Company creation guide in Luxembourg

Luxembourg is one of the biggest European Union centers for finance activities and investment and a well-formed and regulated portal into the European Union. It is home to one of the most stable economies in Europe and, despite its small size, it ranks as one of the richest countries in the world in terms of GDP per capita. Concerning this, the country is attracting more and more investors and project leaders in exceptionally varied fields.

Why start a business in Luxembourg?

Luxembourg has all the assets required to comfortably accommodate businesses and it guarantees access to a favorable economic environment.
The experienced workforce, favorable legal framework, stable economy, and appealing tax structure are among the reasons entrepreneurs and investors choose to start a business in Luxembourg.
Being a globally recognized hub for information and communication technologies, Luxembourg is rapidly becoming a center of excellence for cybersecurity and data protection, ranking highly in the Global Innovation Index. And due to efficient public research infrastructures and projects, it offers multiple opportunities for start-ups and large enterprises.
The living conditions in Luxembourg are pleasant and businesses in Luxembourg enjoy a legal and administrative framework that is facilitative to economic growth and fitted to market developments.

Create a business plan

As with any venture, planning and research are important, hence a business plan. A business plan objective is to provide a detailed presentation of the entrepreneur’s project to all its partners.
A detailed plan also makes it easier to get attention from customers, banks, and investors.
The business plan is not compulsory, but it is valuable as it makes it possible to structure the project, check its consistency and plan the start-up of the company.
To be productive, the business plan must be based on an initial analysis of the market and competition. It must also meet the prospects of future partners, provide relevant information, and reassure them about the viability of the project.

Legal entities of companies in Luxembourg

Like any other country, starting a business in Luxembourg starts with choosing the appropriate legal entity. And according to the Luxembourg Commercial Law, there are several types of legal entities which can be incorporated. These legal entities are described below:

Sole proprietorship

Sole proprietorship in Luxembourg is the most creative business model and it involves lesser administrative processes and costs. This form of business is mainly set up by trade, craftsmen, artisans, or self-employed intellectual workers. Owners of sole proprietorship have unlimited liability and the business and owner are perceived as one under the eyes of the law. To start a sole proprietorship, there are no minimum capital requirements but sole proprietorships are needed to file annual reports should their annual turnover exceed EUR100,000.
The sole proprietor is required to join the Joint Social Security Centre (CCSS) to procure social protection similar to that of the employee. Fiscally, the sole proprietor is subject to personal income tax. But no special financial supervision is required by law.
Since entrepreneurs are not legal entities, the processes for setting up a sole proprietorship business in Luxembourg are very simple and straightforward.

Single limited partnership (SCS)

The limited partnership (société en commandite simple or SCS) is a commercial company, which requires at least two partners, natural or legal persons, one of which is a general partner and the other, a limited partner.
The creation of an SCS mandates the signing, by private deed, of the company’s constitutive act, called “social contract”, between the limited and limited partners. Sponsorship companies under Luxembourg law are especially suitable for the creation of investment funds by ensuring certain confidentiality of investors.

Special limited partnership (SCSp)

The special limited partnership (société en commandite speciale or SCSp) is a new entity in Luxembourg. The SCSp was motivated by the limited partnership and is not yet common in Luxembourg, so it serves as an extra investment vehicle fitted to investment funds. The primary difference between the SCSp and the SCS in Luxembourg is that the SCSp does not have a legal personality.
Just like the SCS, the creation of an SCSp mandates the presence of at least 2 partners, including at least one sponsored partner and one sponsoring partner.
The SCSp is formed by the signing of a social contract between the partners that gives it great flexibility in organization and operation. The Commercial Companies Act does not impose a minimum capital for the creation of the SCSp, nor the publication of the names of the sponsoring partners in the Commercial and Companies Register (RCS).

The Joint-stock company (S.e.N.C)

The Joint-stock company (Société en Nom Collectif or S.e.N.C.) is a company structure historically used by small and medium-sized family enterprises that are commercial but also used today by group companies. It is subject to simple rules of the organization, and no minimum share capital is required to form this company. In law, the shares of an S.e.N.C. may not be transferred, except in the case of undisputed consent of all the shareholders. The partners of the S.e.N.C. are jointly and severally liable for all the responsibilities of the company without limitation.
Unless otherwise specified in the articles of association, the death of a partner, his bankruptcy, or bankruptcy results in the dissolution of the company.

Private limited liability company (SARL)

A private limited liability company (Société à responsabilité limitée or SARL) is a special form of a commercial company in Luxembourg that incorporates the features of both capital companies and partnerships. The SARL is the most common form of company in Luxembourg. A SARL can have between two and a hundred shareholders.
A SARL in Luxembourg has to be created through the drawing up of a notarised deed. Its minimum share capital of €12,000 has to be fully subscribed and paid at the time of the company establishment. A benefit of the SARL is that initial shareholders are permitted a larger control of the ownership of the shares as these cannot be traded freely.

Simplified limited liability company (SARL-S)

The simplified limited liability company (Société à responsabilité limitée simplifiée or SARL-S) is a form of a commercial company in Luxembourg that is subject to rules that are fairly different from those that apply to a formal SARL. The differences between SARL and SARL-S are primarily concentrated around three axes: the quality of partners and managers, the amount of share capital, and the simplification of organizational formalities.
SARL-S in Luxembourg can only be created by a natural person that holds a business license from the Ministry of the Economy. The incorporation of the company may be influenced by a private deed. A minimum capital of between €1 and €12,000 has to be approved and paid up to a 100% at the company creation.

European Company (SE)

The European company (société européenne or SE), often referred to as ‘Societas Europaea’, is a company structure governed by Community law. It has its own legal framework and works as a single economic operator throughout the whole European Union.
By its nature, an SE is appropriate for legal or natural persons that have developed their activity globally. The SE promotes the management and restructuring of companies, especially cross-border ones.
The status of a ‘Societas Europaea’ enables mergers and restructurings of European groups and thus avoids the legal and practical barriers under the laws of the different European Union countries. A ‘Societas Europaea’ company, therefore, does not need to set up a complex network of subsidiaries governed by the different national legislations but can conduct its activities on European Union territory through branches.
The SE concerns groups of multinational companies with at least 2 structures situated in at least 2 different countries of the European Union. The minimum capital requirement of an SE is 120,000 euros.
The establishment of the SE takes place before a notary with publication in the Official Journal of the European Union.

Cooperative society (SCOP)

The Cooperative society(société coopérative – SCOP) is a commercial company whose main features include its variable capital, variable number of partners, and the absolute non-transferability of shares to third parties.
Establishing a cooperative company requires at least 2 persons, and there is no legal limit on the maximum number of persons.
There are no legal limitations on who can form a SCOP, and its operation is organized by its statutes. The training costs of a SCOP are primarily related to the nature of its activity.

Civil society

Although mainly used in the management of real estate assets, civil society (société civile or SC) is equally eligible for the practice of many non-commercial professions. The SC can also take the form of a universal earnings company or a specific company for the pooling of goods or means, particularly professional.
The formation of civil society does not necessarily impose a notarial act. To establish a CS, a minimum of two people is required. No limit is set for the maximum number of associated, and no residency or citizenship is mandated.
No minimum share capital is required.

Public limited company (SA)

The public limited company (société Anonyme or SA) is a form of company that offers many advantages, in terms of limited liability and regulated access to capital.
For shareholders, the primary attraction is the limitation of their liability to the level of their contribution to the capital and the possibility of operating in anonymity. The SA form is very popular with large companies, but it adapts to companies of all sizes.
A SA is created through the drawing up of a notarised deed. A SA requires a minimum share capital of €30,000. The SA form authorizes the arrival of new shareholders as well as access to capital markets.

Joint stock company (SCA)

The corporate partnership limited by shares (société en commandite par actions or S.C.A.) is a commercial company that combines the features of a limited partnership (société en commandite simple or SCS) with those of a public limited company (société Anonyme or SA).
The SCA can be used in all types of business and is very in bringing together investors and entrepreneurs. It is also suitable for small and medium-sized family businesses.
The SCA is established by at least 2 partners: one general partner and one limited partner.
The SCA requires a share capital of €30,000, two shareholders and three directors at minimum, as well as an independent auditor. The SCA manager(s) are helped in their management by a Supervisory Board.

Society of Social Impact (SIS)

A company with a social impact (société d’impact societal or SIS) is a company structure that is open to all natural or legal persons, working in an individual capacity or as part of a group, who wish to establish a commercial company with a view to engaging in economic activity with a social or societal purpose.
An SIS can be incorporated as a: (société anonyme or SA), (société à responsabilité limitée or SARL), (société à responsabilité limitée simplifiée or SARL-S), and (société cooperative and SCOP).
The minimum share capital of an SIS is set in accordance with the rules related to the company’s legal form.
The SIS partners retain part of the choice of the legal form of the company. The SIS benefits under specific conditions from tax advantages and its authorization allow access to national or European public contracts. All around, the SIS follows the rules applicable to the legal form used for its establishment.

Simplified joint stock company (S.A.S)

The Société par Actions Simplifiée (SAS) is a company form that is very similar to the Société Anonyme (SA). The SAS was introduced into the Luxembourg legal system recently.
The creation of a Luxembourg SAS follows the same process as the creation of a SA and must involve a notary.
The S.A.S offers great freedom of organization with respect to collective decisions, stock transfers, the choice of management bodies, and the management of the company.
The capital requirement of a SAS is at least €30,000. And the liability of the S.A.S partners is limited to the amount of their participation in the share capital.
A minimum of one partner is required to set up a SAS, and this partner may be a natural person or a legal entity.
A SAS may not perform a public issue of shares, and it is required to develop specific accounting documents and file the annual accounts.

Temporary company

The temporary company is a commercial company that is primarily characterized by a lack of legal personality and a lifespan restricted to the fulfillment of its social purpose.
The temporary company is intended for any natural or legal person with the objective of partnering with other companies for a limited time in order to carry out a mutual project.
The temporary alliance can be carried out between Luxembourg companies or include foreign companies. And the partners of the company have every interest in providing a statutory framework to set the rules of the association.
Registration of the temporary company with the RCS is not required for its formation.
A manager is assigned by the partners. And when approvals are required, they are granted on behalf of the manager.
Contributions of goods in use are approved as well as contributions in kind or in cash. Any profits acquired by the entity and shared between the partners are taxed under the partnership regime.

Franchise networks

Franchising refers to a legal relationship that exists between one person and another person, pursuant to which a Franchisor grants to a Franchisee a license to trade as their own business under the name or brand of the Franchisor. The franchise network permits a franchisee to operate an independent activity within the thresholds of the framework set by the contract with the franchisor.
Franchise networks commonly reassure new entrepreneurs looking for a self-employed activity by taking advantage of the franchisor’s knowledge and know-how. There are three types of franchises: production, distribution, and services.
Depending on the form of the franchise, the franchisor makes his know-how, brand, and suppliers available to the franchisee. He also provides him with the support and advice essential to start his business. While the franchisee respects the terms of the franchise agreement and pays the agreed fee.
The agreements determined between the franchisor and the franchisee appear in the franchise agreement, for a fixed term often renewable. And the fee due by the franchisee is either fixed or proportional to the turnover earned.

Economic Interest Group (EIG)

An economic interest group (EIG) or (Groupement d’intérêt économique – GIE) is a group with a legal personality that enables its members to pool certain aspects of their activities. This structure can be used for carrying out commercial, industrial, agricultural, or craft activities or for liberal professions.
An EIG has the benefit of being subject to very flexible legal rules, in particular concerning its capital, its objective, and its organisation.
An economic interest group can be used by any business that wants to work with other companies, whilst maintaining its individuality, to extend its commercial activities
Its members can either be natural or legal persons, and a minimum of 2 members is required but no maximum is imposed.
The group may be established with or without capital, for a limited or unlimited period. Its registration with the RCS gives it legal personality.

A Luxembourg subsidiary or branch

Foreign investors can easily develop their business in Luxembourg through the establishment of a branch or a subsidiary. These two structures are very different, although their main purpose is to continue the parent company’s activities abroad.
A subsidiary is a company form with local nationality that is legally independent of the parent company that has a majority holding in the subsidiary. This implies that the parent company has limited liability, and there are more demanding administrative and operational procedures as compared to those required for a branch office.
From its incorporation, the subsidiary company is needed to comply with the Luxembourg legislative provisions specific to the legal form used by the parent company.
A branch office is an enterprise that enjoys a certain degree of independence from the founding company, while not being legally free from it. This implies there are fewer administrative processes with regard to the formation and registration as compared to a subsidiary. The practices associated with the creation of a branch under Luxembourg law depend on the country of origin of the primary company and result in an application for approval to establish or a simple notification to the Ministry of the Economy.

The most common legal forms in Luxembourg

The legal forms that are most commonly used in Luxembourg are the public limited liability company (société anonyme or SA) the private limited liability company (société à responsabilité limitée or S.à r.l.), the special limited partnership (société en commandite spéciale or SCSp), the corporate partnership limited by shares (société en commandite par actions or SCA), and the common limited partnership (société en commandite simple or SCS).
But recently, the simplified limited liability company (Société à responsabilité limitée simplifiée or SARL-S) is of increasing interest to Luxembourg start-ups and entrepreneurs.

The stages of the formation of a Luxembourg company

Opening a business in Luxembourg involves various steps but it can be broken down into the following simple steps:
• choosing the appropriate legal form
• establish the registered office (legal address)
• selecting and reserving a unique business name with the Trade Register
• drafting the incorporation documents and getting them notarized by a public notary
• filing the documents with the Luxembourg Companies Registrar
• registering the company with the tax authorities and obtaining tax and VAT numbers
• Obtaining the essential business license in order to start operating.
In Luxembourg, all startup businesses must obtain a license from the Ministry of Economy before conducting any commercial, craft, or industrial activities.
Upon receipt of the business license, the business then needs to be affiliated with the Social Security Centre as a self-employed person or as an employer if it intends to recruit staff.
The business must also register for income tax with the Luxembourg Inland Revenue and for VAT with the Registration Duties, Estates, and VAT Authority, in order to keep the business going.
As an entrepreneur, if you are considering the Luxembourg market, there are many elements to take into account, such as the regulatory requirements and each company formation requirements.

Please contact your Damalion expert now, to setup your company in Luxembourg