Strategically located in Europe, Luxembourg is a country that, despite its small geographical size, enjoys unmatched stability and is firmly positioned as one of the word’s nations by GDP per capita. The country’s reliable taxation, high-quality infrastructure, open economy and stable political environment are just some of the reasons why many foreign investors establish businesses in the Grand Duchy of Luxembourg.
What is a Simplified Limited Liability Company?
Société à responsabilité limitée simplifiée (SARL-S) or Simplified Limited Liability Company was introduced by the Luxembourg Parliament on 13 July 2016 under Deputies Bill 6777. Also known as “company for 1 Euro”, SARL-S constitutes an alternative to the private limited liability company. This legal form is only limited to commercial, industrial, and craftsman-activities as regulated by the Luxembourg law of 2 September 2011.
Purpose & Objective
The aim of launching SARL-S is to promote entrepreneurship in Luxembourg and promote business creation by reducing the costs in relation to incorporation, establishing a faster, streamlined, and efficient process of incorporation while reducing subscription and payment requirements.
Tax Regime/ Fiscal Benefits
SARL-Ss are assessed with the following fees and taxes:
- A fixed registration fee in the amount of EUR 75 and must be paid to the Registration Duties, Estates and VAT Authority.
- Property Tax assessment rate is determined by the legislator and based on the nature of property asset and its location. Property tax rangers between 0.7% and 1%. Property tax amount may be offset against a SARL-S business profit upon income tax declaration, if the building taxed is considered a part of its invested net assets.
- Business Tax is assessed for simplified liability companies. They are taxable on their worldwide income. The overall effective tax rate is set at 24.94%.
- Physical persons operating as a SARL-S is subject to net wealth tax set at a minimum of EUR 535, assessed 1 January of every year.
- Net Wealth Tax is assessed for SARL-S whose unitary value equal or below EUR 500 million at a rate of 0.5%.
- Corporate Income Tax for SARL-S is assessed at a rate of 15% when taxable income does not exceed EUR 175,000 ad 17% when taxable income exceeds EUR 200,000.
- VAT assessed if the annual turnover excluding taxes is less than EUR 112,000. VAT returns must be reported annually. In cases where the annual turnover excluding taxes is between EUR 112,000 and EUR 620,000. VAT must be filed quarterly. Lastly if the annual turnover excluding taxes exceeds EUR 620,00 then VAT must be filed monthly.
- SARL-S may additionally benefit from Luxembourg’s vast network if double taxation treaties with contracting countries.
Benefits to Set Up and Manage SARL-S
- Provides foreign individuals looking for employment to become entrepreneurs.
- No need for notarial deed, with share capital reduced from EUR 12,000 to only 1 Euro.
- Only natural persons can establish a SARL-S with entrepreneurs restricted to only one company type.
To whom a SARL-S is addressed?
The logical element of the Bill aims to promote the creation of corporate entities by new entrepreneurs. Only physical persons can assume the role of shareholder of an SARL-S. Additionally, a physical person can only be a shareholder in one SARL-S at any one time, except when shares are transferred after the death of a shareholder. Lastly, an SARL-S can only have one physical personal to assume the role of manager, not legal entities. ‘
Legal framework
The SARL-S slogan is more popularly know for its slogan, “one euro, one person, one day. This is due to its primary goal of allowing young entrepreneurs with limited capital and financial resources to establish their own business through a fast and easy incorporation process. The set-up of a SARL-S does not need large investment to keep the limited liability inherent in the SARL legal form.
Cost to Incorporate
To incorporate an SARL-S, the minimum required capital may vary depending on the legal form a physical personal may choose. For instance, the formation of SA and SCA has a minimum required capital set at EUR 31,000 whilst SARL has minimum capital requirement set at EUR 12, 500.
Contributions in kind are allowed if they are made up of assets that cannot be economically valued and exclude work or service contributions.
Rules and Regulations
- In essence, a SARL-S will follow the the tax and legal regime of a traditional SARL company.
- A SARL-S entrepreneur will receive either (i) a fully tabled salary, (ii) partly exempt dividends , or (iii) other fully taxable renumeration under a service agreement considered as a tax deductible item at corporate level.
- Within 30 days from the start of operations, bylaws must be released in the official journal of Luxembourg.
- In the event that a SARL-S turnover, total assets, and employee numbers exceed a specific value, an annual audit report may be required.
- Corporate income tax returns must be submitted by 31 May of the following fiscal year.
- Provide articles of association and proof of registration with the RCS to your bank and open a professional bank account.
Administration of the Company
- Company founder must have a deposit that constitutes 5% of net profit calculated on a yearly basis until it reaches EU 12,394,68.
- Only physical persons can open a simplified limited liability company in the Grand Duchy of Luxembourg, with restrictions on shareholder responsibility restricted to only one company.
- A SARL-S must have a license for commercial activity to commence business operations.
- A company owner can change the company type after a period of time and switch to a regular limited liability company or other legal forms.
- Mandatory payment of an annual reserve of 5% of the annual benefits.
- SARL-Ss founders and managers will be jointly liable in respect of third parties for any capital percentage not validly subscribed for the difference between capital and subscribed capital. Both parties will be responsible for the full payment of shares and percentage of the capital for which they have subscribed. Lastly, SARL-S founders and managers are responsible for resolving damages resulting from the company’s nullity and inaccurate statements in their deed of incorporation.
- Shareholders are only held liable to the extent of the amount of their respective contributions towards the share capital.
Why Open a SARL-S in Luxembourg?
A foreign entrepreneur who choose to establish a Luxembourg simplified limited liability company will only need EUR 200 for successful incorporation. It is specially designed for entrepreneurs with a reduce capital and those who want to dive into new business ventures and see how it works without having the need to spend on bureaucratic proceedings and the lengthy incorporation process. Banks seek for a personal guarantee before granting a loan to a SARL-S as provided by the shareholder, this partly removing the limited liability element. Clients of SARL-S companies will not require of guarantees, which in turn leaves the limited liability advantage intact. Managers of SARL-SS are not held liable as long as the manage oversees business operations in accordance with the law and other articles of association.
Surprisingly, the Simplified limited liability company is attracting UK companies and British entrepreneurs wishing to have the benefits of having a European company with the Value-added tax (VAT) Number. In fact, because of Brexit, UK companies and entrepreneurs wishing to trade with Europe must provide for importing and exporting goods. It appears that having a Luxembourg simplified limited liability company with a Vat number will help the UK entrepreneurs and businesses to avoid the heavy fees that some accountant professionals located in the United Kingdom charge them.
Damalion seeks to assist starting foreign entrepreneurs to incorporate a company in the Grand Duchy of Luxembourg. We have the expertise and professional experience in guiding foreign investors, including individuals and companies in starting their business operations in Luxembourg. If you wish to discuss your needs with a Luxembourg business formation expert, contact us today.
This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.
