- Is Luxembourg an offshore jurisdiction or not?
- Why are so many companies registered in Luxembourg?
- Why do companies choose Luxembourg?
- Why is Luxembourg so attractive to foreign companies?
- Business sectors open to foreign investment in Luxembourg
- Which investment areas in Luxembourg are the most attractive?
- The advantages of ready-made offshore companies
- Redomiciliation of a business to Luxembourg
- Taxation in Luxembourg
Luxembourg is often considered an offshore jurisdiction, however, from a legal perspective, it is not a classic tax haven. So why do companies choose Luxembourg as a location to establish their headquarters? And why is Luxembourg so attractive to foreign companies? Our experts will answer these questions below.
If you want to get professional advice and legal support for the company registration procedure in Luxembourg on a turnkey basis, please get in touch with us in any convenient way.
Is Luxembourg an offshore jurisdiction or not?
Foreign investors register companies in Luxembourg because this jurisdiction provides unique benefits and advantages for businesses. Investors are attracted to the stable economy and opportunities for the development and growth of small, medium, and large businesses. Luxembourg is one of the founders of the world’s largest organizations, such as the Organization for Economic Cooperation and Development (OECD) and the World Trade Organization (WTO).
Resident companies are required to pay taxes in Luxembourg. The basic tax rates in this jurisdiction are not so low:
- personal income tax – 39%
- corporate income tax – 18%
- municipal taxes – 6-12%
- value-added tax – 17%.
However, Luxembourg’s advantages lie in special tax regimes for financial and investment activities.
Luxembourg has become home to thousands of holding companies. They are established mainly by large corporations that can afford a high level of costs and undergo due diligence checks.
Large multinational corporations have opened European headquarters in Luxembourg. Among them are Amazon, Skype, iTunes (a subsidiary of Apple), PayPal, Millicom, Rakuten, Rovi, DuPont Teijin Films, RTL Group, Delphi Powertrain Systems, ArcelorMittal, and Performance Fibers. Other factors also influence the decision to open a European headquarters in Luxembourg:
- location in the heart of Europe
- favorable value-added tax rates
- highly skilled multilingual workforce.
Is Luxembourg the wealthiest country in Europe? Find out the answer in our new article!
Why are so many companies registered in Luxembourg?
Luxembourg is home to approximately 143,000 registered companies. Of these, just over 60%, or 86,750 companies, operate in the financial, insurance, and real estate sectors. Another 21%, or approximately 30,000 companies, are engaged in the services sector.
The most common type of legal entity in Luxembourg is holding companies, which account for 43% of registered companies. They are followed by companies providing agent services in the real estate sector, at 6.4%.
Multinational corporations prefer to establish their headquarters in this jurisdiction. For example, the world’s largest steel company, ArcelorMittal, and Amazon’s subsidiary, Amazon Web Services, which provides cloud-based data storage and processing services, are both registered in Luxembourg. These are corporations with multi-billion-dollar revenues.
So why are so many companies registered in Luxembourg? Because it is advantageous from a tax perspective for businesses engaged in providing asset management services. Holding companies that own foreign companies do not pay taxes in Luxembourg.
Why do companies choose Luxembourg?
Luxembourg is a small country with great potential. It has a stable economy and a solid legal framework that encourages foreign investors and allows foreign entrepreneurs to enjoy the same rights as locals. Its high reputation in Europe is due to its geographical location and its role in the creation and functioning of the European Union.
So, why do companies choose Luxembourg as the jurisdiction for their registration? This question can be answered by listing the benefits and advantages that make Luxembourg an attractive offshore jurisdiction for investors:
- stable economy and strong GDP performance
- sovereign credit rating of AAA
- favorable location in Europe, providing good transportation links
- multilingual personnel and a business-friendly environment (the country recognizes three official languages – Luxembourgish, French, and German)
- favorable tax system and legal framework for investment
- developed infrastructure (including transportation and IT infrastructure)
- high quality of life.
Learn more about all advantages of incorporating a company in Luxembourg.
Why is Luxembourg so attractive to foreign companies?
The secret behind Luxembourg’s popularity among foreign companies and investors lies in its reputation, in addition to the tax incentives provided to companies engaged in asset management.
For more than 30 years, the country has maintained its status as a reliable partner for private capital. Luxembourg has established itself as a center for the fund industry, gaining a reputation as a reliable location for opening large international investment funds. This offshore jurisdiction is characterized by the following:
- stable ecosystem for holding companies
- reliable regulatory and legal framework
- flexible corporate law regime.
Regulated funds in Luxembourg manage a total of EUR 4.5 trillion in assets, with growth reaching 9% annually in recent years. There have been no significant scandals involving this jurisdiction. Observing the volume of assets managed from this country, foreign companies also choose this jurisdiction for their purposes.
Flexible corporate and tax legislation is another reason for Luxembourg’s attractiveness. For example, during the coronavirus pandemic and international border closures, Luxembourg tax authorities allowed local company board meetings to be held by phone or videoconference.
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Business sectors open to foreign investment in Luxembourg
There are numerous business sectors in the offshore jurisdiction of Luxembourg attractive to foreign entrepreneurs:
- financial sector
- delivery and logistics
- automotive and aerospace industries
- IT and high-tech industries
- research and development.
The process of registering a company in Luxembourg is straightforward. Companies of any type must file an application for permission to conduct business with the General Directorate for Small and Medium-Sized Enterprises at the Ministry of Economy. Once a company obtains the necessary license to operate, it is registered with Luxembourg’s Trade and Companies Register (RCS). Additional steps include:
- registering with the social security system (when hiring employees)
- renting or purchasing office space in Luxembourg
- registering with tax authorities.
Luxembourg is among Europe’s Top 10 Cities and Regions for the Future. Despite economic uncertainty in the world, the Grand Duchy of Luxembourg remains one of the most attractive European countries for foreign direct investment (FDI). According to the United Nations Conference on Trade and Development’s (UNCTAD) World Investment Report, the total amount of FDI registered in the Luxembourg offshore jurisdiction last year was USD 164 billion.
The country’s government offers the following benefits to investors:
- tax incentives
- subsidies for equipment purchases
- advantageous financing options
- capital investment deductions
- creation of new construction projects to develop this sector.
Do you want to learn how to profitably invest your money? Find out how millionaires do it.
Which investment areas in Luxembourg are the most attractive?
The investment fund sector in Luxembourg is extremely attractive for international financiers looking to create retail or non-retail funds, hedge funds, and specialized investment funds.
Foreign investors mainly use hedge funds that can be created as private or public limited liability companies. UCITS, SIF, SOPARFI, or UCI are regimes under which a hedge fund can be created. For example, SIF is a specialized investment fund. This is an important investment tool in Luxembourg offshore jurisdiction, chosen by many investors from abroad. SIFs are created by experienced financiers with large asset portfolios.
The absence of taxes on capital gains and income is a huge advantage for foreign entrepreneurs looking to create SIFs. Our experts provide complete information on the investment fund sector and how to create a fund in Luxembourg. Request a consultation via email you can find at the end of the article.
The advantages of ready-made offshore companies
Investors choose to purchase ready-made offshore companies in Luxembourg because such companies are already registered with the relevant authorities, have no debts, and can immediately begin operations.
In addition, when being a ready-made company in Luxembourg, there is no need to travel to the country, as our experts are able to conduct the process remotely.
Redomiciliation of a business to Luxembourg
The reasons to redomicile an existing company to Luxembourg are:
- favorable tax structure
- abundance of business opportunities
- economic stability
- skilled and multilingual workforce.
According to the Luxembourg Commercial Companies Act, there are several essential requirements and conditions for redomiciling offshore companies, including:
- The company’s management needs to make a decision to relocate the company to Luxembourg.
- You have to notarize the copies of founding documents.
- It is mandatory to rent an office in the new jurisdiction.
- The initial capital for opening a business must be deposited into a local bank account.
The technical steps related to moving the company to Luxembourg offshore jurisdiction that business owners need to go through:
- approve the corporate structure
- appoint a board of directors
- cancel the business registration in the country of origin
- conduct the first meeting in the new office.
Our experts can provide all the details about redomiciling an offshore company to Luxembourg and the advantages and benefits of such a decision.
Taxation in Luxembourg
The average effective corporate tax rate in Luxembourg is 29.22%. However, net income related to intellectual property rights (e.g., when using sublicensing) is exempt from 80% of the corporate income tax. In other words, the maximum effective tax rate of 5.8% is applied to such income.
Net profit under the intellectual property regime is the difference between the gross income from IP rights and any expenses directly related to them, including annual depreciation and, if necessary, loss carryforward. When a company sells relevant IP rights at a profit, the 80% exemption also applies to the resulting capital gain.
But there is something else: the 80% tax exemption applies to companies that do not commercialize their developed intellectual property. For example, a company that has registered a patent for use in its own business activities (e.g., sale of goods or services) is also entitled to an 80% reduction in the profit tax.
The protection offered by double taxation treaties in Luxembourg
The business climate in Luxembourg is also strengthened by the numerous double taxation treaties (DTT) signed with countries around the world.
For instance, capital gains, royalties, and dividends are subject to DTT. These benefits have enabled Luxembourg to achieve the following indicators:
- In 2022, the volume of foreign direct investments amounted to USD 164 billion, while the outflow of FDI decreased by approximately USD 5.6 billion.
- According to the Doing Business 2021 report presented by the World Bank, Luxembourg ranks 66th out of 190 world economies.
- More than 155 banks are registered here, making this sector highly attractive.
Please, contact our experts for consultation on opening a company in Luxembourg and other business issues at email@example.com.