Surely opening a company in Luxembourg is not such a strange choice, given that the nation, although small, is one of those in the European Community with the highest rate of economic growth. Before you can proceed with the operations to set up the company, you need to meet certain requirements and be fully familiar with all the rules of the place. The most common companies that are created in the state of Luxembourg are those with limited liability, where shareholders may be from any state in the world, provided at least one is resident within the European Union.
What’s most interesting in Lux.
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Luxembourg is a global center of attraction for financial companies, hedge funds, holding companies, asset and investment management companies. If you manage a financial management company or an investment fund, Luxembourg is your ideal jurisdiction to locate your company. However, in addition to the financial sector, you can set up a company in Luxembourg to operate locally in a number of different areas: real estate, biomedicine, ICT, aeronautics and space…
After having identified the business sector to be carried out with a Luxembourg company, it may be useful for you to understand which legal forms are best suited to your business project.
What types of companies you can set up in the Grand Duchy of Luxembourg?
What is the procedure for setting up a company in Luxembourg?
What level of taxation exists in Luxembourg?
The advantages of Luxembourg holding companies?
All the information in this guide on how to set up a company in Luxembourg is the result of our practical experience.
The Luxembourg legal system is inspired by the French one. Consequently, the legal forms that a company can take are typical of French law.
You can open a company in Luxembourg, with one of the following main legal forms:
- Société en nom collectif (SENC);
- Société en commandite simple (SCS);
- Société à responsabilité limitée (SARL);
- Société à responsabilité limitée simplifiée (SARL-S).
- Société Anonyme – (SA)
The company's registered office must be strictly within the State, and the company is established by a simple notarial deed. The law provides for the creation of a multi-currency current account.
Trying to open a company in the Grand Duchy is not only enough. To do so, you need :
- to be a citizen of a member country of the European Union;
- or have a residence permit in Luxembourg (only for non-EU nationals).
It is also necessary to obtain a trade license (autorisation d’établissement.) from the Grand Duchy.
All persons wishing to open a active company in Luxembourg are required to acquire a trade license (Demande d'autorisation d'établissement) . The licence is granted to companies (sole proprietors or directors) within a period of 3 months from the application, if any:
- the applicant has not been convicted of financial offences (bankruptcy for example);
- the business has a fixed physical location in Luxembourg (not just a postal address for example).
- the business answers to a checklist of real activity list.
In essence, in order to set up a company in Luxembourg, it is necessary to rent an office, unless you carry out non-operational activities such as holding companies.
The application for a licence can be submitted online at https://guichet.public.lu/, for which you will need either a code or get through an allowed administrateurs de titres (Eternos Corporation is a licenced administrateur de titres with LuxTrust ) or by regular mail at:
General Directorate for Small and Medium-Sized Enterprises (Department for Authorisations of Establishment). B.P. 535 - L-2937 Luxembourg
If the competent Luxembourg authority does not reply within 3 months, the application is deemed to have been accepted (this only applies however only to EU citizens living in Luxembourg).
If the company you wish to open in Luxembourg will not be used to carry out commercial activities, but will merely be a holding company, no licence is required. In essence, if the activity of your Luxembourg company will be used to collect dividends or other passive income (royalties or interest), no business licence is required. You will still need to register the company.
- There are multiple requirements for obtaining one. The director of a Luxembourg company must meet the following requirements:
- professional integrity (no convictions for financial offences);
- professional qualification or qualification in line with the activity carried out;
- no tax debts from a previous business activity;
- live in a place not too far from the company headquarters (generally not more than 200/250 km);
I would like to dwell for a moment on this last point, in order to clarify whether a director not resident in Luxembourg can obtain a business licence to operate in Luxembourg. In order to grant a licence application to a company administered by a non-resident, the Luxembourg tax authorities require the administrator to live close to the company's registered office. It is deemed essential to ensure that the day-to-day management of the company is carried out in Luxembourg territory.
There is only a stamp duty for issuing a trade licence amounts to EUR 24.
The answer is yes, if you choose one of these 2 ways:
- you hire a resident director;
- you are buying the administration services of a Luxembourg trustee.
If, on the other hand, you intend to start your business in Luxembourg and live in the Grand Duchy (or are cross-border resident in France, for example), you will have no problem obtaining a trade license. Eternos Corporation has a big network of trustees ready to work with you, should you choose to incorporate a Luxembourg company.
The Société en nom collectif and the Société en commandite simple belong to the category of Luxembourg partnerships.
A few points to be aknowledged.
- they can be formed by at least 2 partners;
- they are established by public notarial deed or private deed;
- they are fiscally transparent (they are not subject to taxation);
- they do not have a minimum share capital;
- they have no obligation to file a balance sheet (if the annual turnover does not exceed the threshold of 100,000 euros).
The procedure for the opening of a partnership in Luxembourg is somewhat simplified, so much so that no notarial deed or payment of a minimum share capital is required.
By setting up a Société en nom collectif or a Société en commandite simple, it is possible to obtain a significant tax benefit.
In fact, these types of companies are not subject to any taxation in Luxembourg, but are fiscally transparent.
Consequently, corporate income tax is paid by the shareholder in relation to his share of the capital.
A Société à responsabilité limitée (SARL) is a Luxembourg commercial company in which the liability of the partners is limited to the capital contributed by the partners. In Luxembourg, SARL is the most widely used form of company (about 2/3 of Luxembourg companies are SARL).
An SARL can have between 1 and 100 members.
Who may be interested in opening an SARL in Luxembourg?
SARL is a form of company of particular interest to natural or legal persons who wish to do so:
- benefit from the advantage of limited liability;
- maintain control over the shareholders (the company's shares are not freely transferable);
- create a relatively simple corporate structure that requires reduced administrative formalities (compared to a public limited company (Société anonyme - SA).
After obtaining a trade license, to open an S.A.R.L. in Luxembourg you need to go through a notary public. In fact, it is necessary for a notary to draw up the memorandum and articles of association in the form of an authentic deed.
The next step is to register the company with the Luxembourg Commercial and Companies Register (RCS) for the publication of the deed of incorporation.A minimum capital of EUR 12,000 is required for the incorporation.
However, there is the possibility of avoiding going to the notary and paying a capital of EUR 12,000 by setting up a simplified limited liability company (SARL-S).
Opening a simplified limited liability company (SARL-S) in Luxembourg
A simplified SARL in Luxembourg does not require a notary public. The articles of association and the memorandum of association may be drawn up by a private agreement between the members. The entire deed must be published in the commercial register. In addition, the minimum capital to be paid in at the time of incorporation is 1 euro.
The company's registration can be done online at any time on the official website of the Luxembourg Commercial Register. The main limitation of simplified SARLs compared to ordinary SARLs is that:
The members of an SARL-S must be natural persons. A company (legal entity) cannot be a member of an SARL-S.
The Grand Duchy is not a tax haven, as its general rate is comparable with neighbourging countries (France, Italy, Germany, etc.) . Luxembourg taxes its corporate residents on their worldwide income and non-residents only on Luxembourg-source income.
Businesses with taxable income lower than EUR 175,000 are subject to CIT at a rate of 15%. Businesses with taxable income between EUR 175,000 and EUR 200,001 are subject to CIT computed as follows: EUR 26,250 plus 31% of the tax base above EUR 175,000 (for fiscal years [FY] 2019 and 2020). The CIT rate is 17% for companies with taxable income in excess of EUR 200,001 leading to an overall tax rate of 24.94% in Luxembourg City for FY 2019 and FY 2020 (taking into account the solidarity surtax of 7% on the CIT rate, and including the 6.75% municipal business tax rate applicable).
The patent box
However, it is famous for the possibility of obtaining a strong tax reduction on corporate income through the patent box. The patent box indicates a set of rules that apply only to Intelectual Property owned there. With regard to intellectual property taxation, Luxembourg has tax legislation that is almost as attractive as the Netherlands. The effective tax rate on royalties received by Luxembourg companies is 5.4%.
The main advantages of the Luxembourg IP regime are the following:
- 80% deduction of net income from the use or right of use of intellectual property;
- Exemption of the net capital gain realised on the transfer (assignment) of such IP rights;
- 100% Exemption from net wealth tax on qualified intellectual property rights.
The above 80% exemption leads to an effective tax rate of 5.4% calculated as [(100% - 80%) x 27%]. As such, there are ways to convert your normal revenue in IP revenue, to benefit from the special IP rate. Eternos Corporation can help you in this direction.
Yes! Luxembourg is an excellent jurisdiction to open a holding company.
The reasons are individual in these 2 tax advantages:
No withholding tax on outbound dividends: Luxembourg has treaties with many non-EU countries that exclude the application of withholding tax on outbound dividends;
Participation exemption: Luxembourg excludes dividends from taxation on dividends from controlled subsidiaries.
Luxembourg holding companies are defined by the acronym Soparfi, a financial holding company in Luxembourg.
Soparfi is used as a vehicle (Special Purporse Vehicle) for the management and holding of real estate and/or shareholdings in other resident and non-resident capital companies. Eternos Corporation can help you setting up any kind of company in Luxembourg!
One of the questions that are asked in these cases, is what are the reasons that can drive an investor to direct their projects in Luxembourg. This is because it is well known that companies are heavily taxed, and it will later be explained exactly how vexatious taxes are. Furthermore, the formation of a Luxembourg company is subject to prior and strict governmental approval. The first is that for companies that make a lot of profits, there is the advantage of the absence of taxation on dividends, which undoubtedly appeals to investors. Another point that is important to mention is the fact that a Luxembourg company enjoys the possibility of benefiting from all European Union rules on free trade and free movement. The last point is that relating to income from private property. In fact, at least 80% of such income is exempt from tax.
Another important point to know in order to proceed with your investment project in Luxembourg is that of the taxation system in the state. There are only two income brackets on which two different percentages of taxes are applied, which are not very distant from each other. In fact, 20 per cent is applied on income that is below 15,000 euros, and 21 per cent on income that is above 15,000 euros. Two other taxes will have to be added to this taxation: the first is the municipal tax, which varies according to the city in which a Luxembourg company is located, and which will be between 33 and 39 per cent for income below 15,000 euros, and between 34 and 40 per cent for income above this figure. The second is the contribution to employment, and this is a fixed percentage which is 7 per cent.
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Mr. Fabregue has worked all over Europe, and acquired a deep knowledge of Corporate Finance. With his M. Ius. and MBA, he clearly has a complete vision of corporate problems, and will be able to help for any problem.
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he will help you to structure your legal strategies using the latest digital technologies.
We can help you with any kind of problems you may have with your future company in Luxembourg!
We set up companies, we make registrations, we draw up by laws, fill administrative form, and help you with any legal requirement.
Our company is a registrated agent in Luxembourg so we can help you register your company and observe all the legal requirements. We can help you with all the procedures related to company formation in Luxembourg.
If you are a foreign investor in the country, our partner lawyers in Luxembourg can help you loan office at a prestigious business address and help you with the company formation in Luxembourg process.
Eternos Corporation is an official luxembourgese LuxTrust accredited company. As such, we are allowed to register companies, association on your behalf, as official luxembourgese agents.
Without any doubt, no matter how complex and varied the Luxembourg legal system may be, it allows you to benefit from rather favorable tax conditions for the conduct of your business: an interesting example of this is offered by the very holding companies.
And for all other cases?
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