Company Incorporation in Luxembourg

Can foreigners incorporate a company in Luxembourg?

Yes, foreigners can incorporate a company in Luxembourg, and the country actively encourages foreign investment through a range of favorable rules and regulations. Luxembourg’s business-friendly environment allows 100% foreign ownership in most types of business entities, including the Société Anonyme (SA) and Société à responsabilité limitée (SARL). There are no specific restrictions on foreign shareholding, meaning that foreign nationals can fully own and control a company without the need for a local partner. The incorporation process for foreigners is straightforward and can be completed remotely, making Luxembourg an attractive destination for international entrepreneurs. Additionally, Luxembourg’s membership in the European Union offers foreign companies access to the broader EU market, further enhancing its appeal as a hub for foreign investment.

To further encourage foreign investment, Luxembourg has implemented several reforms and policies aimed at attracting foreign direct investment (FDI). The country offers a stable political and economic environment, coupled with a competitive tax regime that includes favorable corporate tax rates, exemptions, and incentives for foreign investors. For instance, the government has introduced measures such as the Investment Aid Scheme, which provides grants and tax credits for qualifying investments, particularly in innovation and research and development. Moreover, Luxembourg's strategic location in Europe, combined with its highly developed financial sector, makes it an ideal location for businesses looking to establish a presence in the region. These factors, along with the ease of doing business and the absence of restrictions on foreign ownership, position Luxembourg as a prime destination for foreign founders looking to incorporate a company.

What is the structure of a SARL company in Luxembourg?

In Luxembourg, a Société à responsabilité limitée (SARL) has a specific structure that includes various requirements for directors, shareholders, share capital, office space, and other incorporation prerequisites.

Directors

A SARL must have at least one director, who is responsible for managing the company. The director can be either an individual or a corporate entity, and there are no residency requirements, allowing for foreign nationals to serve as directors. There is also no upper limit on the number of directors. Nominee directors are permitted, providing flexibility in managing the company's leadership structure. The director(s) are appointed by the shareholders and can be removed by them as well.

Shareholders

The SARL structure requires a minimum of one shareholder and can have up to 100 shareholders. These shareholders can be individuals or corporate entities, and there are no restrictions on their nationality, making it an attractive option for foreign investors. Shareholders in a SARL benefit from limited liability, meaning their financial exposure is limited to the amount of capital they have invested in the company. Nominee shareholders are also allowed, which provides additional privacy and flexibility for the company’s ownership structure.

Share Capital

The minimum share capital required to establish a SARL is EUR 12,000. This capital must be fully paid up at the time of incorporation, ensuring that the company has sufficient funds to begin its operations. The share capital can be divided into shares of equal or unequal value, and these shares can be transferred between shareholders, although the transfer of shares to third parties often requires the approval of existing shareholders.

Office Space

A SARL must have a registered office in Luxembourg, which serves as the official address for the company’s legal and administrative correspondence. This office can be a physical location or a virtual office, provided it meets the legal requirements. The registered office is also where the company’s official documents are kept, including the company’s registers and accounting records.

Documents required for a company formation in Luxembourg

To incorporate a company in Luxembourg, you need to prepare and submit various documents. These documents are essential to comply with Luxembourg regulations and ensure your business operates legally. The documents will be used in KYC due diligence procedures, application preparation, and document submission to the authorities.

Proposed Company Details:

1. Proposed company names.
2. Business Activities: Detailed description of the company’s purposes and objectives.
3. Share Details: Number of shares, share classes (if any), rights attached, and nominal value.
4. Power of Attorney: Signed by each shareholder for submission.
5. Proof of a registered address in Luxembourg
6. Certificate from Bank related to the capital

Personal Documents for Directors, Shareholders, and Promoters:

1. Certified copy of passport with at least 18 months of validity.
2. National identity card
3. Certified proof of a foreign residential address.
4. Resume and contact information.

Corporate Documents for Corporate Shareholders:

1. Certificate of Incorporation.
2. Memorandum & Articles of Association/Constitution and Amendments.
3. Certificate of Incumbency.
4. Certificate of Good Standing (CGS).
5. Proof of the registered address.
6. Board of Directors structure and corporate chart.
7. Corporate representative details and board resolution.

Additional Requirements:

1. Written confirmation that directors, shareholders, and other key individuals are not Politically Exposed Persons (PEPs).
2. Principal place of business address.
3. Source and origin of funds used in the business.
4. Expected location of the company’s customers and suppliers.
5. Information on the beneficial owner, if different from the named shareholder.

How do I incorporate a company in Luxembourg?

Step 1 - Choose the Legal Form and Company Name

The first step is to decide on the legal structure of the company. In Luxembourg, popular forms include the Société à responsabilité limitée (SARL) for small to medium-sized businesses and the Société anonyme (SA) for larger enterprises. Once the legal form is chosen, the next step is to select a unique company name. The name must comply with Luxembourg's legal regulations and be distinct from other registered companies. This can be verified through the Luxembourg Business Register (LBR), where you can apply for a certificate of availability for the company name.

Step 2 - Draft the Articles of Incorporation and Open a Bank Account

After choosing a name, the Articles of Incorporation must be prepared. This document outlines the company’s name, registered office, share capital, and details of shareholders and directors. For SARLs and SAs, the Articles must be notarized. Before finalizing incorporation, a bank account must be opened in Luxembourg to deposit the initial share capital. The bank will issue a blocking certificate to confirm the deposit, which is required for incorporation.

Step 3 - Appoint Directors and Shareholders

The company must appoint at least one director and one shareholder, who can be either individuals or corporate entities. Luxembourg does not impose nationality or residency restrictions on directors or shareholders, making it favorable for foreign investors. In cases where the company is large or exceeds specific thresholds, a statutory auditor must also be appointed to review the financial statements.

Step 4 - Register with the Luxembourg Trade and Companies Register (RCS)

With the Articles of Incorporation and the bank's blocking certificate in hand, the next step is to register the company with the Luxembourg Trade and Companies Register (Registre de Commerce et des Sociétés, RCS). This registration process involves submitting the notarized Articles, details of the directors and shareholders, and the bank certificate. The registration must be completed within one month of signing the Articles, after which the company will be officially incorporated and listed in the official electronic directory.

Step 5 - Obtain a Business License and VAT Number

Once registered, the company must obtain a business license from the Luxembourg authorities. This license is required for the company to operate legally in Luxembourg. If the company intends to provide taxable goods or services, it must also register for a VAT number with the Luxembourg VAT authority. This ensures compliance with tax regulations in the country.

Step 6 - Register for Social Security and Finalize Incorporation

The final step is to register the company for social security, which is mandatory for all companies with employees in Luxembourg. This registration ensures compliance with Luxembourg's labor laws. Once these steps are completed, the company can begin its operations. The bank account can be fully activated by providing the notary with the company’s registration certificate, which will unblock the capital and allow the company to use the funds for its business activities.

Compliance requirements post-incorporation

After incorporating a company in Luxembourg, there are several annual filings and compliance requirements that must be adhered to in order to remain in good standing with the authorities. These obligations are crucial to ensuring that the company operates legally and transparently. Here's an overview of the key post-incorporation compliance requirements:

Annual General Meeting (AGM)

A Luxembourg company is required to hold an Annual General Meeting of its shareholders within six months following the end of its financial year. During the AGM, the shareholders review and approve the financial statements, appoint auditors (if required), and discuss other key matters concerning the company’s operations.

Filing of Annual Financial Statements

The company must prepare and file its annual financial statements with the Luxembourg Trade and Companies Register (Registre de Commerce et des Sociétés, RCS) within seven months after the end of the financial year. These statements include the balance sheet, profit and loss account, and notes to the accounts. The complexity of the filings may vary depending on the size and structure of the company, with larger companies needing to provide more detailed information.

Corporate Income Tax Return

The company must file an annual corporate income tax return with the Luxembourg tax authorities. The filing deadline is typically on or before May 31st of the following year, though extensions may be granted under certain circumstances. The return should include all relevant financial information for calculating the company's taxable income and determining the amount of tax payable.

VAT Returns

If the company is registered for VAT, it must submit periodic VAT returns, which can be monthly, quarterly, or annually, depending on the level of turnover. These returns must detail the VAT collected on sales and the VAT paid on purchases, with any balance due to the tax authorities or refundable to the company.

Social Security Contributions

For companies with employees, social security contributions must be calculated and paid on a monthly or quarterly basis. These contributions cover various aspects of social welfare, including health insurance, pensions, and unemployment benefits. The company must also ensure that employee records are kept up to date and that all payroll-related obligations are met.

Beneficial Ownership Register

Luxembourg companies are required to maintain an up-to-date record of their beneficial owners in the Luxembourg Register of Beneficial Owners (Registre des Bénéficiaires Effectifs, RBE). Any changes to the ownership structure or control of the company must be reported promptly to the RBE to ensure transparency regarding who ultimately controls the company.

Compliance with the Company’s Statutes

The company must adhere to the provisions outlined in its Articles of Incorporation and any internal regulations. This includes maintaining accurate records of board meetings, shareholder resolutions, and other corporate governance activities.

Statutory Audit (if applicable)

If the company exceeds specific thresholds related to turnover, balance sheet total, or number of employees, it must appoint a statutory auditor to audit its financial statements. The audit ensures that the financial statements present a true and fair view of the company’s financial position in compliance with Luxembourg accounting standards.

VAT and tax considerations for companies in Luxembourg

Corporate Taxation Features

In Luxembourg, the corporate tax regime is determined by the company's tax residency. A company is considered a tax resident if its registered office or central administration is located in Luxembourg. Tax-resident companies are taxed on their worldwide income, while non-resident companies are taxed only on income generated within Luxembourg. The corporate income tax (CIT) rates vary based on the company’s taxable income. For instance, a 15% tax rate applies to income below €175,000, while income exceeding €200,000 is taxed at 17%. Additionally, a municipal business tax, which varies by location (between 6.75% and 10.5%), and a 7% solidarity surcharge on CIT contribute to the overall tax burden. Dividend payments to non-residents are generally subject to a 15% withholding tax, though this may be reduced under double taxation treaties.

VAT Considerations

Luxembourg's VAT rate stands at 17%, the lowest standard rate in Europe, making it an attractive jurisdiction for businesses. However, certain goods and services benefit from reduced VAT rates of 14%, 8%, and 3%, particularly in specific sectors such as financial services and insurance. Companies with annual turnover exceeding €35,000 must register for VAT. Depending on the company’s turnover, VAT returns are filed either annually, quarterly, or monthly. Companies with a turnover of less than €112,000 file annually, those with turnover between €112,000 and €620,000 file quarterly, and companies exceeding €620,000 in turnover file monthly. VAT compliance includes charging the correct VAT rates on goods and services, filing accurate VAT returns, and remitting the collected VAT to the tax authorities.