Company Formation Luxembourg
Updated on Monday 21st September 2020
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Any person or legal entity, national or foreign, can be a shareholder or a director in a Luxembourg company. Clients must know that, according to the Commercial Law in Luxembourg, companies must have a registered office. Our company formation agents in Luxembourg can assist investors in setting up their companies. Our team at Bridgewest can also help investors with full assistance on offshore incorporation. Below, investors can study the steps that must be followed for company registration in Luxembourg.
What are the main steps in opening a Luxembourg company?
First of all, the client must choose the name of the company and set-up the bank account where the initial share capital will be deposited. In order to set up the bank account, the client must present identification documents such as: passport copies, identification cards or driver license, a recent utility bill or a bank statement as proof of residential address, a detailed CV, a certificate of good standing issued by the bank and possibly other documents or application forms.
After the bank account has been set up, the client must deposit the initial share capital that the bank will block until the company is incorporated. The next step will be drawing all the documents related to the formation of the Luxembourg company. This process can be done personally or by representation based on a notarized power of attorney. Once all the documents are ready, they can be submitted for approval with the Trade Register in Luxembourg. BridgeWest provides company formation in Luxembourg. Our assistance includes:
- drawing up the articles of association that can be signed through power of attorney (Luxembourg laws require power of attorney for any public notary proceedings);
- drawing up documents for company incorporation in Luxembourg - specimen signatures, identification papers copies, application form required by the Luxembourg Company Registration Office;
- arranging public notary proceedings (all procedures for company incorporation are done in front of a Luxembourg public notary);
- providing a registered office in Luxembourg on demand - the registered office serves as headquarters for the company in Luxembourg and it will be made public;
- setting up a bank account for the company in Luxembourg - BridgeWest will help in setting up the share capital bank account, as well as a current bank account once the company is incorporated;
- recommending a Luxembourg accountant, as accounting services are needed for new businesses in Luxembourg.
Types of companies in Luxembourg
The most common company type is the limited liability company in Luxembourg (Societe a Responsabilite Limitee – SARL). The Luxembourg limited liability company is a very popular type of business as it allows a minimum of two shareholders and a maximum of 100 and a director. The minimum share capital for a S.A.R.L. in Luxembourg is EUR 12,000 and it must be paid in full upon incorporation. The shareholders will be held liable to the extent of their participation for the company’s debt and obligations.
The limited liability company is the main option chosen by businessmen who want to set up a small or medium-sized company. This is a common way to start a business in other European countries, as well as on other continents. This company type is also a suitable vehicle for offshore company formation and it is generally prescribed under the national legislation of countries that provide the possibility of offshore company set up.
When opening a company in Luxembourg as a limited liability company investors should be aware of the fact that this business form can’t be used for all types of business activities that are available here. For instance, the limited liability company can’t be the business form of a company registered in the banking and savings industries or the insurance sector.
Another way to start a business here is by setting up a joint stock company in Luxembourg (Societe Anonyme - SA). The Luxembourg S.A. requires a minimum share capital of EUR 31,000 and a quarter of if must be paid upon incorporation. It requires a minimum of one shareholder who can be an individual or a legal entity. The shareholders will be held liable to the extent of their participation for the company’s debt and obligations.
Foreign businessmen can also register a SOPARFI company in Luxembourg (Société de participations financières). The Luxembourg SOPARFI company is a firm that has financial investments and it can be incorporated as a S.A.R.L. or S.A. company. The SOPARFI company benefits from Luxembourg’s “inter-corporate” privilege and benefits from attractive taxes, which is why it is very popular among foreign investors.
Investors can incorporate a general partnership in Luxemburg - the Luxembourg general partnership requires at least two shareholders and a director who will be held fully liable for the company’s debts and obligations. There is no minimum share capital required in cases of Luxembourg general partnerships.
There is also the possibility of starting a limited partnership in Luxembourg. The Luxembourg limited partnership must be formed by at least two shareholders. One of them will act as a general partner and will have full responsibility for the company and management rights, as well. The limited partner will be held liable for the company’s debts and obligations to the extent of his or her share contributions.
Foreign companies can enter the local market through the Luxembourg branch, subsidiary or the representative office. Foreign companies are allowed to set up separate enterprises from the parent company, where the foreign company will be a shareholder in a Luxembourg company. Foreign companies can also open extensions of the parent company in Luxembourg. If you are interested in company formation in Luxembourg, we can help you start a business in this country.
What are the main reasons for investing in Luxembourg?
Luxembourg represents a jurisdiction that is not only suitable for the incorporation of commercial companies, but also one of the most important financial centers at a global level. This means that foreign investors also have the opportunity of starting an investment fund here (and the law regulating this aspect provides diversified options). Below, we have highlighted few important aspects regarding the business environment in Luxembourg:
- in 2018, the Luxembourg market accounted for 136 banks from 29 countries;
- the country is an important investor in the space industry, allocating more than EUR 200 million to the development of this field;
- it also has 131 businesses operating in the bio-health industry, and half of them were incorporated in the last 10 years;
- the country is open to foreigners, as a large part of its population is of foreign origin (73% of its working population is of foreign origin) while most of the population (78%) speaks at least 3 foreign languages;
- with regards to exports, it must be noted that Luxembourg exports 65% of all its services and products to foreign countries.
The country is the 2nd largest investment fund center in the world, as presented by the data gathered by the Agency for the Development of the Financial Centre and the main destination for investors who prefer to invest in alternative investment funds. Luxembourg funds have a total of EUR 4.8 trillion as assets under management and 98 of 100 of the top asset managers can be found here.
Those who do not want to open a company in Luxembourg, but who want to register an investment fund must know that they can benefit from a set of tax exemptions. Typically, funds registered here have to pay only few basic taxes, but this will depend on the law under which they are incorporated; our team of specialists working at BridgeWest can provide more information and can help you select a suitable legal entity for an investment fund.
Taxation in Luxembourg
The standard VAT rate in Luxembourg is 17%, but reduced rates apply to certain products. There are three types of reduced VAT rates, of 14% (charged for wines, mineral fuels, printed advertising, heating and cooling), of 8% (for hairdressing services, electricity, natural gas, cut flowers) and 3% (for certain pharmaceutical products, foodstuffs, books, newspapers, cable TV, certain construction works and others). The international transportation and the transportation in the Community countries are exempted from the VAT.
The VAT is a common type of tax that can be found in all European countries. This type of tax was introduced for the purpose of collecting financial resources at the state budget from the sale of goods and services on a local market. On other continents, this type of tax can be found under a different name, but in certain jurisdictions this type of tax does not exist. Investors who are interested in offshore company formation must know that offshore jurisdictions do not typically impose this type of tax.
The corporate tax rate in Luxembourg is 24.94% and it includes a 7% employment fund contribution. An additional municipal business tax also applies depending on the city the company is in (the municipal business tax in Luxembourg is 6.75%). The dividend tax in Luxembourg is 15%, unless it is reduced by tax treaties.
The income of a company in Luxembourg that is above EUR 200,000 (calculated on a yearly basis), is imposed with the standard corporate income tax of 17%. Any corporate income with a value below EUR 175,000 is charged with a tax applicable at a rate of 15%. The company can be charged with EUR 26,250 as corporate tax and the income of minimum EUR 175,000 and maximum EUR 200,000 will be charged at a rate of 31%.
BridgeWest is also able to offer ready-made Luxembourg companies and VAT registration. Please contact us for more information and prices. Our team working at BridgeWest can represent investors not only in Luxembourg, but in other jurisdictions as well, as we are a part of an international network of specialists in company formation. Our team has the legal expertise in representing investors in the procedures for offshore incorporation and you can also rely on us for opening an offshore bank account.