How to register a company in Luxembourg?

Step 1: What is the right business structure for me?

Any foreign company can operate in Luxembourg as a subsidiary or branch office. As a branch office, the profits generated are immediately taken by the head office while a branch office must, on an annual basis, provide the Luxembourg Inland Revenue with financial data, sometimes confidential, on the parent company. Since a branch office is not really in a position to conclude agreements (transfer or franchising of a patent, operating license, procedures, etc.), it cannot take advantage of any resulting tax deductions available to a local entity.

Therefore, most companies set up their Luxembourg operation through a local subsidiary and generally in the form of a private limited liability company (Société à responsabilité limitée – SARL). A SARL is a special form of commercial company: it combines features that are characteristic of both capital companies (e.g., the limitation of shareholders liability to the extent of their contribution) and partnerships (e.g., the non-transferability of shares in the company).

Requirements to form a Luxembourg SARL

A SARL should have between 2 and 100 shareholders. The shareholders may be individuals or legal persons. A single shareholder SARL is permitted.

There is a minimum share capital of EUR 12,000. The share capital must be fully subscribed and paid up at the time of incorporation. A SARL may issue shares with different values, either with or without a nominal value. Contributions can be made in cash or in kind. In-kind contributions generally require statutory auditors to confirm valuation. Contributions "in industry" (services, know-how, etc.) do not form part of the share capital and do not need to be valued separately by a statutory auditor.

The company’s capital is divided into equal equity interests with a par value not less than €25, and the transfer of shares to parties who are not shareholders is subject to strict conditions laid out in Article 189 of the Act on Commercial Companies. They may only be transferred inter vivos to non-shareholders with the approval of the general shareholders meeting, representing at least 75% of the share capital. If provided for in the Articles of Association, the proportion of the share capital required for approval may be lower (but not less than 50%).

Document Preparation Checklist for SARL Formation

​To start the incorporation of the SARL, you will provide the following:

1. The SARL’s name (the registry may request a French or German translation if a foreign language is used. Your company name will need to end with Sàrl);
2. The SARL’s address (your Luxembourg company must have a registered office, which must be an address in Luxembourg. The registered office is where documents may be legally served on the company);
3. The full name, date of birth, address and nationality of all directors;
4. The full name and address of all shareholders;
5. The company’s proposed business activities;
6. The amount of subscribed share capital.

A bank account needs to be set up with a minimum balance to pay for the capital contribution and cost of the notary upfront, although the bank does not need to be located in Luxembourg. A SARL must be formed in the presence of a notary. The deed of incorporation must contain certain legally required information. In addition to the information listed above, it should also include the following:

1. The identity(s) of the individual or legal person(s) who signed the deed, or on whose behalf the deed was signed (if the shareholders cannot be physically present in front of a notary, a power of attorney needs to be prepared, authenticated and legalized);
2. The different classes of shares, if any;
3. Details of contributions in kind, if any;
4. Details of any other non-cash considerations at the time of incorporation;
5. Where applicable, the number of securities or shares that do not form part of the share capital, and the rights attached thereto;
6. When not provided for by law, the rules governing the operation, administration and oversight of the company;
7. At least an approximation of the company's costs.

The Articles of Association must also be prepared and filed in full with the Trade and Companies Register for publication.

The articles of incorporation and the names of all directors must be published – Publication is in two stages: first by being submitted to the business register (Registre de Commerce et des Sociétés) within one month of completion of the deed of incorporation, and second by formal publication in the official journal of the Grand Duchy (the Mémorial du Grand-Duché de Luxembourg, Recueil Spécial des Sociétés et Associations) within a month of submission to the registrar.

Step 2: Who will be operating for me in Luxembourg?

Managers Managed Companies

A SARL is managed by one or more managers – who may or may not be shareholders – appointed by the shareholders, either in the Articles of Association or by subsequent deed, for a limited or unlimited term.

A legal person may be appointed to manage a SARL.

With the exception of actions requiring a decision on the part of the shareholders, as provided for by law or in the Articles of Association, the manager(s) may undertake any action deemed necessary or useful for achieving the corporate purpose. They represent the company with respect to third parties and in the courts.

There are no restrictions on the nationality of a SARL's managers; they may be Luxembourg nationals, EU nationals, or nationals of any third country.

Managers need not be registered as traders.

They may only be removed from office for legitimate reasons, such as obvious incapacity, unfair competition to the detriment of the company or misappropriation of funds, unless otherwise specified in the articles of association.

The company is bound by the actions undertaken by the manager(s), even when they surpass the corporate purpose, unless it can be proven that the third party involved knew, or could not have been unaware of, the fact that the action surpassed the corporate purpose.

However, when several managers are appointed, the company may define their joint and/or individual duties and powers, in which case the latter must be declared to the Electronic Compendium of Companies and Associations (Recueil électronique des sociétés et associations – RESA) for publication and then become enforceable against third parties.

Managers are accountable to the company for carrying out the duties entrusted to them, and for any misdeeds committed in the performance of such duties

Meeting of shareholders

The shareholders’ decisions are made at general meetings of shareholders.

The general meeting decides on:

1. amendments to the articles of association;
2. changes in the company name;
3. changes in the share capital;
4. changes in the legal form of the company;
5. the appointment or dismissal of managers;
6. the liquidation of the company, or changes in its nationality.

The shareholders are entitled to a share of the profits.

The shareholders are entitled to information on the inventory, balance sheets and reports produced by the supervisory board, if such a board exists.

In SARLs with more than 60 shareholders, a general meeting of shareholders must be held at least once a year. The time of year at which the meeting is held is specified in the company's Articles of Association. Unless the Articles of Association have been amended to state otherwise, it is not mandatory to hold a general meeting in SARLs with fewer than 60 partners. In this case, the partners are invited to send in their votes in writing, after having received the text of the resolutions or decisions to be taken.

Each shareholder has a number of votes equal to the number of shares they hold. Decisions are validly made by a majority vote representing 50% of the capital.

In SARLs with a single shareholder, the latter alone wields the powers vested in the general meeting of shareholders.

Step 3: Business License Application in Luxembourg

All professional economic activities are subject to the prior granting of a business permit (autorisation de commerce) in Luxembourg.

This permit is usually granted to businesses (professionals operating under their own name or the company) in about 3 months, but may take another month under certain conditions.

A business permit is granted to the business if the applicant satisfies the required legal conditions of qualification and professional integrity. The applicant must:

1. be the professional operating under their own name if the business is operated by an individual; or
2. be a person who has significant ties to the business. This person must be an employee of the company; the owner of the company; a partner in the company; or a shareholder in the company.

A business permit is required for any person that wishes to engage in the following professional activities as a self-employed person or as a company:

1. commercial activity (trade, HORECA (hotel, restaurant and café), transports, industry, etc.);
2. craft activity (food, fashion, construction, mechanical engineering, audiovisual, entertainment, art, etc.);
3. certain liberal professions which are mainly intellectual in nature.

Although the remote formation of a Luxembourg company is doable, the grant of the business permit is conditional on certain factors, including the proof of effective and permanent management of the business by the business permit holder, who must personally and regularly ensure the effective day-to-day management and direction of the company. A remote domicile may be regarded as unfavorable for the applicant.

The permanent presence of a third person, even if authorized to commit the business, is not enough to make up for the absence of the business permit holder; it is highly recommended, therefore, that you find a local connection to be the business permit holder who also serves the company as an owner, associate, shareholder or employee of the business.

The permit holder should be the applicant with the following:

1. professional integrity;
2. professional qualification in line with the planned activity;
3. establishment in Luxembourg; the business permit is only granted if there is a physical installation in Luxembourg that includes an infrastructure suitable for the nature and scale of the concerned activity;
4. compliance with tax and business obligations: the business manager must not have evaded business and tax obligations in their previous or current business activities, whether these activities were carried out under their own name or through a company run by said business manager.

The final granting of the business permit requires that the articles of association be filed with the Trade and Companies Register (RCS).

Step 4: How do I ensure compliance with the local regulations?

As discussed above, a SARL with more than 60 shareholders is subject to the mandatory shareholders meeting requirements. For all other SARLs, the following compliance requirements apply:

Specific Registration Fee for Certain Transactions

A fixed specific registration fee is levied on operations for:

1. incorporation of a civil or commercial company who has its registered office or central administration in Luxembourg;
2. modification of the Articles of Association of a civil or commercial company who has its registered office or central administration in Luxembourg;
3. transfer to Luxembourg of the registered office or central administration of a civil or commercial company.

The amount of the fixed, specific registration fee is set at EUR 75 and must be paid to the Registration Duties, Estates and VAT Authority (Administration de l'enregistrement, des domaines et de la TVA - AED).

Annual Account Filings

Annual reports, approved by shareholders, including balance sheet & profit and loss statements,  prepared by the management, must be filed with the Luxembourg Register of Commerce and Companies within one month following their approval and will be published in full in the Luxembourg electronic gazette (Recueil Electronique des Sociétés et Associations).

A SARL may produce a short-form balance sheet if, on the balance sheet closing date, it has not exceeded the thresholds in 2 of the following 3 criteria:

1. balance sheet total: EUR 4.4 million;
2. net revenue: EUR 8.8 million;
3. average number of full-time employees: 50.

A SARL may group certain items together in the profit and loss statement if, on the balance sheet closing date, it has not exceeded the thresholds in 2 of the following 3 criteria:

1. balance sheet total: EUR 20 million;
2. net turnover: EUR 40 million;
3. average number of full-time employees: 250.

Taxes

SARLs are subject to the following fees and taxes:

1. business tax;
2. net wealth tax;
3. corporate income tax; and
4. VAT.

If its annual revenue excluding taxes is less than EUR 112,000: VAT returns must be filed annually;

If its annual revenue excluding taxes is between EUR 112,000 and EUR 620,000: VAT returns must be filed quarterly;

If its annual revenue excluding taxes exceeds EUR 620,000: VAT returns must be filed monthly.

1. General Corporate Income Tax

Luxembourg taxes its corporate residents on their worldwide income and non-residents only on Luxembourg-sourced income.

Businesses with taxable income lower than 175,000 euros (EUR) are subject to corporate income tax (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 [FYs] 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 example, for FY 2019 and FY 2020 (includes the solidarity surtax of 7% on the CIT amount, and the 6.75% municipal business tax rate applicable*).

The CIT does not apply to tax-transparent entities (e.g. general or limited partnerships or European Economic Interest Groupings).

A 7% solidarity surtax is imposed on the CIT amount. Taking the solidarity surtax into account, the aggregate CIT rate is 18.19% for companies with taxable income in excess of EUR 200,001.

*Municipal business tax is levied by the communes and varies by municipality. The municipal business tax for Luxembourg City is 6.75%.

2. IP Holding Company

Luxembourg has a special rule reducing the tax rate on net income derived from IP rights by 80%. One pays a maximum effective tax rate of 5.8% on this type of IP income. Net income under this IP system is the difference between the gross revenue from the IP right and any expenses directly related to the intellectual property rights, including the annual write-offs and, where appropriate, the deduction of losses. When an IP company sells qualifying IP rights with a profit, then the 80% exemption also applies to these realized capital gains.

3. Value Added Tax (VAT)

At present, four different VAT rates are applicable in Luxembourg:

1. a normal rate of 17% for taxable operations other than those listed below;
2. a super-reduced rate of 3% for operations involving food; soft drinks; children's clothing and footwear; water supplies; certain pharmaceutical products; certain medical equipment for disabled persons; agricultural supplies (excluding pesticides); raw wool; treatment of waste and wastewater; some goods and services for consumption on-board passenger transport; some works of art, collector's items and antiques, among others;
3. a reduced rate of 8% for operations involving goods and services such as cleaning in private households; minor repairs of bicycles, shoes and leather goods, clothing and household linen; hairdressing; district heating; natural gas; electricity; firewood; LPG; cut flowers and plants for decorative use; some works of art and antiques;
4. an intermediary rate of 14% for operations pertaining to certain household-related services and goods.

Intra-community and international transport is exempted from VAT in Luxembourg.