Doing business in Luxembourg

How quickly can I set up a business?

The main steps in setting up a business are as follows:
• Preliminary steps
– Identification of beneficial owners
– Checking the availability of the name with the Trade Registry
– Opening a bank account
– Subscription of capital
– Letter of commitment from directors
• Preparation of articles of association
• Preparation of delegation of powers
• Formal incorporation of the company (at the notary’s office when required)
• Filing with the Trade Register, the Register of Beneficial Owners and the Registration Duties, Estates and VAT Authority

How can I raise finance?

Companies setting up in Luxembourg may benefit from support measures to expand their activities, develop innovative products and strengthen their competitiveness.
• Support for SME investment projects
• Subsidies for R&D and innovation projects
• Support measures for young companies
• Research and training for doctoral and post-doctoral students (Training and Research Assistance)

What are the legal requirements for setting up my business?

In order to settle in Luxembourg, a company must obtain the necessary government authorisations. Commercial, craft and industrial activities as well as certain professions are subject to a business permit.
Commercial activities
In order to obtain authorisations from the Ministry
of the Economy for a regular and lasting commercial activity in Luxembourg, applicants must demonstrate that their company has a fixed physical establishment
in Luxembourg. They must also meet certain conditions related to their qualifications and professional integrity. The required qualifications depend on the nature of the activity and may sometimes need specific professional qualifications or even recognised university degrees.Once authorised, companies must register with the Trade Register, the Joint Social Security Centre and the tax authorities.
Other regulated activities
Some activities are regulated and require additional qualifications and licences. Health professions, lawyers, auditors, accountants, etc. are regulated by specific ministries or professional bodies. Financial institutions and fintech companies are regulated by the Financial Sector Supervisory Commission (Commission de surveillance du secteur financier (CSSF)).

What structure should I consider?

Sole proprietorship
Setting up a sole proprietorship implies setting up a business as a natural person instead of creating a separate legal entity. It implies more flexibility, less administrative procedures and set-up costs, but more risk as there is no distinction between private and commercial life.

Companies
To reduce risks, many entrepreneurs choose to set
up a company that offers a strict separation between their personal and business ownership. In this case, the liability of the partners is limited to the amount of their contributions. Corporations are also impersonal and rely mainly on the capital provided by the partners.

The most common forms of joint stock companies are the following :
An SA (public limited company ) is established by notarial deed. The minimum capital of 30,000 € must be fully subscribed and at least 25 % (7,500 €) paid up at the time of incorporation. The SA allows new shareholders to join the company and provides access to capital markets. The management of a public limited company may be carried out by a Board of Directors or by a management supervised by a Supervisory Board. There is no limit to the number of shareholders. Shares can be registered, bearer or dematerialised.
An SARL (limited liability company) must be established by notarial deed with a minimum capital of 12,000 € fully subscribed and paid up at the time of incorporation. The initial shareholders of the SARL have more control over the ownership of their shares because these shares cannot be traded freely. The number of shareholders is limited to 100. Shareholders are liable for debts to the extent of their capital contribution. The management structure is very flexible.
An SARL-S (simplified limited liability company) can only be set up for the purpose of a commercial activity and can only be set up by a natural person who holds a business permit issued by the Ministry of the Economy. A SARL-S can be set up under private seal with a minimum capital of between 1€ and 12,000 € fully subscribed at the time of creation.
There are also other interesting vehicles such as general partnerships (SNC), limited partnerships (SCS), special limited partnerships (SCSp), limited partnerships with shares (SCA), family asset management companies (SPF) and securitisation companies.

What advice can you give me in regards to payroll and taxation requirements?

Taxation
In the context of international competition, Luxembourg is well aware that tax policy is an important factor in attracting companies to its territory.
Taking into account all the various taxes and contributions, the maximum effective tax rate for a company is 24.94 %16. This rate corresponds to the 17 % «community income tax» (CIT), the 7 % contribution to the Employment Fund and the commercial tax (MBT) set by each municipality. Companies may benefit from numerous tax reduction measures, for example to finance their investments. Under certain conditions, certain income such as income from parent companies, income exempted from double taxation under bilateral agreements, dividends, may be exempted from withholding tax. In addition, companies whose taxable income does not exceed 175,000 € are subject to a standard overall rate of 22.80 %.

Value Added Tax
The standard VAT rate of 17 % is the lowest in the EU. There is also an intermediate rate of 14 % on advertising, alcohol, fuel, custody fees, securities management, and a reduced rate of 8 % on gas, electricity, clothing, and a «super-reduced» rate of 3 % on most food products and on restaurants, books, medicines and certain housing creation or renovation works. For 2023, the government has lowered all rates by 1 %, except for the super-reduced rate of 3 %.VAT must be paid monthly, quarterly or annually, depending on turnover. The annual VAT return must be submitted by 1 March.
A housing VAT rate of 3 % may be applied to the acquisition of the main residence and to renovation works.

Is there anything else that I should know?

Labour relations are governed by:
• The Labour Code
• The employment contract (fixed-term or open-ended) containing at least the identity of the parties, start and end dates, daily or weekly working hours, the basis of remuneration, the duration of holidays, the period of notice, the probation period, if any, and extra-legal benefits
• The collective agreements applicable to the company’s sector of activity
The normal (and maximum) working time is 8 hours per day and 40 hours per week. Overtime may not exceed 2 hours per day with a maximum of 10 hours per month. A weekly rest period of 44 consecutive hours must be provided. Employees’ remuneration cannot be less than the social minimum wage (SMW) for unskilled workers and 120 % of SMW for skilled workers.
It is compulsory for companies with more than 15 employees to have a staff delegation, the members of which are elected every five years in social elections.