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How to Set Up a Company in Luxembourg: Your Essential Guide

How to Set Up a Company in Luxembourg: Your Essential Guide

Setting up a company in Luxembourg attracts entrepreneurs with its strategic location in the heart of Europe and favorable business environment. A clear understanding of the administrative steps and legal framework is essential for a smooth setup process. Prospective business owners must choose the appropriate legal structure, such as a Société à Responsabilité Limitée (SARL), which suits their business needs and goals.

The process typically entails depositing a minimum capital requirement, ensuring the company name's uniqueness, and having the incorporation documents drafted by a notary. Businesses in Luxembourg must also register with the Luxembourg Business Register to comply with the local regulations and obtain a business permit, applicable to both independent entrepreneurs and companies engaged in commercial, industrial, or craft activities.

Luxembourg's infrastructure, competitive tax system, and international workforce are strategic advantages that facilitate corporate growth and expansion. Supportive resources like the Chamber of Commerce Luxembourg provide guidance for entrepreneurs looking to navigate the incorporation process, enhancing the appeal of Luxembourg as a viable and attractive destination for establishing a business presence.

Understanding Luxembourg's Business Landscape

Luxembourg has established itself as a prime location for businesses, characterized by its robust economy and political stability. The country's business environment is friendly to both domestic and foreign entrepreneurs, offering a variety of company forms to suit different business needs.

Company Forms

  • Société Anonyme (SA): Ideal for larger companies; requires a minimum share capital of €30,000.
  • Société à Responsabilité Limitée (SàRL): Popular among small to medium-sized enterprises (SMEs); minimum capital of €12,000 and at least 2 shareholders, For more information on SARL go here.

Businesses must register with the Luxembourg Trade and Companies Register (Registre de commerce et des sociétés – RCS), a mandatory step for operating legally in the country.

Regulatory Environment

The nation's regulatory environment emphasizes transparency and cooperation with international norms. There's a focus on anti-money laundering (AML) and combating the financing of terrorism (CFT) regulations. Companies are advised to maintain meticulous records and adhere to the legal requirements to avoid complications.

Setting Up Process

The process of establishing a business can be rigorous. Businesses require a proper understanding of the administrative procedures, which include incorporation and obtaining a business license—a process that takes about two weeks, noted by Wolters Kluwer.

Taxation and Incentives

Luxembourg offers an attractive taxation system, with various incentives for startups and established businesses. The government provides support for innovation and development, making it a conducive environment for growth and expansion.

Choosing the Right Business Structure

When setting up a company in Luxembourg, selecting the appropriate business structure is essential. Each type has its specific implications for taxation, liability, and investment requirements.

Sole Proprietorship

A sole proprietorship in Luxembourg is suitable for small-scale businesses. It is the simplest form to establish as it involves a single individual who owns and operates the business. Tax simplicity and ease of setup are key benefits, but the owner is personally liable for all business debts.

Partnership

Partnerships in Luxembourg can be formed as general partnerships (Société en nom collectif - SENC) or limited partnerships (Société en commandite simple - SECS). They require two or more partners to share responsibilities and profits. Tax transparency is a feature, where profits are taxed as income to the partners, who are also personally liable unless a partner is a silent one (limited partnership).

Private Limited Company (Sàrl)

A Private Limited Company, or Société à responsabilité limitée (Sàrl), is a popular choice for small to medium businesses. It requires at least one director and a minimum capital of EUR 12,000. The liability of shareholders is limited to their capital contributions, creating a protective financial barrier.

Public Limited Company (SA)

For larger business ventures, a Public Limited Company, or Société Anonyme (SA), is more appropriate. This structure allows for the issuance of public stock and requires a minimum capital of EUR 30,000. The management is conducted by a board of directors, and shareholders' liability is limited to their contributions.

Specialized Investment Fund (SIF)

A Specialized Investment Fund (SIF) is designed for investment management and is a flexible and tax-efficient vehicle. It requires a minimum capital of EUR 1,250,000 to be raised within 12 months of establishment. SIFs are subject to the supervision of the Luxembourg financial authority and offer a special tax regime for investors.

Developing a Business Plan

When entrepreneurs decide to set up a company in Luxembourg, one of the key steps is to develop a comprehensive business plan. This document is essential not only to structure and plan the project but also to monitor its development. In Luxembourg, a business plan can be a requirement in the application process for certain forms of companies.

Key Components of a Business Plan:

  • Executive Summary: A clear and concise outline of the business idea, objectives, and the strategies planned for achieving these objectives.

  • Company Description: Detailed information about the business, including the legal structure, history, and the proposed or existing product and service offerings.

  • Market Analysis:

    • Industry Overview: Insight into current market trends and analysis.
    • Target Market: Identification of the primary customers.
    • Competition: An analysis of the competitive landscape.
  • Organization and Management: An overview of the company's organizational structure, detailing the roles and responsibilities of the management team.

  • Marketing and Sales Strategies: Marketing plans and sales tactics that will be employed to attract and retain customers.

  • Service or Product Line: Description of the products or services being offered, with an emphasis on customer benefits.

  • Financial Projections:

    • Funding Requests: If seeking funding, clearly specify the amount requested and future funding requirements over the next five years.
    • Financial Forecasts: Provide income statements, cash flow statements, and balance sheets for the next three to five years.
  • Appendices: Any additional information that can support the business plan, like resumes of the management team, permits, or detailed market studies.

The business plan is a dynamic document that should evolve with the business. Entrepreneurs in Luxembourg can use it internally to stay aligned with their objectives or externally to secure financing and investors. For proper guidance, stakeholders can refer to resources provided by the Luxembourg Chamber of Commerce for up-to-date information regarding business plan requirements and best practices.

Company Name Registration

When setting up a company in Luxembourg, one of the preliminary steps is the registration of the company name. This process ensures the chosen name is unique and not already in use.

Steps for Name Registration:

  1. Verify the Uniqueness
    • Check the uniqueness of the desired company name through the Luxembourg Trade and Companies Register.
  2. Reserve the Name
    • Once confirmed unique, reserve the company name, which can typically be done through a notary or directly online.

Documentation Needed:

  • Application Form: Complete the required application for name reservation.
  • Identification: Provide valid identification of the company founders.

Legal Requirements:

  • It must not infringe on existing trademarks or company names.
  • The name must be in coherence with the business activities of the company.

After the company name reservation, the notary will draft and notarize the company deed, a document that is central to the incorporation process. An individual must apply for the business license, including the reserved company name, at the Luxembourg Chamber of Commerce.

For detailed guidance on the name reservation process, Shield GEO - Velocity Global offers insights into the nuances of setting up a business in Luxembourg. It is advisable to consult with local experts or legal advisers to ensure all steps are followed correctly and efficiently.

Legal Requirements and Documentation

When setting up a company in Luxembourg, there are specific legal requirements and documentation that one must adhere to. These include notarization of company statutes, obtaining the necessary business permits and licenses, and ensuring data protection compliance.

Notarization of Company Statutes

The first step is to have the company statutes, which consist of the incorporation deed and articles of association, notarized by a Luxembourg notary. This process legalizes the company's foundational documents and is a prerequisite for registration in the Luxembourg Trade and Companies Register. 

Business Permits and Licenses

Once notarization is complete, the company must obtain the relevant business permits and licenses. The types required will depend on the company's business activities. Typically, one must submit the articles of incorporation, a copy of the statutory auditor’s appointment, and other relevant documents to the Ministry of the Economy to receive a business license. 

Data Protection Compliance

Companies in Luxembourg must also ensure they are compliant with data protection laws. They need to implement measures that safeguard the handling of personal data, following the guidelines set out by the EU General Data Protection Regulation (GDPR). Establishing these measures from the start is crucial for the lawful operation of the business within Luxembourg and the EU at large. The Luxembourg government's guide offers more insight into these requirements.

Tax Registration and Compliance

Tax registration and compliance in Luxembourg are critical steps in setting up a business. These processes ensure that companies adhere to local tax regulations and can take advantage of Luxembourg's favorable tax system.

Value Added Tax (VAT) Registration

Businesses must register for Value Added Tax (VAT) if their annual turnover exceeds €30,000. VAT registration is compulsory for companies engaging in economic activities involving the provision of goods or services. The standard VAT rate in Luxembourg is 17%, but reduced rates of 14%, 8%, and a super-reduced rate of 3% apply to certain goods and services. Companies can register for VAT through the Luxembourg Tax Authority's electronic portal.

Corporate Tax Essentials

Companies in Luxembourg are subject to corporate income tax on their worldwide income, which as of the current date is levied at a rate of 17% for corporations with a taxable income above €200,000. A municipal business tax also applies, and the rate varies depending on the location of the business. A tax return must be filed annually, with specific deadlines depending on the company's legal form. It is also essential to understand the rules regarding deductible expenses to optimize the company's tax position.

Opening a Corporate Bank Account

When setting up a company in Luxembourg, one of the key steps is to open a corporate bank account. The process is straightforward but requires attention to detail and adherence to regulatory requirements.

Required Documents:

  • A certificate confirming the company name
  • Permission to conduct business
  • Valid identification document for all company representatives (e.g., passport or identity card)
  • Proof of address for the company and the representatives

Businesses can begin applying online at various banks. Applicants must submit their ID and complete the online verification process. It’s essential to check that all online banks are recognized and authorized to offer corporate banking services in Luxembourg.

Minimum Share Capital: For a Sarl (private limited company), the minimum capital is EUR 12,500, which must be fully paid up upon incorporation. Contributions can be made in cash or in-kind, but the process must be completed diligently to meet banking standards.

Non-Resident Businesses: Non-resident business owners from abroad looking to open a business account in Luxembourg will find specific services available for them. It's often possible to apply online, which can be a convenient option for international business owners.

Each bank may have additional requirements or services that can aid in the process of setting up the account, such as providing an account manager familiar with corporate needs. Companies should enquire directly with the bank to ensure they understand all the requirements and the services provided.

Setting up Physical or Virtual Office

When establishing a company in Luxembourg, one of the first steps is to decide on the type of office that best suits the business's needs, considering both physical and virtual options.

Physical Office: A physical office provides a tangible space for operations, necessary for businesses needing a local presence or a place to host employees and meet clients. When considering a physical office, founders should ensure that the location complies with Luxembourg's zoning laws and is fit for their specific business activities.

  • Suitable for: Face-to-face interactions, physical operations
  • Requirements: Lease or purchase agreement, utility setup
  • Considerations: Access to transport, local amenities

Virtual Office: Opting for a virtual office in Luxembourg can be a strategic move, particularly for remote businesses or those not requiring a fixed physical space. This option can provide an official business address, mail handling, and sometimes additional services like phone answering or meeting spaces.

  • Suitable for: Remote operations, cost savings
  • Services: Business address, mail management, reception services
  • Benefits: Flexibility, reduced overhead

Choosing between a physical or virtual office in Luxembourg largely depends on the business model and needs. Some businesses might even combine both to enjoy the flexibility of a virtual space while maintaining a minimal physical footprint for specific needs.

Hiring Employees 

When setting up a company in Luxembourg, employers need to comply with local labor regulations and ensure proper registration with social security systems. These steps are foundational to establishing a compliant and operational workforce in the country.

Labor Laws and Contracts

In Luxembourg, employment contracts must adhere to the provisions stipulated by the Labor Code. Any employer is mandated to provide a written contract within one month of the employee's start date. There are mainly two types of contracts: Fixed-term contracts (CDD) and Permanent contracts (CDI). Fixed-term contracts cannot exceed 24 months, including renewals. On the other hand, permanent contracts offer job security and often include a probation period which must be clearly defined.

  • An employment contract must typically include:
    • The identities of both the employer and employee
    • The agreed upon job description
    • Job location
    • Start date of employment
    • Duration of contract (if fixed-term)
    • Notice periods and termination conditions
    • Salary details, including any supplementary benefits

It is essential to be aware that the employment law also stipulates mandatory benefits such as annual leave, sick pay, and maternity/paternity leave. Non-compliance with these labor laws can lead to significant penalties.

Social Security Registration

Every employer in Luxembourg must ensure that both they and their employees are registered with the Luxembourg social security system. This system, which is comprised of health, pension, and long-term care insurance, relies on employer and employee contributions.

  • The registration process includes:
    • Registering the company with the Centre Commun de la Sécurité Sociale (CCSS)
    • Declaring employees to the CCSS prior to their start date

Social security contributions are automatically deducted from the employee's salary, and the employer is responsible for contributing a matching amount. Detailed information concerning the rates and registration processes is crucial and can be accessed through entities such as Shield GEO or the Centre Commun de la Sécurité Sociale official website. Employers should ensure that they maintain accurate payroll records to satisfy reporting requirements and facilitate employee access to the social security benefits to which they are entitled.

Accounting and Reporting Obligations 

When setting up a company in Luxembourg, it is crucial to understand and comply with the local accounting and reporting obligations. Luxembourg's Commercial Code mandates that all businesses must maintain orderly accounts that accurately reflect their financial position.

Bookkeeping Requirements

Businesses in Luxembourg are required to keep robust records of:

  • All commercial transactions
  • The company's financial statements

These records must be preserved for at least 10 years.

Financial Statements

Annually, companies must prepare financial statements which typically include:

  • Balance sheet
  • Profit and loss account
  • Notes to the accounts

Compliance with the International Accounting Standards (IAS) and the International Financial Reporting Standards (IFRS) is mandatory for certain types of businesses, including public companies.

Filing Obligations

Financial statements must be filed with the Registre de Commerce et des Sociétés (RCS) within 7 months after the end of the financial year, along with an approved auditor's report if applicable.

Audit Requirements

The need for an audit is contingent on the company exceeding certain thresholds regarding:

  • Total Balance Sheet
  • Net Turnover
  • Average Number of Employees

A detailed guide on statutory annual accounts preparation and filing can be found through Deloitte Luxembourg.

Understanding and adhering to the accounting and reporting obligations is imperative for the successful operation of any business within Luxembourg's jurisdiction. Non-compliance can result in substantial fines and legal implications.

Ongoing Legal Obligations 

When operating a company in Luxembourg, it is required that the company adheres to certain legal obligations consistently to maintain its good standing. Below are the key areas to pay attention to:

1. Financial Reporting:

  • Annual Accounts: Companies must file their annual accounts with the Luxembourg Trade and Companies Register.
  • Auditing: Depending on size and type, some companies may be subject to mandatory external audits.

2. Taxation:

  • Corporate Tax Returns: These must be submitted annually.
  • VAT Declarations: Companies are often required to make periodic VAT filings, typically quarterly.

3. General Meetings:

  • Shareholders’ Meetings: Directors must convene a general meeting of shareholders at least annually.

4. Regulatory Compliance:

  • Business Permits: Maintenance and renewal, when necessary, of the required business permits for operation.
  • Data Protection: Compliance with GDPR and local data protection laws.

5. Legal Filings:

  • Changes in Corporate Structure: Any structural changes, like alterations in the articles of association, need to be recorded with relevant authorities.

Here is a simplified table summarizing ongoing obligations:

ObligationDescriptionFrequency
Financial Reporting Filing of annual accounts Annually
Taxation Corporate tax and VAT declarations Annual & Periodic
General Meetings Shareholders' assembly At least annually
Regulatory Compliance Maintenance of permits; GDPR adherence As required
Legal Filings Recording structural changes As changes occur

Fulfilling these obligations ensures legal compliance and the smooth functioning of a company within the Luxembourg legal framework. For detailed guidelines, companies can refer to documentation from the Chamber of Commerce Luxembourg

Frequently Asked Questions

When setting up a company in Luxembourg, one should understand the legalities, time frame, and costs associated with the process. Important considerations also include guidelines for non-residents and the advantages of doing business in Luxembourg.

What are the legal requirements to start a business in Luxembourg?

To start a business in Luxembourg, entrepreneurs must obtain a business permit, choose a legal structure, such as a private limited company (SARL) or public limited company (SA), and ensure compliance with the Luxembourg commercial laws. Registration with the Luxembourg Trade and Companies Register and the VAT authorities is also required.

What is the estimated timeline for establishing a company in Luxembourg?

The timeline for establishing a company in Luxembourg can vary. After finalizing the company's legal documents, registration with the Trade and Companies Register typically takes a few business days. Incorporation procedures could be completed within a few weeks, depending on the complexity and preparation.

How can a non-resident register a company in Luxembourg?

Non-residents can register a company in Luxembourg by following the standard incorporation procedure, which includes drafting the statutory documents, opening a bank account, and registering with the Luxembourg Trade and Companies Register. They may also need to appoint a local agent or representative. Foreign entrepreneurs are welcome in Luxembourg and face no major restrictions.

What are the initial costs involved in creating a business in Luxembourg?

The initial costs of creating a business in Luxembourg include administrative fees, notary charges, and costs associated with legal and financial services. For a SARL, the minimum share capital amount is €12,000. The corporate income tax rate is 20% for income below €15,000, with a progressive rate for higher incomes.

What steps are involved in purchasing an existing business in Luxembourg?

Purchasing an existing business in Luxembourg typically involves conducting due diligence, negotiating the purchase terms, transferring ownership legally, which could include share purchase or asset acquisition, and updating the registrations with relevant authorities. Business brokers can help facilitate this business transfer.

Why might Luxembourg be considered a favorable location for setting up a company?

Luxembourg is considered a favorable location for setting up a company due to its strategic location in Europe, political and economic stability, competitive tax regime, and multilingual workforce. Luxembourg also has a favorable environment for innovation and is a leading financial center within the EU.

   

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*Note for U.S. citizens: US citizens are limited in their tax reduction possibilities due to FATCA and CFC laws. Opening an offshore company can increase privacy and asset protection, but you can not eliminate your taxes without giving up your citizenship. If you are a US citizen you are obligated to pay taxes on all worldwide income. 

 

 


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