Legal requirements for company incorporation in Luxembourg
Luxembourg is one of the most popular investment locations in the EU and offers interesting business prospects for foreign companies and entrepreneurs due to attractive economic and tax conditions. However, differences in economic law between EU countries, the increasing complexity of tax law and the interplay of national tax regimes, as well as regular legislative changes present some challenges to companies investing in any of the EU markets. Therefore, there are some important things to consider regarding company incorporation in Luxembourg.
Obtaining a residence permit for self-employment purposes
The process of company incorporation in Luxembourg is subject to formal requirements in such as: entrepreneurs must apply for a residence permit and provide evidence of their professional qualifications, especially if they want to work as self-employed. Proof of professional qualifications can be obtained by a corresponding diploma, a master’s certificate or an EC certificate. The personal honesty of the manager must be proven by a police certificate of good conduct, an affidavit on bankruptcy and a declaration of honor on former self-employment activities.
The application for the residence permit can be sent at the same time with the company incorporation in Luxembourg procedure. However, it must be ensured that the activities listed in the articles of association coincide with the details in the residence permit. Also, the business premises must be suitable for the activities listed in the residence permit. All documents relevant to the conduct of business in Luxembourg must be related to the Luxembourg company, and the management must also be present regularly in Luxembourg.
The timeframe for the start-up process, including the opening of an account for the payment of the share capital and notarized certification of the incorporation deed, obtaining the residence permit, entry in the commercial register and registration with the tax and social security authorities should be planned for at least a couple of weeks.
Choice of legal form should be well thought out
In addition to the peculiarities of Luxembourg company law, tax aspects always have to be taken into account when choosing the form of establishment and the legal form. Errors in the choice of legal form can lead to liability problems and have a profit-reducing effect. For the establishment of a market presence in Luxembourg, a dependent branch or an affiliated company in the form of a subsidiary of a foreign company are all suitable structures for company incorporation in Luxembourg. Due to the lack of legal personality and limitation of liability, however, the branch office is not very widespread in practice.
In Luxembourg, investors can rely on both capital and partnerships. Among the most common legal forms are corporations in the form of the Société à responsabilité limitée (S.à.rl.) and Société Anonyme (S.A.), mainly due to the limitation of liability. The minimum capital for a S. à r. l. is 12, 000 euros and for a S.A. it’s 30,000 euros. One partner is enough for company incorporation in Luxembourg in the case of both types of companies.
When distributing dividends between corporations from EU member countries, the tax rate is established at 5%. If a dividend is distributed directly to the shareholder as a natural person, the authorities from the company of residence of the shareholder levy the withholding tax. In the case of a distribution to a partnership, the partial income procedure is applied.
Whatever type of business structure you choose for company incorporation in Luxembourg, make sure that you require assistance from a specialized firm that can help you handle all the legal requirements and prepare the necessary paperwork, in order to avoid any types of problems in the future.