A guide to setting up a business in Luxembourg
May 30, 2024
OmniTrust has written a guide to setting up a business in Luxembourg. Luxembourg is a dynamic, multicultural country with 645,000 residents, 47.5% foreigners from 175 nationalities. It benefits from a central location in Western Europe, sharing borders with Belgium, Germany, and France, making it an ideal hub for business and travel.
Strategic location in Europe
Luxembourg’s strategic position in the heart of Europe provides excellent connectivity through a highly developed logistics infrastructure. This accessibility, combined with a high quality of life, makes Luxembourg attractive for businesses and residents.
Luxembourg City: European capital and financial hub
Luxembourg City hosts numerous European institutions, such as the European Court of Justice and the European Investment Bank, making it a key player in European politics. It is also one of the world’s leading financial centres, particularly in the fund sector, boasting over 125 banks and a significant market share.
Political system
Luxembourg operates as a constitutional monarchy with a stable political environment that supports integration. It has a 60-member Chamber of Deputies elected every five years and a government led by a Prime Minister appointed by the Grand Duke. The country is a founding member of the EU, Eurozone, NATO, and other international organisations, and it allows long-term foreign residents to vote in local and European elections.
Economic dynamism and innovation
Luxembourg’s economy is open, diverse, and stable, with one of the highest per capita GDPs globally. The country ranks highly in international competitiveness and political stability, and it is a leader in the finance, logistics, and technology sectors. Luxembourg boasts a skilled, multilingual workforce and an impressive infrastructure supporting innovation and business growth.
Global financial centre
Luxembourg is the fifth largest financial centre in the EU and a top green financial centre globally. It is home to various international banks, investment funds, and insurance companies. The country’s robust regulatory framework and investor protection measures attract significant financial activity, making it a central global finance and investment hub.
The presence of major foreign companies
Luxembourg’s business-friendly environment has attracted many multinational companies, including ArcelorMittal, Goodyear, Amazon, and Google. Luxembourg’s strategic location, skilled workforce, and supportive policies benefit these companies.
Setting up a business in Luxembourg
Business permit
To operate in Luxembourg, businesses must obtain necessary government authorisations. This involves registering with the Trade Register, the Joint Social Security Centre, and tax authorities. Certain professions require specific permits and qualifications.
Legal form
Businesses in Luxembourg can be structured as sole proprietorships or various types of companies, such as SAs, SARLs, and SARL-Ss. Each structure has specific requirements regarding capital, shareholder liability, and management.
Creation process
Setting up a business involves several steps, including identifying beneficial owners, checking name availability, opening a bank account, and formally incorporating the company. Compliance with regulatory bodies is crucial for a successful establishment.
Employment
The Labour Code and employment contracts govern labour relations in Luxembourg. The country maintains high standards for employee rights, including fair wages, reasonable working hours, and comprehensive social security benefits.
Financing and support measures
Luxembourg offers various support measures for businesses, including subsidies for R&D, investment projects, and training. These initiatives aim to foster innovation, competitiveness, and business growth.
Taxation
Luxembourg’s competitive tax policy includes a maximum effective corporate tax rate of 24.94%. The country provides numerous tax incentives and reductions to support business investments and operations.
Value Added Tax
Luxembourg has the lowest standard VAT rate in the EU at 17%, with reduced rates for specific goods and services. Businesses must comply with VAT reporting and payment schedules to avoid penalties.
Social security
The social security system in Luxembourg covers a wide range of risks, including health, maternity, disability, and retirement. Employers and employees contribute to the system, ensuring comprehensive coverage for all workers.
Intellectual property
Luxembourg supports businesses in protecting their intellectual property rights, offering tools and incentives to effectively manage patents, trademarks, and copyrights.
Living in Luxembourg
Quality of life
Luxembourg offers a high quality of life with efficient healthcare, attractive salaries, and a beautiful natural environment. The country provides excellent educational options and has made all public transport free.
Residence permit
Non-EEA nationals must obtain a residence permit from the Ministry of Foreign Affairs before settling in Luxembourg.
Income tax
Luxembourg has one of the lowest personal income tax rates in Europe, with progressive rates based on income. Tax returns must be filed annually, with various deductions available for qualifying expenses.
Inheritance tax
Luxembourg imposes no inheritance tax for direct line inheritance, with varying rates for other degrees of kinship. Donation taxes range from 1.8% to 14.4%.
Social security contributions
Employee social security contributions range between 12.20% and 12.45%, ensuring robust social protection for all workers.
Omnitrust
OmniTrust provides comprehensive fiduciary services, assisting businesses from inception to daily management. Their expertise spans accounting, tax compliance, financial advisory, and operational support, ensuring seamless business operations in Luxembourg. Find more about them here.
