- Why you should start a business in Luxembourg: key advantages
- Country’s location and international relations
- Strong economy of Luxembourg
- Openness of the country and a friendly business environment
- No restrictions on foreign investment in Luxembourg
- No currency control in Luxembourg
- Encouragement of FDI
- Beneficial tax policies in Luxembourg
- Support and development of digital technologies
- Business regulation specifics in Luxembourg
- A simple process of registering a company in Luxembourg
- Facts to know about the taxation system in Luxembourg
- Is Luxembourg an advantageous jurisdiction to register a company there?
Luxembourg is one of the most advantageous European countries for registering a business company there. Many entrepreneurs from other countries choose the Grand Duchy to put their company headquarters there. This is an especially attractive opportunity for those who do business with other European states.
Luxembourg is known for its friendly attitude towards foreign businesses and a strong economy as well. Is Luxembourg a country where you should register a company if you reside somewhere else? Let’s discuss this question in some detail and see what economic, legal, and fiscal conditions Luxembourg offers to foreign entrepreneurs.
Why you should start a business in Luxembourg: key advantages
First, the legal framework that Luxembourg offers is highly beneficial. It is based on Napoleon’s Civil Code. Company formation and administration in the country is governed by the Companies Act dating back to 1915. Naturally, several amendments have been made to the Act over time.
The Act, in its turn, is based on Belgian legislation that is very liberal to business companies. The last time the Luxembourg Companies Act was amended was in 2016. The amendments were required to adapt the Act to the new economic and political reality. The new version of the Act was published in 2017.
The Grand Duchy of Luxembourg is a member of the European Union and one part of the amendments was introduced to bring the country’s regulatory framework in line with the pan-European standards. The other part of the amendments was aimed at preserving the flexibility in business regulation, which is what Luxembourg is famous for.
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Previously, Luxembourg was referred to as a tax haven. However, as the country is a member of several international organizations (OECD, Benelux, etc.), it has to play by the commonly accepted rules. Nevertheless, some unique tax benefits are still available in Luxembourg and this makes the country popular with foreign business people registering companies there.
The Government of Luxembourg puts great effort into preserving a friendly business environment in the country. We must note that serious measures have been taken to mitigate the impact of the COVID-19 pandemic on business companies.
Certain requirements have been relaxed. In particular, the reporting timeframes have been extended. This concerns accounting and tax reports in the first place and besides, some legal proceedings have been postponed too.
Small, medium-size, and large companies appreciate the supportive measures taken by the Luxembourg Government very much. At the same time, there are other important advantages that the country offers to foreign entrepreneurs.
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Country’s location and international relations
The Grand Duchy is located at the center of Europe between the French Republic, Germany, and Belgium. These countries are Luxembourg’s main trade partners.
We also have to mention that Luxembourg is part of an international association called Benelux. This is a union of Belgium, the Netherlands, and Luxembourg that has been in existence since 1960. And because Luxembourg is also part of the EU, it has strong ties with all member states.
Thus, a company registered in Luxembourg has all the advantages available to European companies plus some extra bonuses to be found in Luxembourg alone. This is why foreign business people wishing to gain access to the European markets choose to incorporate their companies in the Grand Duchy.
Strong economy of Luxembourg
Luxembourg is a truly prosperous country with extremely high living standards. In terms of its GDP per capita, Luxembourg has been listed among the richest countries of Europe and the world for years.
The amount of the national debt that Luxembourg has is among the lowest such amounts in the world. This is one more factor that makes Luxembourg an outstanding country. No wonder it enjoys ‘AAA’ rates from all international rating organizations.
Luxembourg is a stable and safe country with a strong diversified economy. It is characterized by openness, dynamic growth, and flexibility.
Luxembourg is one of the largest global financial centers. It offers especially beneficial legal frameworks to companies working in the stock, financial, and banking sectors. The country is also a popular place for registering funds. According to statistics, Luxembourg is second only to the United States as far as the number of funds is concerned.
Openness of the country and a friendly business environment
Luxembourg is a country with a dynamic labor market. Half of the workers in Luxembourg are foreign nationals. They mainly work in the financial sphere.
There are three official languages in Luxembourg: German, French, and Luxembourgish. Besides, everybody speaks English in the country.
Why does Luxembourg attract so many foreign workers? Because salaries are high there even by European standards. The average pay is 4 thousand euros per month. The quality of life is also superb in Luxembourg, which is one more factor that makes the country attractive for foreigners. If you register a company in Luxembourg, you will find a qualified workforce in the country and a multicultural community.
Please bear in mind that if certain conditions are satisfied, highly qualified workers can enjoy some tax benefits in Luxembourg.
No restrictions on foreign investment in Luxembourg
The Government has a fairly liberal attitude to foreign investments in the country. There are virtually no restrictions on foreign direct investments, which attracts a great number of wealthy individuals from all over the world to Luxembourg.
We have to note, however, that the EU has been laying the foundations for enhancing the security of foreign investments since 2019. On March 25, 2020, the European Commission issued new guidelines on FDI screening in response to the COVID-19 crisis. The goal is to protect the strategically important assets and companies, especially those related to national security and civil order. For this reason, investments in certain vulnerable spheres of economy have to be appraised and approved by the Government of Luxembourg.
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No currency control in Luxembourg
Another advantage that Luxembourg boasts is lack of currency control in the country. At the same time, you have to bear in mind the fact that when you open a bank account in Luxembourg or if you want to transfer more than 10 thousand euros, you have to go through the identification procedures. This requirement has been in place since November 12, 2004 when the anti-money laundering and counter-terrorism financing legislation was passed.
Encouragement of FDI
The Government of Luxembourg supports business initiatives in the country. Foreign investors have access to the same opportunities as local companies. The authorities offer a wide spectrum of supportive measures that encourage foreign investors to bring money to Luxembourg. The measures include the following ones:
- Financial support in the form of state subsidies or short- and long-term loans from the National Credit and Investment Company (SNCI);
- Reduced prices for land plots in industrial zones;
- Numerous business and innovation centers focused on business development.
Beneficial tax policies in Luxembourg
For many years, Luxembourg was thought of as a tax haven because the country used to offer a highly beneficial tax system. Today, Luxembourg has to conform to the EU requirements as far as taxes are concerned but some fiscal benefits are still available there. Many companies can qualify for various tax reductions.
For example, holding companies registered in Luxembourg can be tax-exempt if certain conditions apply. Companies with the SPF form of ownership are exempted from all taxes, including the corporate tax, the withholding tax, and the capital gains tax. This opportunity is often used by affluent families for investment portfolio management because it allows reducing the tax burden considerably.
Support and development of digital technologies
The Grand Duchy of Luxembourg is extremely supportive of various IT and Fintech businesses. The Government of the country intends to turn Luxembourg into one of the most attractive centers for startups working in these spheres.
The authorities support innovative projects through state grants. They finance research and development projects to reap fruit in the future. The support programs are aimed at creating beneficial conditions for Fintech and IT companies and the ultimate goal is to improve the quality of the digital infrastructure in the country.
Business regulation specifics in Luxembourg
The Companies Act from 1915 that we mentioned before is the key piece of legislation that regulates business activities in Luxembourg. However, there are other pieces of legislation as well as some state agencies involved in business regulation in the country. Depending on the sphere of business, the company can be subject to monitoring from various organizations.
For example, a company working in the financial sphere is monitored by the Financial Sector Supervisory Commission (CSSF), while an insurance company is supervised by the Insurance Commission. Special legislative acts are applied to investment funds too. Here much depends on the fund structure and investment policies. The investment fund managers, in their turn, have to act in accordance with relevant legislation that applies to them.
Companies of several forms of ownership can be registered in Luxembourg. Below we list company ownership types that give limited liability to the company owners.
You can establish a company in Luxembourg in the form of:
- A joint stock company (SA);
- Ann LLC that is abbreviated as SARL in Luxembourg;
- A limited liability partnership (SCA);
- A general partnership;
- A limited partnership;
- A cooperative.
Besides, you can set up a subsidiary of your foreign company in Luxembourg. This would open European markets to you and allow you to extend the geography of your business operations.
You cannot create a trust in Luxembourg, as the local legislation does not allow this. At the same time, Luxembourg recognizes trusts that have been legally established in foreign countries.
What form of company ownership should you choose if you would like to start a business in Luxembourg? This will depend on the main goals that you pursue.
SA and SARL are the types of company ownership that most foreigners choose to establish in Luxembourg. The main difference between them is that an SARL cannot go public while an SA can. In either case, you do not have to use the euro to deposit the registered capital: other world currencies are accepted too.
The minimum required corporate capital amount is 30,000 euros if you register an SA in Luxembourg. At least a quarter of the sum needs to be contributed at the moment of the company registration. If you register an SARL, you have to deposit 12,000 euros. The entire amount has to be deposed when the company is established. Both SA and SARL can have only one shareholder in Luxembourg.
An SA shall be managed by a single director or by a Board of Director (minimum three people). An external auditor needs to be appointed. This form of company ownership suits large-scale business organizations. A SARL should probably be your choice if you are planning to engage in small- or medium-scale business operations or if you are planning to participate in some investment projects.
A simple process of registering a company in Luxembourg
If you want to set up a business company in Luxembourg, you have to take the following simple steps:
- Make sure that the intended company name can be used in Luxembourg (you can find this out by checking the local Business Register web page);
- Open a bank account in Luxembourg and deposit the corporate capital;
- Submit the information about the beneficial company owners;
- Compile the company Charter/ By-laws (the document has to be translated in one of the official languages of Luxembourg);
- Register the company with the local notary public;
- Submit the registration documents to the Luxembourg Chamber of Trade and Commerce.
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Companies doing business in Luxembourg shall file and publish their financial reports in accordance with the law.
Facts to know about the taxation system in Luxembourg
Companies that are considered resident companies for tax purposes have to pay the following taxes in Luxembourg:
- The corporate income tax (CIT);
- The municipal tax; and
- The property tax.
In addition to that, companies have to make contributions to the unemployment fund.
The company is considered a resident company for tax purposes if its head office or another controlling body is located in Luxembourg.
Corporations domiciled in the country are taxable on their global incomes. Non-resident companies pay taxes only on the profits obtained on the territory of Luxembourg.
The CIT rates vary depending on the amount of income:
- Up to 175,000 euros — 18%;
- From 175,000 euros to 200,000 euros — 26,250 plus 31% of the sum that remains when 175,000 euros is deducted;
- Above 200,000 euros — 17%.
The corporate tax is levied on global income. Companies subject to pass-through taxation (such as partnerships, for example, where partners file personal tax returns) do not have to pay the corporate income tax. The municipal corporate tax is 6.75%. A solidarity tax of 7% of the CIT is added to the total amount of tax to be paid.
The VAT is 17% in Luxembourg. The tax rate is low in comparison to that in other EU states. To some goods, a reduced VAT rate (14%, 8%, and 3%) is applied.
In December 2023, the VAT is going down by 1% in Luxembourg. Banks as well as financial, insurance, and reinsurance operations are normally exempted from the VAT.
Tax residents of Luxembourg also have to pay a property tax on the property that they own in the country. The tax rates vary depending on the value of the property.
Dividends paid to a non-resident company or to a physical person are subject to a 15% withholding tax, as a rule. The rate can be lower if Luxembourg has a double taxation avoidance agreement with the country of the dividend recipient. Currently, Luxembourg has 89 such agreements with different countries including most industrialized nations.
Over a dozen new double taxation avoidance agreements are on their way (some of the existing agreements are under revision at the moment).
Is Luxembourg an advantageous jurisdiction to register a company there?
Without doubt, Luxembourg is one of the most attractive Western European jurisdictions where you can register a business company. The conditions that it offers are probably more beneficial than those that can be found in other countries in the region. A friendly attitude to foreign capital and foreign investors, an open economy, loyal tax policies, liberal business regulation traditions, and a highly developed banking sector create a unique business climate in the country.
If you would like to register a business company in Luxembourg, please contact International Wealth experts (email@example.com) and request a detailed professional consultation on the matter.