Obviously, things have changed a lot over the past decade, and the concept of a tax haven is no longer what it used to be. There are different reporting standards these days, as well as anti-money laundering directives and laws, so pretty much everything is reported.
It is almost impossible to find a proper tax haven to hide your money these days. With all these, Luxembourg is still among the modern tax havens – the kind of places where you cannot really hide money, but still benefit from lower tax and even asset protection.
Despite all the changes occurring lately, Luxembourg is still an attractive jurisdiction for entrepreneurs – as well as a heavily restricted one. Practically, while it does offer a lot of benefits, it is not for everyone, but mostly for those who know what they are doing.
No matter what type of business or industry you are interested in, Luxembourg company formation is one of the first steps in the process. Here is everything you need to know about Luxembourg and the steps you have to go through to become successful.
Why incorporate in LuxembourgFirst of all, why would you incorporate in Luxembourg? Why would you choose a Luxembourg company formation service when there are plenty of other jurisdictions out there that may actually provide better deals? Simple.
The country is independent and has a top-notch reputation. It is also part of the European Union and is located right in the middle of it. Given the location, it offers easy access all over Europe, including other major centers – Amsterdam, Paris, Brussels, and so on.
From a historical point of view, Luxembourg has always been interested in good economics. It has always promoted good trade deals among countries, which inevitably led to a wide variety of investments in the country.
With these thoughts in mind, it is considered one of the most powerful financial centers out there. Do not let yourself be fooled by the fact that it is one of the smallest countries in the world – less than 1,000 square miles. Its economy is sound, and this is what makes the difference in terms of money.
The strategic location in Europe is just as attractive for those who want easy access to other major centers. Moreover, Luxembourg has one of the highest standards of living in the world – the quality of life is quite high compared to other countries in the EU.
Once in Luxembourg, you will gain access to a highly educated workforce that can speak more languages. Luxembourgish is the official language, but other administrative languages include German and French too. Plus, everyone can speak English.
Digging deeper, while part of the EU, Luxembourg has never really been involved in major wars. The country is extremely stable – financially, socially, politically, and economically. There are no scandals or unnecessary issues either.
Since it is rated as a solid financial center and hosts prolific business people and companies, Luxembourg was somehow forced to establish tax treaties with other countries. These days, it has about 60 such agreements in place.
Now, one of the main reasons wherefore so many business people opt for Luxembourg company formation is taxation. It is set at 28.59%, but small adjustments may still occur every now and then. The corporate tax is set at about 21%.
Throw in the unemployment charge of 0.84% too, as well as the municipal business tax of just under 7% – this tax is aimed at companies established in Luxembourg City only. Companies should also consider the wealth tax of 0.5%, yet there are numerous exceptions there.
In other words, company taxation is quite competitive, but this is not everything. Forget about withholding taxes on dividends – no such things. There is no need to pay if you are covered by a double tax treaty – otherwise, the tax is set at 15%.
There is no such thing as a withholding tax on royalties or interest either. As for VAT, it is currently the lowest in Europe. Most countries have the VAT at 19% or more, but Luxembourg has it at 17% only, so it is definitely a good saving there.
Personal tax rates are quite competitive, too and will never exceed 38.95%. Such high rates apply to high net worth individuals floating millions on a yearly basis, so you are less likely to be affected by such a rate.
Then, it is worth mentioning the low social security rates too – 13% for employers and 12% for employees.
Now, Luxembourg is a well-respected and reputable jurisdiction. Despite its small size, it is one of the founding members of the European Union, but it is also considered the capital of the union. Luxembourg City is among the three official capitals of the union.
The country is an internationally recognized center for communication and information technologies. It is quickly turning into a front runner in terms of data protection and cybersecurity, and it hosts a plethora of research projects and infrastructures.
Boosted by a top-notch infrastructure, Luxembourg has a solid biotech industry with great IP protection, R&D, and stability. Along with strong policies in place, the country is definitely an attractive environment for innovative projects.
There is nothing to worry about in terms of banking and finances either. It is ranked among the top three financial centers in Europe, along with London and Zurich. Finances can be considered one of the driving industries in the country – about 30% of the GDP comes from banking services.
Now, with all these, Luxembourg company formation may not be for everyone. What are the risks then?
Challenges of Luxembourg company formationLuxembourg company formation is not as easy as it is in other countries. Despite being a prolific environment for business, starting and running a company in Luxembourg can be a bit tricky. Take the incorporation process, for example.
Incorporating a company takes time. Besides, each type of business is governed by a different regulation, making things even more complicated. The industry you activate in will also dictate how quick or slow the process is.
Getting a business license is a completely different process, and it may also drag things. Normally, it should not take more than a couple of weeks. But then, there are capital requirements you must meet. Some businesses also have to provide evidence of qualifications and training.
Things could get even worse if you need financing for the business. Securing credit in this financially strong country is difficult. There is not too much information about credit scores, as agencies are quite secretive. You may need a professional advisor to get financing.
Interested in erecting a building for your business? A warehouse? Again, it takes ages to get the permit for a new building. You need to go through more than ten steps, and the whole process may take up to five months.
The same goes if you want to register a property – you need to hire a public notary.
Moving on, despite having relatively low taxes and supporting business, Luxembourg has more corporate taxes than other countries in the EU. There are more than 20 taxes you must pay on a yearly basis, and filing will take ages.
The business culture is also different from what you might be familiar with. The environment is extremely formal, so citizens of other countries may need time to adapt. It is critical to be punctual – being late could get your appointment canceled straight away. You need to be polite and respectful.
Also, there is a very solid line between business life and personal life. Small talk is great to break the ice, but stick to formal and professional questions – asking about personal things is considered rude. All these cultural differences can make the process more complicated.
First steps for Luxembourg company formationYou need to become familiar with the initial steps in the process, before actually going for the Luxembourg company formation procedure. These steps are not required for newcomers, but also for locals interested in starting a business.
- Becoming familiar with the language – French, Luxembourgish, English, and German will get you far in Luxembourg, so make sure you know one of these languages. If you do not, this is the right time to start learning.
- Get your diplomas recognized – it makes no difference what your studies are. If you have a high school diploma, get it recognized by the local Service de la Reconnaissance des Diplomes. The same goes for superior education diplomas and degrees.
- Get some training – find a program that is relevant to your business, industry, or project. Not only does it help when applying for the business, as you get some training, but it will also help you keep your business growing.
- Come up with a business plan – the more detailed it is, the better the outcome will be. After all, how do you plan to do business without a plan? Some institutions – such as banks – may also ask you for a business plan.
Administrative steps for Luxembourg company formationThis is a brief overview of the steps you need to go through for Luxembourg company formation. Keep in mind that different entrepreneurs have different circumstances. Besides, your industry may also come with extra requirements.
- Get a business permit – this is one of the first steps in the process and comes with four requirements. You must be resident in Luxembourg or a neighboring country, get the required qualifications, have a clean professional status, and find a suitable place for your activities.
- Decide on the legal form – again, you have more options here. The most common forms include the limited liability company, public limited company, sole proprietorship, social enterprise, nonprofit association, and simplified limited liability company.
- Sign up for the Trade and Companies Register – make sure the name you choose is unique. Register a nonprofit association, sole proprietorship, or company with the Trade and Companies Register. You can do it in person or using a certificate.
- Sign up for social security – this is another major requirement, and it can be done at the Centre Commun de la Securite Sociale. There are lots of requirements here – the most common ones include the retirement pension, disability insurance, parental leave, and unemployment insurance.
- Sign up for VAT – this step begins with a declaration, which must be submitted to the Land Registration and Estates Department. It is paid by the final consumer on every good purchased in the country. Set at 17%, it can also be reduced in many circumstances.
Tax rates for companies in LuxembourgThe tax rate for a company registered in Luxembourg is set at 21%. This rate is lower for businesses earning less than €15,000 a year. Whether you pay 20% or 21%, you should know that 7% extra is paid for the municipal business tax and the employment fund.
Secretary, shareholder, and director requirements
Here comes some good news. You will need one director for the Luxembourg company formation. If some countries ask for at least two directors – or even more, Luxembourg only requests a single director. Sure, you can add more.
Then, there are no restrictions at all regarding the nationality of the director. The same goes for the residency status – you could get someone who does not even live in Luxembourg. Now, there is a catch, though.
Some industries will require a license. At this point, it helps if one of the directors resides in Luxembourg – or at least in another country in the EU. Some licenses have such requirements, so double-check everything upfront.
The same rule applies to shareholders – you only need one of them. There is a maximum limit, though – not more than 40 shareholders. Again, the residency status and nationality are irrelevant. Keep in mind that shareholders' details are public.
You can get more privacy if you use nominee shareholders though.
If you have more than 25 shareholders, the law asks for at least one yearly meeting.
Company name requirements
There are no major requirements regarding the language when it comes to choosing a name for your company. It could be in any language, or it could mean nothing at all. However, if it is in another language and the Company Registrar asks for it, you will need to translate it to German or French.
Then, the final part of the company name includes the type of the company, which is not uncommon around Europe. In the UK, you will need to add LTD or other similar endings to the business name, just to give you an example. In Luxembourg, you will most likely need to add SARL.
Words that could be confusing and relate to licensing industries will not be accepted – such as banking.
Share capital requirements
The good news is requirements are not too high when it comes to the share capital. There is a minimum value per share, and it cannot go under €25. The maximum limit is set at €12,500. Everything must be paid in full upfront.
No matter what industry you activate in or how much money you make, you must file annual tax returns. You will need to do it regardless of the status of the company. You also need to file an annual financial statement.
Now, there is a yearly expense that many entrepreneurs overlook. You need to renew your business on a yearly basis in Luxembourg. You have to do it with the authorities and the registered agent. This is mandatory. No matter how much money you make, the renewal price is around €1,250.
Authorities tend to change it quite often, so keep an eye on it.
Now that you understand the basics of Luxembourg company formation, you probably ask yourself – should I do it yourself or hire a specialized service? Since the process is complicated and lengthy, most specialists recommend hiring a professional service.
Top 5 best Luxembourg company formation servicesYou can search and do your homework, but here are some of the top-rated services in Luxembourg.
Luxembourg company formation costs vary based on your needs, but they usually start at about €5,000. The process covers everything you may need, though – company name selection, bank account opening, preparation of all articles of association, due diligence, a proxy for the notary, VAT applications, and so on.
The process is much quicker when you hire a service that deals with such things on a regular basis. If the registration process is notorious for its complicated profile, Creatrust aims to get everything done within a couple of days only – assuming you have all the documents you need.
Company Formation Luxembourg
The company behind this service provides company formation services in more countries, and Luxembourg is one of them. The company employs a team of advisors and lawyers, so you can leave yourself in good hands. They estimate the process to take up to three weeks – usually, much faster.
The company gives you all the details you need in terms of requirements and can help you gather all the documentation. You will also gain some valuable advice regarding what form of company to register – based on your situation, finances, industry, and personal needs, of course.
Global Company Formation
Global Company Formation is established in York, UK. However, it offers company formation services in more countries, and Luxembourg is one of them. Based on reviews, the company has a good reputation, yet it does not offer too many details about the type of service you will get or the price.
You can, however, choose to register a company from scratch or find companies for sale, which obviously imply different costs and procedures – however, the process is less sophisticated. Each package is deeply customized, so you will need to get in touch with this service for prices.
Specialized in Luxembourg company formation, Sigtax aims to take care of the whole process for you. The process is relatively fast, but it mostly depends on you and how quickly you can gather all the required documents. You can get in touch and ask for all the required paperwork upfront, though.
Sigtax will help you overcome the bureaucratic procedures in Luxembourg, but it will also guide you prior to the registration and after. Prior to it, you will need to determine the right type of company – before deciding on names or other less important procedures.
Ludwig Consult provides a full service in Luxembourg. The experts on site will prepare your incorporation documents, register the business and represent you in every possible way – obviously, you need to bring the right documents. The company also deals with family assets, the management or investment companies.
Since Luxembourg company formation may also involve residency and other services related to your domicile, the group of law firms will also support you with all the legal needs to seek residency should you require it.
Besides, apart from company registration, you will find support after you actually register the business too – a potential sale or perhaps documentation to upgrade the company, relocate it or expand it. It is a full advisor with a complete array of services.
ConclusionBottom line, Luxembourg company formation is not impossible and can bring in a bunch of benefits when compared to other jurisdictions – especially around the EU. However, it is no longer a tax haven. Luxembourg will tax you, but it offers a series of exemptions and business support.
Despite being a prolific business environment, it comes with some drawbacks too – such as the ease of incorporation. If you could probably do it yourself in other countries, the process is a bit complicated in this country, hence the necessity of a professional service.
Fortunately, you do have options – and just like for anything else in life, knowing a few things about the process will also help you make the right decision regarding an agent.