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What is a SARL-S?

Simplified Limited Liability Company or SARL-S is a business structure enacted by the Luxembourg Parliament on 13 July 2016 as an alternative to the traditional limited liability company. Under Deputies Bill 6777, the business structure is more popularly known as “company for 1 Euro” is specially designed for commercial, industrial, and craftsmen business activities.

Simplified liability limited company: a good structure for trading and commercial activities

The goal of introducing the SARL-S business structure is to further promote entrepreneurship among young businessmen in Luxembourg. To help budding entrepreneurs enter the Luxembourg market, costs associated with company incorporation are significantly reduced while the processes are designed to be faster and more efficient.

Tax Regime/Fiscal Benefits

A SARL-S are subject to pay the following fees and taxes:

• A net wealth tax rate of 0.5% is assessed for SARL-S with a unitary value equal or below EUR 500 million.
• A SARL-S will be subject to VAT if the annual turnover after taxes is less than EUR 112,000. SARL-S are mandated to report their VAT returns on a yearly basis.
• If the annual turnover excluding taxes is between the EUR 112,000 and EUR 620,000 range, VAT returns must be reported quarterly.
• Finally, if the annual turnover excluding taxes exceeds EUR 620,000, a SARL-S must file VAT returns on a monthly basis.
• Criteria in the calculation of property tax rate for a SARL-S will depend on factors such as nature of property asset and location. The property tax rate for a SARL-S is typically between 0.7% and 1%. By rule, property tax may be offset against a company’s business profit after income tax declaration, given the structure assessed with taxed falls under the category of invested net assets.
• Natural persons running a SARL-S is assessed with net wealth tax. The minimum tax rate is set at EUR 535 and assessed every 1st of January.
• SARL-S are required to pay Business Tax. The business tax rate will be based on the worldwide income of a SARL-S, with an overall effective tax rate set at 24.94%.
• SARL-S enjoys the same double taxation treaties of a traditional limited liability company.
• The fixed registration fee amounting to EUR 75 shall be paid by an applicant directly to the Registration Duties, Estates, and VAT Authority.
• When the taxable income of a SARL-S does not exceed EUR 175,000 the corporate income tax will be assessed at a rate of 15%. A 17% corporate income will be assessed when taxable income exceeds EIR 200,000.

Benefits to Set Up and Manage SARL-S

• Incorporation of SARL-S is limited to natural persons with restricted involvement to only one company type.
• Notarial deed is typically not required when establishing a SARL-S. Minimum share capital is set at EUR 1.
• Offers business opportunities for foreign natural persons to incorporate a company in Luxembourg.

To whom a SARL-S is addressed?

Deputies Bill 6777 aims to boost the creation of legal corporate entities by young entrepreneurs in Luxembourg. Only natural persons are allowed to become shareholders of a SARL-S. A physical person can only assume the role of a shareholder for one SARL-S at any one time. An exception to this rule is when shares are transferred to a SARL-S shareholder after the death of another shareholder. Finally, a SARL-S can only have one physical person to function as a manger, and not legal entities such as companies or organizations.

Legal framework

The SARL-S business structure is widely known for its slogan, “One Euro, One Person, One Day.” The primary goal of SARL-S formation is to drive beginner entrepreneurs with limited financial resources to successfully set-up a company in a speedy and efficient manner. Incorporating a SARL-S does not require a large share capital to maintain and operating in the long run.

Cost to Incorporate

To set-up a SARL-S, the minimum share capital will depend on the specific legal form that a natural person may choose to operate his or her business in Luxembourg. The creation of a SCA or SA requires a minimum share capital of EUR 31,000 while a traditional SARL minimum share capital requirement is EUR 12,500.

Minimum share capital may be in the form of contributions in kind such as assets that cannot be economically valued but excluding work and/or service contributions.

Rules and Regulations

• A SARL-S follows the same set of tax and legal regimes of a traditional limited liability company.
• A SARL-S shareholder may receive (i) a fully taxable salary, (ii) partly exempt dividends, (iii) other fully taxable renumeration under a specific service agreement will be considered taxable income on a corporate level capacity.
• Corporate income tax returns must be filed by 31 May of the next fiscal year.
• In the case of a SARL-S turnover, when the total assets and number of employees exceed a certain value, an annual audit report must be submitted.
• Submit Articles of Association and proof of registration with the Luxembourg business register to your preferred bank and open a bank account for the SARL-S.
• Within 30 days from the commencement of business operation, bylaws shall be released in Luxembourg’s official journal.

Administration of the Company

• A company owner may change the business structure after a pre-determined period and switch to a traditional limited liability company and other legal forms.
• A SARL-S must carry a license for commercial operations to do business in Luxembourg.
• Only natural persons are allowed to incorporate a simplified limited liability company in Luxembourg. Members are required to follow shareholder responsibility restricted to one company.
• SARL-S are required to pay an annual reserve fee of 5% of total annual benefits.
• SARL-S founder must have a deposit that makes up 5% of net profit calculated annually until it reaches the amount of EU 12,394.68.

Why Open a SARL-S in Luxembourg?

A simplified limited liability company offers a host of benefits for foreign legal entities that considering opening a business in Luxembourg. Apart from access to a highly stable economic and financial market, our Damalion experts can provide you an in-depth look at the many advantages of incorporating a SARL-S in the Grand Duchy.

Minimum Share Requirement – A foreign investor looking to incorporate a simplified limited liability company will need at least EUR 200 to ensure smooth company set-up. SARL-S is specifically designed to reduce capital minimum share requirements.

Efficient Business Set-Up – Ideal for investors keen to open a business in Luxembourg without having to go through the typical bureaucratic proceedings and complex incorporation process.

Lenient Guarantee Requirements – Typically, financial institutions such as banks require a personal guarantee from a shareholder before approving a loan to a simplified limited liability company.  On the other hand, individuals or companies dealing with SARL-S do not require guarantees which leaves the limited liability element intact.

Finally, SARL-S managers will not be held liable as long as the manager oversees all business operations in compliance with the law and a company’s Articles of Association.

Damalion assists you for setting up your simplified limited liability company, your bank account opening.

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.