Section kindly updated by Atoz in April 2019.
This section deals with setting up a business in Luxembourg. For Luxembourg based companies wanting to locate in the UK, information is available from UK Trade & Investment.
British Chamber of Commerce Members providing services relevant to this section can be found in the following business activity categories in the Membership Directory: Accounting/audit, Consultancy, Legal, Tax.
This section is designed to provide information on setting up a business in Luxembourg. It is structured as a list of Frequently Asked Questions and covers how to get a business permit, the different types of legal entity that can be established and taxation. Links and phone numbers are given for the various organisations that can be contacted for further information. The information is for general guidance only. While we have made every attempt to ensure that it is accurate, the British Chamber of Commerce is not responsible for any errors or omissions, or for the results obtained from the use of this information. The information is up to date at April 2019. Users are advised to check current legislation for changes since that date.
The right to set up in commercial activities, skilled craft trades, industrial activities/manufacturing and certain specific professions (professions libérales) is regulated by the Law of 2 September 2011, as amended. Commercial activities include, wholesale, retail, intellectual services, industrial activities/manufacturing, travel agents, real estate, and the hotel, restaurant and catering sector. Skilled craft activities include numerous trades and crafts in the following categories: food; fashion, health and hygiene; mechanics; construction; communication, multimedia and performing arts; art and miscellaneous. The specific professions libérales include architects, interior architects, landscape architects or landscape engineers, construction engineers, independent engineers, surveyors, town and country planners, chartered accountants, accountants, economic advisors, consultants, advisors in intellectual property.
The above activities require a business permit. Other professions, not included here, such as lawyers, doctors, statutory auditors, banking, certain financial services and insurance are covered by different laws. The special requirements for the financial sector are summarised below. For further information on other professions or activities subject to specific permits or registrations see www.guichet.public.lu. Other “intellectual services” (such as self-employed journalists) are not specifically regulated and do not require any business permit as long as they are carried out by the person in their own name and not under the form of a commercial company as commercial companies’ managers require a business permit for “commerce”.
Full details are available in plain English on the Luxembourg Government’s Point of Single Contact, www.guichet.public.lu, which provides extensive information on the whole process of doing business in Luxembourg and is the best starting point. Follow the link Starting up & Development. You will also find electronic forms which can be filled in online and sent directly to different administrations.
Assistance with starting a business is also available from the department Espace Entreprises of the Luxembourg Chamber of Commerce (website in English). Tel: +352 42 39 39 – 1. Email: chamcom@cc.lu. They publish many relevant brochures in English. They can also advise on developing your business and selling and taking over a business, including matters such as financing and government aid and the appropriate legal form of company. Assistance is also available from the Chamber of Trades (website in French). Tel: +352 42 67 67 – 1.
If you set up your business as a company or as an individual carrying out commercial activities, you must register it in the business register within one month. Tel: +352 26 428-1.
Companies and individuals carrying out commercial activities must also become members of the Luxembourg Chamber of Commerce, this is done automatically by the tax authorities.
Companies and individuals carrying out skilled crafts trades must become members of the Chamber of Trades. This is done via the filing of an affiliation form.
You will also need to register for income tax and value added tax, and for social security. If you use the electronic “Applying for a business permit” on www.guichet.public.lu all these procedures can be completed online and sent automatically to the relevant administrations.
To carry out an activity that requires a business permit you will need to have in Luxembourg a fixed physical establishment.
For more information on government support for innovation see the section on innovation, research and development aid on www.guichet.public.lu and Luxembourg Portal for Innovation and Research (in English). Tel: +352 43 62 63-1.
For more information on the advantages of doing business in Luxembourg see Luxembourg Trade & Invest and Luxembourg for Finance.
The business permit is obtainable from the General Directorate for Small and Medium-Sized Enterprises (Department for Authorisations of Establishment) (Ministry of the Economy). Tel: +352 247-74700. Among other things, you will need evidence of professional integrity, and under certain circumstances, evidence of professional qualification.
Full details of what you need to supply together with the application for the permit are available on www.guichet.public.lu. The online business permit application form determines which documents need to be added according to the information provided by the applicant. You can apply either online or by post to the General Directorate for Small and Medium-Sized Enterprises (Department for Authorisations of Establishment) or you can take advantage of the service offered by the House of Entrepreneurship – One-Stop Shop of the Luxembourg Chamber of Commerce or the Contact Entreprise service of the Chamber of Trades to coordinate and submit the application for you.
For companies, the Articles of Incorporation (published or draft) must also be supplied. The provision of a draft is recommended so that any comments received can be easily taken into account without having to amend the Articles of Incorporation should they have been already published.
The documents supporting your application can be in German, French or English. Documents in other EU languages may possibly be accepted but the Ministry may request certified translations thereof where needed. The documents can be simple copies but the Ministry may request an authenticated copy where needed, for example of certificates, degrees or diplomas issued by a body outside the EU.
Most permits are granted within one or two weeks provided that the application file is complete. The Ministry must however make its decision within three months. Failing this, the permit is granted by default. Once you have the permit, the nature of your business and the permit number must appear on your business stationery and website.
The professional qualification depends on the occupation.
For “traders” (commerçants) that are not otherwise regulated, no evidence is required since 2018.
For the hotel, restaurant and catering sector (Horeca), the requirement is a certificate of successful completion of the final exam which completes the course for access to professions in the Horeca sector organised by the Chamber of Commerce through the House of Training.
For the real estate sector, the requirement is a certificate of successful completion of the final exam which completes the training course for access to real estate professions organised by the House of Training.
Skilled crafts trades are divided into A and B lists. The qualification requirements are higher for craft trades in list A than for those in list B. For those in the A list qualification requires either a relevant Master Craftsman’s Certificate, or a relevant Bachelor’s degree, or a partially relevant Bachelor’s degree or vocational diploma or business permit for another craft activity on the A list combined with various levels of professional experience. For those in the B list, qualification requires either a relevant vocational diploma or professional experience of three years.
For ”liberal professions” (professions libérales) requiring a business permit, the qualification is, depending on the profession, either a Master’s or a Bachelor’s degree or equivalent in the planned activity plus for most professions two to three years professional experience.
You will need to supply a copy of your degree, certificate or diploma. If it was obtained abroad, you may also need to have your certificate, degree or diploma recognised in Luxembourg.
If you have to justify previous work experience in another EU Member State, you will need to supply an EU certificate of experience issued by a chamber of commerce, chamber of skilled craft trades or government department. For experience in the UK, this is currently obtainable from the National Contact Point for Professional Qualifications. Tel: +44 1242 258 608 but the process may be impacted when the UK leaves the EU (“Brexit”). For work experience in Luxembourg, evidence of membership of a Luxembourg social security scheme constitutes a certificate of work experience.
For companies these requirements relate to the legal representative (business manager or director) and majority shareholder and any person having significant influence on the management of the business.
If you have been resident in Luxembourg for an uninterrupted period of 10 years you will need to supply a sworn declaration concerning your management position and/or shareholdings in or control of a Luxembourg company in the last three years to satisfy the conditions of professional integrity. The Ministry will also obtain a copy of your criminal record extract.
If you are non-resident or have been resident in Luxembourg less than 10 years you will need to supply a sworn declaration as above, a declaration of non-bankruptcy made before a notary, and a criminal record extract or equivalent (certificate of good character) or (in English law countries) an affidavit from each State where you have been resident during this 10-year period.
If this is required, the Ministry of the Economy (Tel: +352 247-84137) can inform you where to apply. For example, if a vocational or secondary school graduation diploma obtained abroad needs to be recognised, as is required for some jobs, it will need to be recognised by the Ministry of Education, Children and Youth (Ministère de l’Éducation nationale, de l’Enfance et de la Jeunesse). Further information can be found on https://guichet.public.lu/en/entreprises.html under Approval of foreign higher education diplomas, Registration of higher education diplomas in the register of certificates and Recognition of qualifications.
Banks and other professionals of the financial sector (PFS) need to obtain a license from the Minister of Finance. The CSSF (Financial Sector Supervisory Commission) is responsible for the preliminary analysis of applications for approval. Tel: +352 26 25 1 – 1.
The main conditions for banks are:
PFS are divided into:
The conditions for PFS are almost the same as for banks, the main difference being that the minimum capital requirements are lower. For full details of the requirements for PFS see the forms on the CSSF website pages Investment firms, Special PFS, Support PFS. To qualify for a license, banks and PFS must normally be a legal entity as explained below (7.).
A bank or investment firm approved and supervised by the authorities of another EU Member State may set up a branch office or offer services in Luxembourg without the approval of the Luxembourg authorities provided that the services are covered by its own home-country approval.
For further information (in English) on setting up a business in the financial sector see Luxembourg for Finance.
In Luxembourg the main legislation governing companies is the law of 10 August 1915, as amended.
Below is a summary of the types of legal entities and how to establish a company. See also www.guichet.public.lu.
Luxembourg law recognises different types of commercial companies which are detailed below.
These are as follows, together with their approximate equivalents in English or US law.
S.A., S.C.A and S.A.S are required to have a minimum share capital fixed at the equivalent of
EUR 30,000.00 of which at least a quarter must be fully paid up at the date the company is formed. The minimum share capital for an S.E. is set at the equivalent of EUR 120,000.
The minimum share capital for a S.à r.l. is fixed at the equivalent of EUR 12,000.00 and has to be fully paid up.
The share capital for a SARL- S has to be between EUR 1.00 and EUR 12,000.00.
The capital may be expressed in any currency. A S.à r.l. or SARL- S may not raise capital from the public.
The other types of companies can be implemented with no specific requirement regarding the minimum share capital to be subscribed. The founders are free to arrange their contribution to the company.
Corporations (sociétés de capitaux), as opposed to the entities defined as partnerships (sociétés de personnes), are separate entities for tax purposes and subject to taxation in their own right.
Partnerships (sociétés de personnes) are transparent for tax purposes and the members are taxed on their share of income.
Other considerations include the extent of the members’ liabilities, the transferability of shares and accounting requirements.
All these types of companies require Articles of Incorporation (or limited partnership agreement if a partnership), similar to the Articles and Memorandum of Association of a UK company.
The incorporation of a S.A., a S.A.S., a S.à r.l., a S.C.A. or a S.E. requires the signature of a notarial deed. Companies of the other types can be incorporated either by a notarial deed by a Luxembourg notary or under private seal; notably the SARL-S thus avoiding the involvement of a notary and the related costs.
The deed must be registered with the Administration de l’Enregistrement et des Domaines (Tel: 44 905-1). The Articles of Incorporation and the names, date and place of birth, professional occupation and address of the directors or managers must be registered with the Luxembourg Business Register (Tel: 26 428-1) and published in the official journal of Luxembourg (Recueil Electronique des Sociétés et Associations (RESA)).
The company acquires its legal status and existence at the date of the signature of the incorporation deed and not at the date of the publication of the Articles of Incorporation in the RESA, except for the S.E., which acquires legal personality once registered with the Luxembourg Business Register.
These documents must be in French or German. However, Articles of Incorporation can also be prepared in English, but in this case a translation into French or German of the English text is required. In case of any divergence between the English and the French or German text, the French or German version will prevail, except if the parties agree otherwise.
The company must have a registered seat in Luxembourg.
For those companies which do not own or rent offices, the registered office can be located at a domiciliation agent in Luxembourg.
However, companies performing activities that are subject to business permits must have their own offices and cannot use domiciliation (the business permit application must comprise the size of the premises; a copy of the plan and of any leasing agreement may also be requested).
Under the law of 31 May 1999 regulating the domiciliation activity, only a member of one of the following regulated professions, established in Luxembourg, may act as a domiciliation agent: credit institution or other professional of the financial sector or insurance sector, attorney at law, independent auditor, qualified accountant.
Article 28-9 of the law of 5 April 1993, as amended, lays down the conditions for being a domiciliation agent. This article has to be combined with the article 1 of the same law. Consequently, anyone who exercises the above functions must obtain qualification as an ‘other professional of the financial sector’. This will require regulatory approval and proof that the individual holds, or that the company is managed, by an individual holding a university degree in law, economics or management and that there is capital of a minimum equivalent to EUR 125,000.00.
The main costs of establishing a company are:
Other forms of association recognised by Luxembourg law are:
Vehicles benefit from a variety of tax regimes depending on their nature, some of which are well suited to holding investments and/or organising financing activities.
There are both taxable (SoParFi) and non-taxable regimes, with respect to income and capital gains taxation.
I.1. The Private Wealth Management Company, Société de Gestion de Patrimoine Familial (SPF) is a passive private wealth investment vehicle.
The SPF, introduced by the law of May 11, 2007, takes one of the existing forms of a S.A., S.à r.l., S.C.A. or S.C. organised as a S.A., and is governed by the same rules, but benefits from a special tax regime, subject to restrictions mainly on its activities and on who may be its shareholders.
The SPF’s activities are restricted to acquiring, holding, managing and disposing of “financial assets”. All commercial activities, the granting of interest-bearing loans and the provision of any kind of remunerated services are forbidden and the SPF may not have a role in the management of companies in which it holds shares.
The SPF’s shareholders must be individuals, private wealth vehicles or intermediaries acting on behalf of individuals or private wealth vehicles.
The major advantage of the SPF is that these companies are exempt from income tax, net worth tax and withholding tax on dividends distributed, and are only subject to the following:
The SPF is not entitled to benefit from double tax treaties signed by Luxembourg or from EU directives.
Dividends distributed by the SPF are not subject to withholding tax.
I.2. The Specialised Investment Fund (SIF, Fonds d’Investissement Spécialisé, FIS) is a tax-exempt lightly regulated investment fund reserved for “informed investors”.
The SIF can either be set up as a contractual fund (fonds commun de placement, otherwise known as an FCP), or as a variable capital or fixed capital company (SICAV or SICAF). A SICAV may have the legal form of a S.A., S.à r.l., S.C.A., S.C.S., SCSp, or a S.C. organised as a S.A. A SICAF may take the same forms as well as the S.N.C. or Société civile forms. It is however more lightly regulated, for example in terms of reporting requirements and restrictions on its investments and leverage, than UCITS and Part II UCIs. It must apply risk diversification rules and can be divided into sub-funds. The SICAV-SIF must have net assets, and the SICAF-SIF must have a share capital, of at least EUR 1,250,000. SIFs have investment diversification requirements, they cannot invest more than 30% of their assets or commitments into securities of the same type issued by the same issuer.
A major advantage of the SIF is that it is exempt from income tax, net worth tax and dividend withholding tax on dividends distributed, and is only subject to the following:
A SIF is eligible for benefits under certain, but not all, tax treaties signed by Luxembourg.
One limitation on the use of SIFs is that they do not qualify under the EU Parent Subsidiary Directive as normally taxable companies.
A SIF set up under the form of a FCP or a partnership is treated as tax transparent entity from a Luxembourg tax perspective.
I.3. The investment company in risk capital (SICAR – Société d’Investissement en Capital à Risque).
This vehicle has been created and designed for investments in private equity and venture capital. It must invest in assets representing a risk capital which is defined in the law of June 15, 2004 as the direct or indirect contribution of its assets to entities in view of their launch, development or listing on a stock exchange.
The SICAR has to be set up as a corporate entity and can be a set up as a single fund or as an umbrella structure with several compartments.
The vehicle has to be authorised and is supervised (in consideration for an annual fee) by the CSSF, which will need to be provided with the instruments of incorporation and information via e-filing or by email (setup.uci@cssf.lu).
The subscribed share capital including share premiums, if any, has to reach EUR 1,000,000.00 within 12 months of the SICAR’s authorisation.
The SICAR can benefit from most of the double tax treaties concluded by Luxembourg as well as from the EU Directives.
The SICAR is subject to income tax (for SICAR in corporate form only) but income and gains derived from transferable securities (e.g. shares, bonds, loan notes, etc.) are exempt. Moreover, the SICAR is exempt from dividend withholding tax on dividends distributed.
The SICAR is subject to the minimum net worth tax (“NWT”), in variable amounts, depending on the type of assets held and the total balance sheet.
A SICAR set up under the form of a partnership is treated as tax transparent entity from a Luxembourg tax perspective.
I.4 The reserved alternative investment fund (RAIF).
The RAIF is a flexible alternative investment fund. It can be set up as:
The RAIF benefits from the SIF tax regime, or from the SICAR tax regime (if it elects to investment in risk capital only), but differs on the fact that the RAIF is not subject to the authorisation or supervision of the CSSF.
However, the RAIF has to be managed by an authorised external AIFM (alternative investment fund manager), which is itself subject to regular reporting requirements and to the supervision of the CSSF.
The net assets of a RAIF cannot be less than an amount of EUR 1,250,000.00, which has to be reached within 12 months of its incorporation.
A major advantage of the RAIF-SIF is that it is exempt from income tax, net worth tax and dividend withholding tax on dividends distributed, and is only subject to the following:
However, RAIF-SICARs are subject to the same tax regime as SICARs. As such, if set up as a corporation, they are fully subject to income tax, but income and gains deriving from transferable securities are exempt and distributions of dividends are also exempt from withholding taxes, both without any condition. RAIF- SICARs are subject to the minimum net worth tax, in variable amounts, depending on the type of assets held and the total balance sheet.
I.5. Luxembourg Securitisation
The Luxembourg Securitisation regime is governed by the Luxembourg law of March 22, 2004 on Securitisation.
Securitisation is defined as “the transaction by which a securitisation undertaking acquires or assumes, directly or through another undertaking, risks relating to claims, other assets, or obligations assumed by third parties or inherent to all or part of the activities of third parties and issues securities, whose value or yield depends on such risks”.
Luxembourg Securitisation entities are subject to prior authorisation and regulation of the CSSF only if the following conditions are met simultaneously:
It is possible to create one or more compartments, each of them will correspond to a segregated part of the company’s asset portfolio. Each compartment shall be treated as a separate entity from a legal perspective. The assets of a compartment are exclusively available to satisfy the rights of investors in relation to that compartment.
As far as the tax aspects are concerned, the Luxembourg Securitisation entities can be incorporated either as a tax transparent vehicle or as a non-tax transparent vehicle.
If it is set up as a tax transparent vehicle, the taxation of the income generated does not take place at the level of the Securitisation entity itself but at the level of its investors. The Securitisation entity is not subject to subscription tax. Finally, management services rendered to the Securitisation entity are exempt from VAT.
If it is set up as a corporation, it should be fully taxable on its income at a global rate of currently 24.94% (as from 2019). However, commitments to investors, even in form of dividends, are fully deductible from the taxable income of the Securitisation vehicle and distributions of dividends by a Securitisation company are not subject to Luxembourg withholding tax.
The Securitisation entity is subject to the minimum NWT, in variable amounts, depending on the type of assets held and the total balance sheet.
The SoParFi is a fully taxable entity, which is subject to the legislation applicable to all companies (principally double tax treaties and benefits under the EU Parent Subsidiary Directive) and is not subject to any restrictions on the scope of its activities.
A non-resident company can establish a branch in Luxembourg.
In the scope of the opening of a branch in Luxembourg, a foreign company must obtain a trade license from the General Directorate for Small and Medium-Sized Enterprises (SMEs) of Luxembourg.
The branch does not have a separate legal personality from the company’s registered office (or head office), hence the foreign head office remains liable for Luxembourg branch. It is, however, subject to the same registration and publication requirements as a company incorporated in Luxembourg.
This means that the following acts and documents must be registered with the Trade Register and published in the RESA:
Subject to the Luxembourg law dated 10 August 1915 on commercial companies as amended, the parent company shall also disclose, as the case may be, any documents or particulars in relation with:
Prior to the deposit all these documents must be authenticated in the country of origin and in Luxembourg.
Special rules may, however, apply to branches of the business registered elsewhere in the EU. For example, additional information must be registered and published, such as:
Registration duty at the fixed rate of EUR 75 is payable except where the company’s registered office is elsewhere in the EU, in which case no duty is payable.
Income tax (impôt sur le revenu des personnes physiques): Residents are taxable on their worldwide income up to a marginal rate depending of their tax class. Residents are taxable to a marginal tax rate of 42% from EUR 200,004 for a single person and EUR 400,008 for a married couple. A solidarity surcharge of 7% up to EUR 150,000 (single person or class 1a) and EUR 300,000 (married couple) applies. A 9% solidarity surcharge applies once these thresholds are exceeded.
The tax class applied to a resident depends on its personal situation:
Tax Class 1: single persons;
Tax Class 2: married persons (& civil partners upon request);
Tax Class 1A: single persons with children / taxpayers aged at least 65 years old at the start of the year.
In the event of divorce, each party may be able to benefit from Tax Class 2 for a limited period of time post-divorce (3 years). Similarly, in the case of death of a spouse, the surviving spouse may be able to benefit from Tax Class 2 for a limited period of time post-death.
From 1 January 2018, the default tax class for a non-resident taxpayer is Tax Class 1. Tax Class 2 can be requested in specific cases where certain conditions are met.
Salaries are subject to withholding tax in Luxembourg. The taxpayer must submit to his employer his tax card which provides personal information including his/her withholding tax rate.
Art. 153 LIR however requires all Luxembourg residents and non-residents to submit an annual income tax return if their taxable revenue exceeds EUR 100,000. The threshold is lowered to EUR 1,500 for investment income and EUR 600 in case of income not subject to withholding tax. The tax return filling is also required if the taxpayer receives/combine two or more salaries or pensions and:
Finally, a taxpayer should file a tax return if he/she has made a loss in any of his/her business income, professional income or rental income (i.e. mortgage interest deduction) category. If the taxpayer does not exceed any of the limits and is not entitled or required to make a personal income tax return, then he/she can still submit a tax equalisation return to claim deductible expenses not previously deducted on his/her tax card.
Social security (sécurité sociale): The following social security rates apply to employees and employers and are calculated on employees’ gross salary including benefits in kind up to a ceiling of EUR 124,266.00 per annum (EUR 10,355.00 per month). Social security contributions are tax deductible for both employees and employers.
‘Assurance-Dépendance’ is due by Luxembourg residents and non-residents who earn a salary or independent remuneration in Luxembourg and is calculated at the rate of 1.4% on gross salary in excess of 25% of the minimum social salary (on total income for independents) with no ceiling and is not tax deductible. The monthly contribution for ‘Assurance Dépendance’ is calculated on professional income earned by individuals. In addition, an annual contribution is calculated on the net taxable income declared on the annual tax return that includes: investment, rental and other income after deduction of related expenses.
The monthly minimum social salary is indexed and amounts to approximately EUR 2,071.10 gross per month for unqualified employee or EUR 2,485.32 for qualified employee under the meaning of Article L222-4 of the Luxembourg labor law.
| Rates valid as at 01.01.2019 | Employee pays | Employer pays |
| Sickness | > Benefits in cash: 0.25%
> Benefits in kind: 2.80% |
> Benefits in cash: 0.25%
> Benefits in kind: 2.80% |
| Pension | 8.0 % | 8.0 % |
| Safety & Health at Work | 0.11 % | |
| ‘Accident’ | > Bonus-Malus 0.9 : 0.72 %
> Bonus-Malus 1.0 : 0.80 % > Bonus-Malus 1.1 : 0.88 % > Bonus-Malus 1.3 : 1.04 % > Bonus-Malus 1.5 : 1.20 % |
|
| ‘Assurance Dépendance’ | 1.4 % | n/a |
| ‘Mutualité Employeurs’ | > Class 1: 0.41 %
> Class 2: 1.07 % > Class 3: 1.63% > Class 4: 2.79% |
|
| TOTAL | 12.7 % | 12.29 % to 15.15 % |
| TOTAL ‘Self Employed’ | 24.63% to 27.49 (including Mutualité des Employeurs) |
n/a |
The rate of ‘Accident’ depends on a bonus/malus coefficient defined by the Accident Insurance Association based on the followings criteria:
This contribution ‘Mutualité des Employeurs’ is collected in order to reimburse the employer 80% of the salary including charges in case of illness (in specific cases reimbursement of 100%). A self-employed has the choice to contribute to this or not. Such contribution is divided into 4 contribution classes based on the financial absenteeism’ rate of the employees in the relevant company.
Investment income: an amount of EUR 1,500 of investment income for a single person and EUR 3,000 for a married couple is tax free, including dividends and interest earned on a savings deposit held in a savings bank authorized in the Grand Duchy of Luxembourg or in another Member State of the European Union or in a State that is a party to the European Economic Area Agreement.
50% of the dividends received from companies within the EU are exempted.
In accordance with the law of 23 December 2005, any Luxembourg paying agent that pays interest to a Luxembourg resident beneficial owner acting within the context of his/her private wealth must apply a final withholding tax of 20%. The withholding is final in the sense that:
No withholding tax will apply up to an amount of EUR 250 of interest on savings accounts.
Capital gains are taxable at the marginal rate. Exceptions are:
Wealth tax (impôt sur la fortune) was abolished from 1 January 2006.
Corporate tax (impôt sur le revenu des collectivités) Corporate income tax (CIT) is charged at 17 % plus the solidarity contribution on income tax of 7%, on worldwide taxable income exceeding EUR 200,000 (reduced rates apply on taxable income not exceeding EUR 200,000), subject to foreign tax relief, in accordance with applicable double tax treaties. Non-resident companies are taxed on Luxembourg source income only. Losses relating to financial years ending before 1 January 2017 may be carried forward indefinitely. Losses incurred thereafter may only be carried forward for a period of up to 17 years. Tax losses incurred before 1 January 2017 are to be used first. Fiscal integration is also possible if the parent company owns at least 95% of the subsidiary (75 % with a special agreement).
Tax transparent entities, i.e. partnerships such as SCS, SNC, SCSp, Société Civile, are not subject to CIT. The taxation does not take place at the level of the partnership itself, but at the level of the partners pro rata to their interest in the partnership. Partners that are not resident in Luxembourg are only taxable in Luxembourg on their share of the net income of the partnership, if the partnership derives certain Luxembourg-source income.
Municipal Business tax Companies are also charged a municipal business tax (MBT) on profits (impôt commercial communal) depending on the commune where their registered office is located. In Luxembourg city, the rate amounts to 6.75 % on taxable income. Therefore, the maximum effective rate, including the solidarity contribution on income tax, for Luxembourg city is 24.94 % (as from 2019).The taxable income is reduced by an allowance of EUR 17,500.
Tax transparent entities, i.e. partnerships such as SCS, SNC, SCSp, Société Civile, are not subject to MBT, unless they are either (i) carrying out a commercial activity or (ii) they are « commercially tainted » (i.e. in case the general partner of a SCS or SCSp is a corporation holding an interest of 5 % or more in the SCS/SCSp or in case of a SNC or Société Civile, the majority of the interest is held by one or several corporations). In case the tax transparent entity qualifies as an Alternative Investment Fund (“AIF”) in the meaning of the law dated July 12, 2013, it is in principle considered as non- commercial and therefore not subject to MBT. It may however still be commercially tainted and hence subject to MBT in case the holding thresholds mentioned above were met (i.e. in cases where the general partner of a SCS or SCSp holds an interest of 5% or more in the SCS/SCSp).
Capital gains for corporations These are treated as ordinary income and taxed accordingly (see also further details regarding the participation exemption on capital gains).
Participation exemption on dividends (le régime mère-fille: Parent Subsidiary Directive): Dividends realised by resident taxable companies are fully exempt from corporate income taxes if the following conditions are fulfilled:
The exemption for dividends also applies to dividends derived from participations held through qualifying tax transparent entities. Provided the above conditions are met, the dividend should be exempt from Luxembourg CIT. However, any expenses in direct economic relation with the shareholding, such as interest expense or a write-down in the value of the shareholding that reduced the tax base in the year of the dividend distribution are disallowed to the extent of the exempt dividend income. Luxembourg has also implemented a specific anti-abuse rule according to which no dividend exemption applies to dividends received from or paid to EU collective entities within the meaning of the EU Parent-Subsidiary Directive in case of an arrangement or series of arrangements that, having been put into place for the main purpose or one of the main purposes of obtaining a tax advantage which defeats the object or purpose of this Directive, are not genuine having regard to all relevant facts and circumstances. “Not genuine” means that they are not put into place for valid commercial reasons which reflect the economic reality. The GAAR does not apply to the exemption regime of capital gains.
Participation exemption on capital gains (le régime mère-fille: Parent Subsidiary Directive) Capital gains are fully exempt from CIT if the same conditions as for dividends are met, and that at the date on which the disposal takes place, the holding company has held, or commits to hold, shares in the subsidiary for an uninterrupted period of at least twelve months and that during this period the holding rate does not fall below the threshold of 10% of the disposed company’s share capital, or the acquisition price of such shareholding is at least EUR 6,000,000 (i.e., higher than the acquisition price of EUR 1,200,000 required for dividends).
Provided the above conditions are fulfilled, capital gains realised upon the disposal of the qualifying shareholding are exempt from Luxembourg CIT.
However, a system was introduced to recapture this benefit, under which the exempt amount of the gain is reduced by the total of economically related expenses (e.g., interest paid on debt related to the acquisition of the shareholding) and capital losses deducted over previous years and during the year of disposal.
ATAD On December 21, 2018, the Luxembourg law implementing the EU Anti-Tax Avoidance Directive 2016/1164 (“ATAD”) (the “ATAD Law”) was published. The aim of ATAD is to implement at EU level the BEPS recommendations made by the OECD and the G20 in October 2015. The ATAD Law covers the following fields:
Deductibility of interest payments;
General anti-abuse rule (“GAAR”);
Controlled foreign companies (“CFC”);
Hybrid mismatches in an EU context;
Exit taxation.
ATAD is implemented into Luxembourg law as from January 2019.
As from January 1, 2020, the Anti-Tax-Avoidance Directive 2017/952 (“ATAD 2”) will have to be implemented into Luxembourg law. ATAD 2 will modify the ATAD rules on hybrid mismatches and will extend the hybrid mismatches rules to third countries.
Interest deduction limitation
As from 1 January 2019, subject to certain conditions and limitations, “exceeding borrowing costs” (i.e., financial expenses in excess of financial income) are deductible only up to 30% of the tax payers’ Earnings Before Interest, Tax, Depreciation and Amortisation (“EBITDA”) or up to an amount of EUR 3 m, whichever is higher.
GAAR
Non-genuine arrangements or a series of non-genuine arrangements put into place for the main purpose or one of the main purposes of obtaining a tax advantage that defeats the object or purpose of the applicable tax law shall be disregarded.
Arrangements are considered as non-genuine to the extent that they are not put into place for valid commercial reasons which reflect economic reality.
CFC
As from 1 January 2019, Luxembourg will tax the non-distributed income of an entity which qualifies as a CFC (i.e. entities held directly or indirectly at more than 50% by the Luxembourg company and subject to tax at a rate that is lower than 50% of the tax which would have been due by the Luxembourg company had it invested directly), provided the non-distributed income arises from non-genuine arrangements which have been put in place for the essential purpose of obtaining a tax advantage.
However, in practice, the income of a CFC will only need to be included in the Luxembourg tax base if, and to the extent that, the activities of the CFC that generate this income are managed by the Luxembourg corporate taxpayer (i.e. when the people functions in relation to the activities of the CFC are performed by the Luxembourg parent company).
Hybrid mismatches in an EU context
In general, a hybrid mismatch structure is a structure where a financial instrument, an entity or a permanent establishment is treated differently for tax purposes in two different jurisdictions.
Based on the ATAD Law, where a hybrid mismatch results in a deduction of a payment without a corresponding inclusion for tax purposes of the same payment in the payee jurisdiction, the deduction shall be denied in the payer’s jurisdiction. Therefore, if Luxembourg is the source state and the income is not included in the tax base of the recipient, Luxembourg will deny the deduction of the payment. Moreover, where a hybrid mismatch results in a double deduction of the same operating expenses or of the same losses both in Luxembourg and in another EU member state, and the operating expenses or the losses have their source in said other EU member state, Luxembourg will deny the deduction of such operating expenses or losses.
However, a hybrid mismatch does only arise with respect to transactions between associated enterprises. With respect to hybrid instrument mismatches, an associated enterprise is any entity (including a partnership), resident or not, which ultimately holds 25% or more of the voting rights or share capital in the other company, or is entitled to 25% or more of the profit of the other company. With respect to hybrid entity mismatches, the aforementioned threshold is increased to 50%.
Exit taxation
The exit taxation rules apply in certain cases of the transfer of assets or of the tax residence abroad. Such transfers are assimilated to a sale of the assets at their fair market value, leading to the taxation of any latent capital gains related to the assets transferred. In case of transfers within the EEA, taxpayers may defer the payment of the exit tax by paying linear instalments over a period of up to 5 years.
Net wealth tax (NWT, impôt sur la fortune) NWT is charged on the net asset value of a company as at 1 January of each year. Ordinary wealth tax is charged at the rate of 0.5 % if the company existed on 1 January of the fiscal year. The rate is reduced to 0.05 % for the part of the net assets of the company that exceed EUR 500,000,000. However, shareholdings held by Luxembourg fully taxable companies can benefit from an exemption from the NWT base provided the following conditions are met:
Since January 1, 2017, companies are liable to a minimum net wealth tax of EUR 4,815 if the total of their financial assets, transferable securities and cash amount to more than 90% of the entity’s balance sheet (so-called “SoParFis”).
Also, a minimum NWT was introduced as from 2016 for non-SoParFis which varies between EUR 535 and EUR 32,100 depending on the level of the total balance sheet (as reflected below).
The minimum NWT is an advance creditable against any future CIT liability. However, should the company never realise any taxable result leading to a CIT liability, the minimum NWT can become a de facto final liability.
| Total Balance Sheet | Minimum NWT due
With solidarity surcharge of 7 % |
| Up to EUR 350,000 | EUR 535 |
| Up to EUR 2,000,000 | EUR 1,605 |
| Up to EUR 10,000,000 | EUR 5,350 |
| Up to EUR 15,000,000 | EUR10,700 |
| Up to EUR 20,000,000 | EUR16,050 |
| Up to EUR 30,000,000 | EUR 21,400 |
| Above EUR 30,000,000 | EUR 32,100 |
Withholding tax (Retenue d’impôt à la source) The standard rates of withholding tax are 15 % on dividends; 0 % on royalties; and 0% on interest (unless the EU Savings Directive as implemented under Luxembourg laws applies). Double Tax Treaties may reduce these. Also, a withholding tax of 20 % is levied on directors’ fees.
Dividends distributed from resident taxable companies are however fully exempt from withholding tax if the following conditions are fulfilled:
The exemption from withholding tax also applies if the beneficiary holds its participation through qualifying tax transparent entities. Provided the above conditions are met, the distributing company will not be required to apply withholding tax in Luxembourg. As explained above (see the section related to the participation exemption regime for dividend distributions), a specific anti-abuse rule applies for dividend distributions to EU collective entities in case of a “non-genuine” arrangement or series of arrangements. In such case, the withholding tax exemption does not apply.
Registration duty (droit d’enregistrement) A fixed registration duty of EUR 75 is due upon incorporation of a company and for any subsequent amendment to its articles of association. This fixed registration duty is applicable to SoParFis, but also to SICAR, SIF, Securitisation entities and SPF.
Contributions in kind consisting of the transfer of real estate into a company are subject to specific registration tax.
However, transfers made in the context of a corporate restructuring (i.e. contributions of all assets and liabilities, contributions of one or more branches of activities as well as contributions of all assets and liabilities of the 100% held subsidiary) are exempt from proportional duties under the conditions that the transfers have been mainly remunerated (i.e. with more than 50%) with securities that represent share capital of the companies involved.
Investment tax credit (bonification d’impôt pour investissement) Certain investments in depreciable fixed assets (including software but excluding some types of cars and land and buildings) may entitle the company to a tax credit of 13 %, deductible against corporate income tax. Additional credits between 2 % and 8 % are available on investments in software, investments in zero-emission cars, investments eligible for special depreciation (i.e. investments favouring the protection of the environment, the realisation of energy savings, or the creation of employment for handicapped workers) and investments in tangible assets depreciable over a minimum of 3 years. There are ‘anti-abuse’ provisions relating to certain types of leasing arrangements. Unused credits can be carried forward for 10 years.
Value Added Tax (VAT) VAT is a general consumption tax which applies to the sale of goods and the provision of services. VAT is meant to be neutral through the supply chain and to be borne by end customers.
In principle, VAT taxable persons are entitled to offset the VAT charged by their own suppliers (input VAT) against the VAT that they charge to their own clients (output VAT).
VAT is generally invoiced by the supplier of goods or services. In some instances – e.g. cross-border acquisitions of goods/services, importations of goods – the liability to declare the VAT is shifted to the Luxembourg purchaser/recipient via the so-called “reverse-charge mechanism”.
Luxembourg VAT rates
Luxembourg offers the lowest standard VAT rate in the Europe Union – 17%. In addition, reduced VAT rates (3%, 8% and 14%) apply to specific services and goods. Certain business sectors, especially the financial industry, benefit from specific VAT exemptions (fund management, etc.).
Most of the services provided to Luxembourg businesses are subject to Luxembourg VAT or to a Luxembourg VAT exemption. Where VAT cannot be recovered by the Luxembourg business, the VAT cost is in principle lower in Luxembourg due to the application of the lowest normal VAT rate within the EU. This is particularly attractive for the actors of the financial sector as such businesses usually have no or limited VAT recovery rights.
VAT registration and VAT returns
Luxembourg businesses carrying out activities within the scope of VAT are liable to register for VAT within 15 days following the beginning of their activities. Further to the VAT registration, Luxembourg businesses have to file VAT returns on a monthly/quarterly basis and / or an annual VAT return.
Businesses carrying VAT exempt activities (e.g. financing) must register under certain circumstances, sometimes under a simplified procedure limiting the administrative burden to one single VAT return per calendar year.
The deadline for the electronic filing of monthly / quarterly VAT returns is the 15th day of the month following the end of the reporting period. An automatic two-month extension is in principle granted by the VAT Authorities.
The deadline for the electronic filing of annual VAT returns is the end of February/end of April of the following year. An automatic eight-month extension is in principle granted by the VAT Authorities. The use of the extension may lead to the payment of a VAT advance.
In addition, businesses performing intra-community supplies of services or goods must file electronically EC sales listings (on a monthly or quarterly basis) by the 25th of the month following the end of the period covered.
Luxembourg VAT grouping
In 2018, a VAT Group regime has been implemented in the Luxembourg VAT law. Entities closely bound by financial, economic and organizational links may opt to be considered as a single VAT taxable person. One of the key aspects of the VAT Group is that transactions between VAT Group members are not subject to VAT.
The VAT Group scheme is of interest for companies with no or limited VAT deduction right. The implementation of a VAT group is particularly relevant for structures where the administrative and support functions are centralized within a group entity providing such services to the other group members. Without a VAT group, administrative and support services would be subject to VAT (17 %) that would constitute a final cost for companies without or with a limited VAT deduction right. Within a VAT group, these services are out of scope of VAT and thus not subject to VAT.
Luxembourg VAT-free zone
The Luxembourg Freeport is a high-security logistic hub attractive for high-value goods (works of art, wines, cars, jewels, etc.). The Luxembourg law provides for a VAT and custom duty suspension regime allowing notably that no VAT will be due on the entry of the goods in the free zone or on transactions carried out within the free zone.
When registering a company with the Luxembourg business register/an individual with the centre commun de la sécurité sociale (mutual social security office), a fiscal number is automatically generated. Generally speaking, the Luxembourg tax authorities, Administration des Contributions Directes (ACD), directly notify the individual business or company by post of the tax number and the competent tax office. If the business is not contacted directly by the competent tax office, it must contact the ACD itself to make an initial declaration.
For personal income tax, the employer should communicate to the tax authorities all information in order to receive a tax card for the employee, based on which the tax on salary will be withheld by the employer. You can also make an annual tax declaration to the relevant tax office responsible for the area in which you live. Contact the ACD. To check your area, go to their website and click on Profil de l’Administration/ Compétences et adresses/ Bureaux d’imposition des Personnes Physiques (individuals). See also their summary of direct taxes English version.
For corporate income tax you also apply to the ACD. To check your area, go to their website and click on Profil de l’Administration/ Compétences et adresses / Bureaux d’imposition des Sociétés (companies).
For VAT and other duties you apply to the Administration de l’Enregistrement et des Domaines. For salary withholding tax you register your company at Centre Commun de la Sécurité Sociale.
Details, in English, on how to proceed are on www.guichet.public.lu.
You apply to the Centre Commun de la Sécurité Sociale. The Luxembourg Government’s Point of Single Contact, www.guichet.public.lu, provides details for registration as a self-employed person and/or as an employer.
There are a number of sources of state aid available for setting up a business.
The Ministry the Economy provides SMEs (small and medium-sized businesses) with grants or reduced interest rates for investment in tangible or intangible fixed assets, external consultants’ services, participation in exhibitions, investments relating to the protection of the environment and the efficient use of natural resources, the relocation of businesses, the renovation of polluted sites, investments in innovation and R & D and in food quality and hygiene. A guiding principle governing this aid is the strengthening of competitiveness of Luxembourg’s SMEs. Full details including how to apply for aid are available here.
The SNCI (Société Nationale de Crédit et d’Investissement) is a bank specialising in medium and long term financing of investments made by Luxembourg companies. Its financing instruments are investments in fixed assets, innovations and exports. It also grants start-up loans to newly incorporated SME’s. It may also finance investments of Luxembourg companies abroad. It may take equity positions, either directly or through its subsidiary CD-PME S.A., or by affiliated financing companies. CD-PME was set up together with five Luxembourgish commercial banks to reinforce the equity base and financial strength of SMEs.
Full details are available in English on the SNCI website.
The Ministry of Economy grants financial aid for investments in Luxembourg’s tourist infrastructure and provides aid for investment and R & D by industrial and service companies which promote the economic development of Luxembourg. It also provides aid for regional development and, through the Office du Ducroire (see below), aid for foreign trade.
Full details of all the above sources of aid and how to apply are also available in English on the Luxembourg Portal for Innovation and Research.
The Luxembourg Chamber of Commerce operates a mutual company for loan guarantees – the MCAC (Mutualité de Cautionnement et d’Aide aux Commerçants) – which guarantees loans from authorised lenders in Luxembourg to SME members of the Chamber of Commerce. Details on the Chamber’s website.
The Luxembourg Chamber of Commerce can also provide you with useful information on the available aids on Aides Publiques and Aides aux entreprises.
Luxembourg being a major actor in the field of space industry, you can find information about financial aid in this field on the Luxembourg Space Resource.
The Luxembourg Future Fund aims to invest and co-invest in early and growth innovative European technology SMEs as well as in venture capital funds.
Although it is not a financial aid, the Luxembourg House of Financial Technology provides assistance to the Fintech community through practical training, education and research.
Other sources of aid that may be relevant to setting up a business include the following: The Office du Ducroire helps Luxembourgish companies enter export markets by means of partial reimbursement of certain costs and credit guarantees. The Ministry of National Education and Vocational Training provides co-funding of continuing vocational training. Details in English on the website of the INFPC (National Institute for the Development of Continuous Vocational training). The Ministry of Labour and Employment provides aid for training, especially for work placements, and for the employment of the elderly and long term unemployed. The Ministry of Finance provides tax credits for the employment of unemployed job seekers. The Ministry of the Environment provides grants to incentivise the generation of electricity in Luxembourg by means of wind power.
Start-up capital can be sought via the Luxembourg Business Angels Network (LBAN) (site in English). Its main objective is to create a forum to bring together capital-seeking entrepreneurs and the Business Angels within Luxembourg and the Greater Region. A Business Angel Network is an organisation that aims to bring together new or growing small and medium sized companies (entrepreneurs) with Business Angels. The aim is to increase the efficiency of the informal segment of venture capital and bridge the gap between the entrepreneur’s own funds and those available from formal venture capitalists.
One of the main missions of The Luxembourg Chamber of Commerce is to defend the interests of business by commenting on proposed legislation. Details of proposed legislation and the Luxembourg Chamber of Commerce’s comments are available on their website in the section Official Opinions & Legislation, where it is also possible for you to submit your own comments. Tel. +352 42 39 39-354. The introduction to this section of the website is in English but the rest is in French. See also Opinions (Avis) of the Chamber of Trades.
