are drawn up and a business plan for the company is written. As a rule, aspiring Luxembourg businessmen already at this stage already at this stage.
The most time-consuming process for a prospective Luxembourg entrepreneur is opening a special account in one of the Luxembourg banks, where the authorised capital of the company is placed in full or in part. Since the financial institutions of this country operate under extremely strict rules of the European Union, the process of verification of a potential corporate client can take from 1 to 6 months.
Moreover, the bank may doubt the profitability of a large-scale audit of the company together with its founders and even refuse to provide services. Therefore, foreign businessmen agree to packages of additional services, become private clients themselves at the same banking institution and place significant sums in an account for a long time.
Once the account for the founding capital has been opened and the funds have been deposited, the Luxembourg bank issues a special certificate, which will then need to be presented to the notary together with the rest of the company documents.
Companies are established by a notary. For the registration procedure to go smoothly, you need to provide the notary with the following information:
The name of your company;
Its registered office;
Information about the directors of the firm, including details of their terms of reference and personal responsibilities;
Information about the founders of the company;
Data on the amount of the authorised capital of the company, the number of issued shares, the nominal value of one share. A certificate from a Luxembourg bank confirming that the share capital has been paid in the amount required for your company is required;
Articles of Association of the future company, as well as the Memorandum of Association.
Once the company has been registered with a notary, the Duchy authorities must be notified. The information about the new business organisation is then transferred to the Commercial Register and the Register of Beneficiaries.
Luxembourg is an integral part of the EU and is subject to virtually all Union directives, including those aimed at combating the laundering of illegal proceeds. Therefore, the personal data of the beneficiaries of Luxembourg companies is placed in the public domain. This information can only be withheld by court order, for example, when free access to it would in any way endanger the life or health of the founders.
It is generally accepted that the Duchy has a relatively lenient tax regime for business. This is not so much due to the corporate tax rate itself, but rather to the favourable tax regimes established for certain types of companies and for certain types of commercial activities.
An additional tool for tax planning is the double tax treaties that Luxembourg has concluded with other countries.
Corporate tax in this country consists of three parts:
Corporate income tax;
+15% on the first €175,000;
+31% on the part of the taxable base above €175,000
Municipal tax – the rate varies from municipality to municipality;
“Tax on tax” or solidarity tax, equal to 7% of the amount of tax paid on the company’s profits.
Thus, a Luxembourg company registered in the capital with profits over €200,001 had a corporation tax rate of 24.94 per cent in 2022.
VAT must be charged on products shipped or services rendered when the company’s income exceeds an amount equal to €35,000. The rate of value added tax is 17%.
Companies keep accounting records of all their business transactions and prepare and submit a tax return and financial statement at the end of the financial year.
The annual financial report must be drawn up within 7 months of the end of the accounting period. It is then filed electronically with the Commercial Register. There is a direct correlation between the complexity of the annual accounts and the size of the company. A large business provides a detailed balance sheet, income statement, detailed explanatory notes, management report and auditor’s report.
An audit is mandatory for publicly traded companies if:
The company’s profit for the reporting period crossed the €8.8 million mark;
The company employs 50 or more Luxembourg resident employees on a permanent basis.
Regulated investment funds are also subject to annual audits.
Our solicitors have an impressive track record of successfully working with entrepreneurs starting businesses in the European Union and the UK. So if you are looking to incorporate a company in Luxembourg quickly and without unforeseen costs, book a consultation with Imperial & Legal.
With our help you will also be able to: optimise the taxes optimise your company’s taxes, Prepare your annual financial report and tax return. We can also help you to: optimise your company’s taxes and prepare your company’s financial statements and tax returns.
Tax exemptions in the Duchy are also available:
In short, it is in the number of investments. In an unregulated fund, it is limited.
If the unregulated investment fund is organised as a partnership with private investors as founders, the amount will not exceed €100 million. If additional borrowing is involved, the size of the unregulated fund can be increased to half a billion euros.
If the partnership is registered directly in the capital of the Duchy, one of its partners is a joint stock company and all its activities are of a commercial nature, you will have to pay 6.75 per cent council tax on the profits made.
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