SARL: Luxembourg Limited Liability Company Formation

Overview and Background of a Luxembourg SARL 

A Luxembourg Private Limited Liability Company, officially Société à Responsabilité Limitée (SARL), is a special type of corporate structure which has become most popular in Luxembourg. SARLs are not only found in Luxembourg, but they are indeed the most common and advantageous form of company found in this jurisdiction. The company code of Luxembourg LLC goes back to the Civil Code of 1915. More than 60% of companies in Luxembourg are SARLs. 

The key feature of a SARL is that it combines the main characteristics of a corporation and a private partnership. Shareholders’ liability is limited to the amount of capital which they contribute, as is the case with corporations. At the same time, SARLs have some of the key features of a partnership such as non-transferability of shares, greater simplicity, and increased flexibility and control. 

Table of Contents:

• Overview And Background Of A Luxembourg SARL 
• Advantages Of A Luxembourg SARL Structure
• Key Corporate Features Of A Luxembourg LLC
• Requirements For Incorporation Of A Luxembourg SARL
• Taxation Of A SARL
• Corporate Details Of A Luxembourg Private Limited Liability Company
• Anonymity, Confidentiality And Disclosure

Advantages of a Luxembourg SARL Structure

There are several key benefits of a Luxembourg SARL which has made it a popular corporate vehicle for local and foreign business owners alike. These include:

• Limited Liability: Shareholders’ liability is limited to the amount of capital they have contributed to the company.
• Single Owner: A SARL can be incorporated with only one shareholder who has full rights and control over the company. 
• Simple and Flexible Structure: The structure of a SARL has the same level of simplicity as a private partnership, with few administrative requirements compared to a corporation. There is also a great level of flexibility and control over the way in which the SARL is structured, which can be altered to suit the shareholders’ needs.

• Privacy: Although SARLs are subject to auditing and are required to submit financial reports, there is still a good degree of privacy at the outset. Shares are not publicly listed, nor are the names of shareholders publicly available. 
• Low Minimum Capital Requirements: The minimum authorised share capital is only EUR 12,000.
• Trade Opportunities: Luxembourg is a well-situated European nation and member of the European Union. It shares its borders with Germany, France, and Belgium, having good relations with all three. As such, it offers foreign business owners access to good trade opportunities in the European market.
• Fast and Easy Incorporation Process: Registration can be completed in as little as 1 – 2 days.
• Territorial Tax System: Only income earned in Luxembourg is subject to corporate tax for foreign-owned businesses.
• Offshore Banking: Luxembourg is a favourable jurisdiction for offshore banking, offering good levels of asset protection and financial privacy.

Key Corporate Features of a Luxembourg LLC

Requirements for Incorporation of a Luxembourg SARL

The process of incorporating a SARL requires only one document to be prepared and filed with the Trade and Companies Register (registre de commerce et des sociétés). The name of this document is the “Articles of Association”. It can be prepared in English, German, or French. It must contain the following information:

• The name of the company, as well as any abbreviations which are used.
• The legal form and structure of the company.
• The local registered address of the company’s head office.
• The total issued share capital.
• The purpose of the company and its expected lifetime if it is not perpetual. If it is perpetual, this should be stated.
• The identities and personal details of the company’s shareholders, as well as the amount of shares they hold.

The Articles of Association and any subsequent amendments must be filed with the registre de commerce et des sociétés (RCS). 

Taxation of a SARL

Companies with a taxable income of less than EUR 175,000 are charged a corporate income tax of 15%. Companies with a taxable income between EUR 175,000 and EUR 200,001 pay corporate tax of EUR 26,250 (i.e., EUR 175,000 x 15%) plus an additional 31% on income above the tax base of EUR 175,000. Finally, companies with a taxable income above EUR 200,001 pay a corporate tax of 17% on all taxable income. There is also an additional solidarity surtax calculated as 7% of the corporate tax amount.

In addition to the basic corporate tax, Luxembourg companies are subject to the following taxes:

• Property tax
• Net wealth tax
• Business tax
• VAT

Luxembourg has a territorial tax system whereby companies which are foreign-owned are only taxed on income which is sourced in Luxembourg. This is an attractive tax benefit of Luxembourg SARLs and make them ideal for use as offshore companies.

Corporate Details of a Luxembourg Private Limited Liability Company

Anonymity, Confidentiality and Disclosure

Although SARLs are subject to auditing and are required to submit financial reports, there is still a good degree of privacy at the outset. Shares are not publicly listed, nor are the names of shareholders publicly available.

Offshore banking in Luxembourg is known for its high degree of privacy and client confidentiality.

Company Shares

Shares which form part of the authorised share capital are issued as “registered shares”. These can be with or without nominal value. SARLs can also issue profit shares, but these are not included in the company’s share capital. The rights attached to these shares should be specified in the Articles of Association. A SARL is not permitted to issue public shares. 

Shareholders cannot freely transfer their shares without approval. 

Required Capital

The minimum authorised share capital is EUR 12,000.

Shareholders and Managers

A Luxembourg SARL usually has between 2 and 100 shareholders, but it is possible for a single shareholder to incorporate and fully control a SARL. 100 is the maximum, and if the number of shareholders exceeds this, the company has one year to convert its corporate form. 

There must be one or more managers appointed to run and represent the SARL. Shareholders can act as managers. Shareholders and managers can be of any nationality.

Principal Corporate Legislation 

Luxembourg companies are governed by the Companies Act, which was originally formed in 1915, but later reformed in 2016. 

Type of Law

Luxembourg follows a Civil Law system, based on the French Civil Code.

Powers of the Company

A Luxembourg SARL is regarded as a separate legal entity from its shareholders and managers. It has all the same powers and rights as a natural person. It therefore has the power to enter into legal contracts, hold property and assets, and engage in lawsuits in its own name.

Shareholders are exposed to no personal liability, which means their liability is limited to their investment in the company.

Company Meetings

Annual general meetings are only required in the case of a SARL with more than 60 shareholders. 

Local Requirements

The SARL must maintain a registered local office in Luxembourg. There is no requirement for a registered local agent.

Language of legislation and Corporate Documents

Legislation and corporate documents are generally available in English, German, and French.

Official Language

The official languages are French, German, and Luxembourgish. English is not an official language but is widely spoken as a second language, and corporate documents are generally available in English. 

Annual Financial Reporting and Audit Requirements

SARLs are required to maintain full financial statements. The statements must be filed with the Trade and Companies Register within 7 months of the end of each financial year.  

SARLs with more than 60 shareholders must be supervised by one or more internal auditors who are designated in the Articles of Association. 

A statutory audit is mandatory for SARLs who meet at least two of the following criteria for two consecutive years:

• A net annual turnover of EUR 8.8 million
• A balance sheet total of EUR 4.4. million
• An average of 50 or more full-time employees

Shelf Companies available 

Shelf companies are available. 

Time required to form a Luxembourg SARL

It can take as little as 1 – 2 days to incorporate a Luxembourg SARL.

Company Name Requirements and Restrictions

The name must be unique and not similar to any other Luxembourg company. The name can be in any language that uses the Latin alphabet, but it must end with the words “Société à Responsabilité Limitée” or one of the following abbreviations: “SARL” or “GmbH”.

SARLs cannot be involved in business activities which are reserved for banks, insurance, or investment brokers. As such, the name can not include these or associated terms which indicate this nature of business.

Access to Double Tax Treaties

Luxembourg has numerous Double Taxation Avoidance Treaties in place with nations throughout Europe and the rest of the world. 

License Fee

There is a fixed registration fee of EUR 75 to incorporate a Luxembourg SARL.