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Opening a Company in Luxembourg

by | Mar 17, 2022 | Corporate Structuring

The process of setting up a company in Luxembourg

Luxembourg is a small yet prosperous landlocked nation at the heart of Europe. It is well-known to have stable and solid economy, making it one of the wealthiest countries in the world. It enjoys positive rankings due to its excellent regulatory framework, positive governance, and economic policies that attract foreign companies and private investors alike. It is also one of the founding members of the European Union. Luxembourg consistently records one of the highest GDPs at $116,921 as of 2021. 

Benefits of Opening a Company in Luxembourg

Opening a company in Luxembourg offers a host of advantages and benefits, including:

Excellent Security

The secure political and economic frameworks prevailing in Luxembourg support the entry of legal entities established by residents and foreign investors. Some of the most popular legal entities that can be established in Luxembourg corporations, trusts, and private or family wealth companies. 

Long History and Reputation as a Premier Investment Hub

Despite its small size, Luxembourg is the second largest financial centers in the world, efficiently managing assets over EUR 2.5 trillion. More than 40% of incoming and outgoing investments go through Luxembourg. 

Territorial Tax

Luxembourg non-residents corporations are only assessed with income tax and corporate business taxes on their incomes in Luxembourg. However, it is important to note that investors from United States and other countries which assess income taxes on their worldwide income will be assessed under their own country’s tax regime.

Double Taxation Regime

Luxembourg has contracted agreements for avoidance in double taxation with countries within the European Nation and other countries. It has signed a total of 84 double tax treaties, most of which include provisions of article 26.5 of the Organization for Economic Co-Operation Development model agreement on exchange of information between tax authorities.

Luxembourg Company Structures

During business permit application, you must choose under which legal form to start or operate your business. You can choose from the following Luxembourg legal forms:

  • Sole proprietorship
  • Public limited liability company (SA)
  • Private limited liability company (SARL)
  • Simplified limited liability company (SARL-S)
  • Social enterprises (SIS)
  • General partnership (SCS)
  • Special limited partnership (SCSp)

Business Permit Application Process

The business permit may be filed through the Luxembourg Chamber of Commerce. The following documents are required to apply for a business permit. 

  • Application form
  • Proof of identity 
  • Documents attesting to professional qualification for the planned business activity
  • Documents attesting to the professional integrity of investors. 
  • Tax stamps
  • Commercial companies must file articles of association. 

All documents must be filed with the Registration and Domains Department. Sole traders and commercial companies must register before the Companies Registry. Additionally, a commercial company must provide its articles of association. A registered notary can handle registration the incorporation of companies. 

Holding Company 

Investors that wish to establish their company as a participation company or Soparfi can hold and manage funds or assets, with the ability to lend and borrow money and collect royalty income as well. Soparfis also enjoy various benefits, including:

a. Income tax exemption from dividends, including upon company liquidation 

b. Capital gains tax exemption on qualifying participations

c. Pay dividends to eligible recipients and exemption from withholding tax

Family Wealth Management Company 

A Luxembourg corporation can be set up as a Family Wealth Management Company (SPF) wherein individuals can manage their wealth and assets, all of which can be preserved and passed onto their heirs. 

A Family Wealth Management Company (SPF) is exempt from paying government taxes, individuals must pay an annual subscription tax based on the share premiums and capitals at a rate of 0.25%

Specialized Investment Funds (SIF)

A Luxembourg company can be established as a Specialized Investment Fund (SIF) for well-informed investors that are looking to invest in securities, including hedge funds, real estate, private equity, and many more. 

A Specialized Investment Fund (SIF) is assessed to an annual subscription tax and calculated based on the value of its total net assets at a 0.01% rate. Additionally, Value Added Tax is only applicable on services and purchases that are not related to the management of its funds.

Selecting a Company Name

  • A newly-established Luxembourg company must choose a unique name which must not be similar to other companies in Luxembourg. 
  • Company name must always end with the abbreviation of its corporate structure. 
  • The company name must not be similar to the name of a corporate shareholder.
  • Once established, a certificate of incorporation will then bear the company name. 

Office Physical Address and Local Luxembourg Agent 

  • A Luxembourg company must have a local office and a registered agent residing in Luxembourg to receive official notices and server requests.
  • A Luxembourg company is allowed to have a primary address anywhere in the world. 

Shareholders

  • Depending on the legal form, a company must have at least one shareholder. 
  • A shareholder may be a resident of any country, and may be a natural person or corporate entity.
  • A corporation is allowed to issue shares with or without voting rights, and largely depending on a company’s discretion. 
  • All registered shares must be recorded and logged in a company’s log book.
  • Registered shares can be transferred through the issuance of a transfer statement between a transferor and transferee. 
  • The founder of a Luxembourg company can be a natural person or legal entity. 
  • Names of shareholders can be kept confidential as long as the natural person or legal entity is duly represented on paper by a founder in trust.

Company Directors and Managers

  • There must be at least one director appointed in a Luxembourg company.
  • The director can reside in another country; can be a natural person or corporate entity.

Incorporation Formalities in Luxembourg

Public Limited Liability Company (SA)

  • Incorporation through notarial deed. 
  • Articles of Association to be filed before the Luxembourg trade register. 
  • Company to be published in the official Gazette. 

Private Limited Liability Company (SARL)

  • Incorporation through notarial deed. 
  • Articles of Association to be filed before the Luxembourg trade register. 
  • Company to be published in the official Gazette. 

Corporate Partnership Limited by Shares ( SCA)

  • Incorporation through notarial deed. 
  • Articles of Association to be filed before the Luxembourg trade register. 
  • Company to be published in the official Gazette. 

Limited Corporate Partnership  (SCSp)

  • Notarial deed not required. 
  • A private agreement is sufficient for incorporation. 
  • Extracts of bylaws must be registered and published in the official Gazette. 

General Partnership (SCS)

  • Incorporation through notarial deed or a private agreement. 
  • Extracts of bylaws must be registered and published in the official Gazette. 

Minimum Share Capital Based on Company Structure

Public Limited Liability Company (SA)

  • EUR 31,000 of which 25% must be paid upon formation. 

Private Limited Liability Company (SARL)

  • EUR 12,000 minimum share capital that must be fully paid upon formation. 

Corporate Partnership Limited by Shares ( SCA)

  • EUR 31,000 of which 25% must be paid upon formation. 

Limited Corporate Partnership  (SCSp)

  • No minimum share capital. 
  • Capital divided only in registered shares. 

General Partnership (SCS)

  • No minimum share capital. 

Accounting and Auditing Requirements

  • Accounting and reporting of annual accounts is mandatory for all Luxembourg corporations. 
  • Records must be kept of the corporates business transactions, finances, as well as maintained and up-to-date for accurate reporting. 

Annual Shareholders Meeting 

Public Limited Liability Company (SA)

  • Meeting must be held annually. 

Private Limited Liability Company (SARL)

  • Annual statutory meeting. 
  • When there is less than 25 shareholders, written procedures are allowed. 

Corporate Partnership Limited by Shares ( SCA)

  • Meeting must be held annually. 

Limited Corporate Partnership  (SCSp)

  • Meeting must be held annually. 

General Partnership (SCS)

  • Meeting must be held annually. 

Time Required to Complete Incorporation 

  • The estimated time required to complete an incorporation is one week. 

Opening a Bank Account in Luxembourg

The benefits of banking services in Luxembourg to any-sized company are numerous. It is imperative for institutional and private investors to open a bank account in Luxembourg following company formation. Your financial history will be advantageous once you are in the process of opening a corporate business account. 

Steps and Requirements of Setting a Bank Account in Luxembourg

General steps and procedures for opening a Luxembourg Bank Account are similar. You must submit the following documents upon bank account application. 

  • Personal identification 
  • Business certificates, permits, and licenses
  • Statement of accounts from other businesses
  • Business plan 
  • Application letter
  • Proof of physical business address in Luxembourg

As a well-informed investor, you must prepare your dossier with as many details and documents as possible before opening a bank account. This will help you avoid delays and streamline the process of opening a bank account. 

A Luxembourg company offers a host of benefits, especially for foreign investors who want to use them for holding purposes, managing assets and earn passive income for its shareholders. Additionally, foreigners can establish family wealth management companies and specialized investment funds that enjoy few tax assessments. While there are several steps to take in setting up a company in Luxembourg, from the acquisition of the necessary permits, selecting the best legal form, dealing with residence permits, bank account opening, and understanding of taxation regime, Damalion can help you from start to finish. With our skilled and competent global service network, you can set up a company in Luxembourg anywhere in the world. For more information, reach out to a Damalion expert 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.