Luxembourg is a small and prosperous landlocked country in western Europe. Investing in Europe is a decision that can be optimized by doing business in Luxembourg first to structure investments.
It is home to one of the most stable economies in the region and, despite its size, ranks as one of the richest countries in the world in terms of GDP per capita.
The country’s multi-lingual workforce is highly skilled, and its transportation infrastructure is well evolved with direct access to the rest of Europe and North Sea ports.
To successfully conduct business in Luxembourg, corporations must understand the nation’s laws, rules, and regulations. Here are the advantages of doing business in Luxembourg, the risks, and the steps involved.
Advantages of doing business in Luxembourg
- A European Union capital
Luxembourg is one of the founding members of the European Union (EU) and its capital city, Luxembourg City, is one of the EU’s three official parliamentary capitals and an important center for the EU, Luxembourg also seats the European Union’s Court of Justice.
- Information and communication technology
A universally recognized hub for information and communication technologies, Luxembourg is quickly becoming a center of excellence for cybersecurity and data protection, ranking highly in the Global Innovation Index. And due to efficient public research infrastructures and projects, it offers numerous opportunities for start-ups and large enterprises.
- Solid banking and financial services
Luxembourg is one of the most active financial centers in Europe. The banking sector is the driving force behind the nation’s economy and it accounts for about 33% of the country’s GDP. The success of its financial industry is because of its cross-border financial expertise, its range of financial services offered, its political stability, skilled staff, and availability of a qualified multilingual workforce.
Advice on doing business in Luxembourg
Despite its solid economic qualities, doing business in Luxembourg can be a difficult task without initial knowledge of the corporate landscape. Here are some of the areas that can trip up a commercial business new to Luxembourg.
- Obtaining a business license: This process typically takes about two weeks and companies must meet capital requirements before a license is granted. Certain businesses may also need to submit evidence of professional qualifications and professional integrity. To apply for a business permit in Luxembourg, you’ll need to have a fixed physical presence in the country which is an issue for non-residents. But, Damalion offers you directorship services. We also support investors in case of liquidation of their Luxembourg company.
- Ongoing management: Focusing on the core business is not enough when overseeing a company. Compliance with all laws and regulations must be achieved, and this requires an all-around view. Similarly, many businesses with a worldwide component must review their activities not only locally, but also from a cross-border perspective, which adds intricacy.
- In this respect, for international structures, the main concern is the significance of the company in Luxembourg, which can be challenged by foreign Policy. When you setup a Soparfi (the Luxembourg holding and finance company) or a securitization vehicle or even a reserved alternative investment fund, you need to check the whole feasibility of your project.
- Proving your professionalism: To apply for a business permit from the Ministry for Small and Medium-Sized Businesses, you will need to submit evidence of your professional qualifications and your professional morality. The way you do this will depend on your profession and background.
- Tax obligations: Individuals are taxed at source. Although Luxembourg has favorable tax treaties with a number of countries and relatively low corporate tax rates, its business tax climate places burdensome requirements on companies. There are around 23 taxes that businesses must pay every year which can take an estimated 55-60 hours to process and record.
- Culture: Luxembourg’s business culture can be extremely formal and an adjustment for foreigners. Punctuality is esteemed and lateness is considered extremely rude. Politeness and respect for structure are appreciated and are the key to successful business transactions.
Consequently, the process of establishing a business in Luxembourg can be a smooth one, and when an organization is set up there are many benefits.
Steps to building a business in Luxembourg
While there are many benefits to incorporating in Luxembourg, the country has very distinct requirements and highly mandatory rules businesses must follow.
Request a license to operate your business in Luxembourg
To lawfully practice a business activity in Luxembourg, you must first apply for a business permit, and to submit a successful application, you generally need the following things:
- residency in Luxembourg or in an adjoining country not excessively far from the country border,
- the necessary qualifications,
- a perfect professional reputation,
- a fixed and reasonable place of operation.
Fixed location
For the next step, a fixed location means a place in Luxembourg where you are permitted to work and is adapted to the business you need to conduct there. Depending on the nature of your business activity, this can be a place you rent precisely for your business or a dedicated space in your private apartment. Remember, your fixed location must be suitable for the activity.
Choosing the legal form
There are multiple options for legal forms in Luxembourg. The most popular ones are the sole proprietorship and the limited liability company. A sole proprietorship is a business form whereby you finance the business and make all the business decisions alone. No difference is made between your startup and you. You assume full responsibility and invest your personal assets. In a limited liability, there is a strict separation between the property belonging to you and the property belonging to the company. This means that you are only responsible for the debts of the company up to the amount of your contribution.
Establishing a registered office
Once you have chosen the legal form, you have to establish your registered office in Luxembourg. Luckily, leasing an office space in Luxembourg is easy.
Obtaining a business license
In Luxembourg, your startup business must obtain a license/business permit from the Ministry of Economy before conducting any commercial, craft, or industrial activities.
Conditions required for obtaining a business license
- Your startup must have a fixed physical establishment in the country, equipped with the administrative and technical installations suitable for your activities.
- You must satisfy the conditions of professional integrity: the Ministry will assess your professional integrity based on the following documents: your criminal record and a sworn declaration indicating any management positions held by you during the 3 years before the application.
- Then you must prove that you possess the required professional qualifications: Either you possess the appropriate degree, diploma, or certificate of completion. Or you have practiced relevant professional activity for at least 3 years in an EU Member State.
If you are a non-EU national, you must submit your business license application together with your application to stay as a self-employed person and send them in a single dossier to the Ministry of Immigration.
Additional formalities
Upon receipt of the business license, you need to be affiliated with the Social Security Centre as a self-employed person or as an employer if you intend to recruit staff. You must also register for income tax with the Luxembourg Inland Revenue and for VAT with the Registration Duties, Estates, and VAT Authority, in order to keep your business going.
If you are considering the Luxembourg market, it is crucial to have an experienced ally with knowledge of local requirements. With our experience, Damalion will deliver the knowledge and information you need to do business in Luxembourg.
