The Grand Duchy of Luxembourg is the perfect place to start a business. It is widely known for its excellent economic policies that attract overseas entrepreneurs and investors like. With its attractive location on the map, socioeconomic stability, and superb business incentives, it comes to no surprise that overseas investors are starting their respective businesses in the small and prosperous country of Luxembourg.

We can help you take the first step if you wish to open a company in Luxembourg.

Starting a company in Luxembourg

Starting a company in Luxembourg is a simple and straightforward process and like that company formation in other EU countries such as Cyprus. In this comprehensive post, you’ll discover that it’s inarguably easy and fast to establish a business in Luxembourg. In fact, the entire company incorporation process can be accomplished in just ten days.

Step 1 – Choose the Legal Form that Best Suits your Luxembourg Business Activity

No matter the size or nature of the business you wish to set up in Luxembourg, it is always best to start the process by determining the legal form by which it will be known. Luxembourg legal form that foreign entrepreneurs can choose from are as follows:

• Sole Proprietorship

Setting up a sole proprietorship company requires entails setting up the business as an individual rather than creating an entirely separate legal entity. Sole proprietorship is a more flexible setup and requires least administrative proceedings and minimal feels to setup successfully. Consequently, it also carries the highest risk as there is no clear delineation between and entrepreneur’s private and commercial properties.

• Company

Majority of foreign entrepreneurs choose their business to be registered as a company as this ensures a distinct separation between private property and commercial property. In this set up, an entrepreneur’s liability is only limited to his or her contributions or shares. The impersonal nature of capital companies means that they primarily depend on the capital provided by partners. The three most common forms of a company in Luxembourg are as follows:

• Public Limited Company (SA)

This legal company form is established by drawing up a notarised deed. There should be a minimum capital of €30,000 should be fully subscribed or at least 25% paid up (€7,500) at the time of incorporation. A Public Limited Company (société anonyme in French) is generally open to the arrival of new shareholders and access to capital markets.

• Limited Liability Company (SARL)

A Limited Liability Company is also established by drawing up a notarised deed. A minimum capital of €12,000 is required and  fully paid at the time of its foundation. One major selling point of starting a Limited Liability Company is that initial shareholders are granted a more substantial control of share ownership as these shares are generally not traded freely.

• Simplified Limited Liability Company (SARL-S)

This is a legal form that can only be established by an individual that has been granted a business permit by the Ministry of Economy. The incorporation of a Simplified Limited Liability Company is influenced by a private deed. In terms of minimum capital, it is stated that an actual person should have between €1 and €12,000, with 100% of the sum completely paid at the time of establishment.

There are other legal company forms that can be established in Luxembourg but those listed above are the most commonly established companies duly registered at the Luxembourg Business Register.

SPECIAL REQUIREMENTS FOR THE LUXEMBOURG FINANCIAL SECTOR

Banks and professional institutions under the financial sector (PFS) are required to obtain a licensed from the Minister. The officials at the Financial Sector Supervisory Committee or CSSF that handles all preliminary assessment of applications waiting for full approval.

The main conditions imposed on banks are as follows:

• Only certain legal forms of establishment may be use
• There should be a known central presence and administration which means administrative, governance rules, accounting organisation, internal control procedures, IT infrastructure, outsource, and policies should be set in place
• A pre-determined minimum amount of capital shares is prescribed
• The presence of a shareholders structure and the competency of the group structure to which the bank belongs
• Sterling reputation of management officials, supervisory board members, administrative bodies, and shareholders
• Proof of professional experience of those in charge of daily management and operations
• The presence of an external auditing body
• A credit institution should be a member of Investor Compensation Scheme Luxembourg and Fonds de Garantie des Dépôts

The primary PFS categories:

• Investment firms
• Special FPS, such as investment consultants, brokers, financial instruments, registrar agents, private portfolio managers, corporate domiciliation agents, and family offices.
• Support PFS examples include client communication agents, primary IT systems operators, and administrative managers in the financial sector.

The conditions imposed on PFS are almost identical for banks, with the only difference that the minimum capital requirement for FPS is lower. If you wish to learn more about PFS requirements, you may check out the forms on the following links: investment firms, special PFS, and support PFS. To get approval for a license, banks and PFS should pass the legal requirements listed below:

A bank or investment firm should be approved and guided by authorities of another EU Member State can start a branch office or offer services in Luxembourg without prior approval form Luxembourg authorities. This is only valid when the services offered are approved by its own home country.

For more information on starting a business under the financial sector, please visit Luxembourg for Finance.

Step 2 – Establishment of a Registered Office

Once you have decided the legal form of your business, you may now proceed to establishing a registered office in Luxembourg. Regardless of legal form, you must have a physical address in Luxembourg. Getting a lease for an office space is simple and straightforward. The House of Startups in Luxembourg City is just one of the may hubs or incubators that offer their operational office spaces at competitive rates.

You may also choose a company for domiciliation (only for company legal forms) or register your business at your home. From tax purposes, it is imperative to show proof that the actual business management takes place in Luxembourg. This requirement also helps in curbing the number of letterbox companies; hence domiciliation presents some tax risk. If you opt to register your company under a residential address or a rental property, make sure that your lease contract explicitly states that it allows for commercial activities to take place in the said property.

Step 3- Secure a Business Permit

In Luxembourg, it is required for any type of business and self-employed jobs to obtain a business permit to ensure smooth and legal operation. Your startup business will be required to secure a business license from the Luxembourg Ministry of Economy before any commercial, liberal, industrial, or craft operations may start.

A business permit is personal in nature, with its approval heavily influenced by the integrity, reputation, and professional qualification of an applicant. The professional integrity of an individual reinforces the overall integrity of the professional and serves as a security for future partners and clients. The Ministry of Economy shall conduct a thorough assessment of an applicant’s professional integrity based on the following criteria: criminal record and a sworn declaration stating managerial positions help by an application in the last three years. For individuals who have been residing in Luxembourg for the past five years, a notarised declaration of non-bankruptcy is also requirement. Additionally, a business permit applicant must hold a degree, diploma, or certificate that coincides with the nature of the business.

At the least, an applicant must have worked in related or relevant professional activities for at least three years in an EU member state. Or an applicant should show proof of passing a final examination which completes the course for access to commercial operations as hosted by the Chamber of Commerce via the House of Training or similar training courses offered by other EU member states.

Business permit for the Manager of the Luxembourg company

In the case of a company, the manager will be obtaining the request for business permit approval. There are no rules which state that the business permit holder should be a Luxembourg resident. At the least, the applicant must not be residing in a city or country too far from Luxembourg to ensure easy access the location of primary business activities.  By rule, the Ministry allows a distance of 200km. For countries with rapid means of transportation, the distance requirement is increased.

Besides the €24  tax stamp, securing a business permit in Luxembourg is free of charge. Damalion will expertly guide you throughout the incorporation process via Luxtrust, MyGuichet, or send your application by standard mail or email to the General Directorate- SME, Entrepreneurship and the Internal Market.

If you are a non-EU citizen, you may submit your business permit application with your application to reside as a self-employed person and send them as a single document to the Ministry of Immigration.

Step 4- Complying with Additional Formalities

Upon approval and receipt of your business permit, you must then manage additional formalities with other administrative offices of Luxembourg. If you wish to recruit employees, we will assist you to obtain affiliation with the Social Security Centre as an employer or a self-employed person.

You will also be required to register for income tax with the Luxembourg Inland Revenue. On the other hand, for VAT, you must register with the Registration Duties, Estates, and VAT Authority.

If you need some help about the right business forms when setting up your business or need professional help in obtaining a Luxembourg business license and registration with administrative bodies, Damalion experts may help you.

Luxembourg Tax and Social Security Costs

• VAT Registration

For activities subject to VAT (current VAT rate is 17%), you must register your business at the VAT administration office (administration de l’enregistrement et des domaines). You are qualified for an exemption if your annual turnover is below a pre-determined amount.

• Social Security Registration

Registration for social security is automotive for self-employed persons since you will be required to submit your business permit at the Luxembourg social security office. For company managers with more than 25% of shares, you will automatically be considered as self-employed from under social security administration rules. Take note that there is a minimum monthly social contribution fees that you must pay. You may also request for an exemption if your annual income is below a predetermined amount.

Damalion offers you support to perform all processes needed to get your company ready to go for business in Luxembourg. We support you for bank account opening, accounting and tax delivered by our accredited partners chosen based on your business model at cost effective prices. In addition, we offer you strategy consulting services.