DOING BUSINESS IN LUXEMBOURG
Since 2003, Healy Consultants has been efficiently and effectively assisting our Clients with i) Luxembourg business registration ii) business licensing iii) Luxembourg business banking solutions iv) visa options and staff recruitment strategies and v) workspace rent.
|Summary||LLC||SOPARFI||SPF||IP holding||Limited Partnership||PLC||Branch|
|Best use of company?||Trading Company||Holding Company||Wealth Management||Receive IP income||Professional services||EU IPO||Consolidated Accounts|
|Legally tax exempt if properly structured?||No||Yes||Yes||No||Yes||No||Yes|
|Corporate bank account location?||ABN AMRO||HSBC||Barclays||Citibank||BNP Paribas||Standard Chartered||CommerzBank|
|Client must travel to Luxembourg?||No||No||No||No||No||No||No|
|Can secure trade finance?||Yes||No||No||No||Yes||Yes||Yes|
|Limited liability entity?||Yes||Yes||Yes||Yes||No||Yes||No|
|VAT payable on sales to local customers?||Yes, 17%||Yes, 17%||Yes, 17%||Yes, 17%||Yes, 17%||Yes, 17%||Yes, 17%|
|Withholding tax on payments to overseas owners?||15%||15%||15%||15%||15%||15%||0%|
|Average total engagement costs?||€17,170||€23,170||€23,170||€23,170||€19,300||€22,455||€21,500|
|Average total engagement period?||2 months||3 months||3 months||3 months||2 months||3 months||3 months|
|Accounting and tax considerations||LLC||SOPARFI||SPF||IP holding||Limited Partnership||PLC||Branch|
|Statutory corporation tax payable?||21%||0%||0%||1%||0%||21%||21%|
|Must file an annual Luxembourg tax return?||Yes||Yes||Yes||Yes||No||Yes||Yes|
|Effective corporate tax rate on net profits of €250,000?||20.5%||0%||0%||1%||0%||20.5%||20.5%|
|Must file annual financial statements?||Yes||Yes||Yes||Yes||No||Yes||Yes|
|Investment income is tax exempt in Luxembourg?||No||Yes||Yes||Yes||Yes||No||No|
|Access to double taxation treaties?||Yes||Yes||Yes||Yes||No||Yes||Yes|
|This entity enjoys Government incentives?||Yes||Yes||Yes||Yes||No||Yes||Yes|
|Monthly VAT reporting to the Government?||Yes||No||No||No||Yes||Yes||Yes|
|Legally tax exempt entity?||No||Yes||Yes||No||Yes||No||No|
|Dividends received are legally tax exempt?||No||Yes||Yes||Yes||Yes||No||No|
|Company registration||LLC||SOPARFI||SPF||IP holding||Limited Partnership||PLC||Branch|
|Resident director\partner\manager required?||Yes||No||No||No||No||Yes||Yes|
|Minimum number of shareholders\partners?||1||1||1||1||2||1||Parent company|
|Minimum number of directors/managers?||1||1||1||1||1||3||1|
|Minimum paid up share capital?||€12,400||€12,400||€12,400||€12,400||None||€31,000||None|
|Shelf companies available?||Yes||No||No||No||No||No||No|
|Time to incorporate a new entity?||2 weeks||2 weeks||2 weeks||2 weeks||3 weeks||4 weeks||4 weeks|
|Can easily convert to a local PLC company?||Yes||Yes||Yes||Yes||No||Yes||No|
|Can have preference shareholders/partners?||Yes||Yes||Yes||Yes||Yes||Yes||No|
|Business considerations||LLC||SOPARFI||SPF||IP holding||Limited Partnership||PLC||Branch|
|Can invoice local customers?||Yes||No||No||No||Yes||Yes||Yes|
|Can hire local staff?||Yes||Yes||Yes||Yes||Yes||Yes||Yes|
|Can rent local office space?||Yes||Yes||Yes||Yes||Yes||Yes||Yes|
|Secures a residence visa for business owner?||Yes||Yes||Yes||Yes||Yes||Yes||Yes|
|Good entity for trademark registration?||Yes||No||No||Yes||Yes||Yes||Yes|
|Other useful information||LLC||SOPARFI||SPF||IP holding||Limited Partnership||PLC||Branch|
|Luxembourg has signed free trade agreements?||Yes, see this page|
|This country is a member of WIPO and TRIPS?||Yes|
|The country is a member of the ICSID?||Yes|
|Average customs duties suffered?||1%|
|Government foreign investment approval is required?||No|
|Average monthly office rental? (€ per sq. m.)||€65|
|Minimum statutory monthly salary?||€1,922|
|Average monthly € salary for local employees?||€4,810|
|€ deposit interest rate? (1 year average)||0.25%|
|US$ deposit interest rate? (1 year average)||0.05%|
|Overseas remittance currency controls?||No|
|Public register of shareholders and directors?||Yes|
|Multi-currency bank accounts available?||Yes|
|Corporate visa debit cards available?||Yes|
|Quality of e-banking platform?||Excellent|
|Crowd funding available in this country?||Yes|
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Advantages of a Luxembourg company
Advantages of Luxembourg company registration
- A Luxembourg holding company (Soparfi) is legally exempt from all local taxes including corporation tax, capital gains tax and withholding tax if the parent company holds at least 10% shares in an EU resident subsidiary for a continuous period of 12 months. Also, these tax advantages will also be extended to other countries with which Luxembourg has signed a DTA if these countries have corporate tax rate of at least 21%;
- A Luxembourg financial assets holding company (SPF) is legally tax exempt from all local taxes including corporation tax, capital gains tax and withholding tax. This vehicle is often used to manage a family privately owned investment portfolio;
- Registering a Luxembourg company to hold patents, trademarks and registered designs has tax advantages, as royalty income on these rights only suffers corporation tax of 6% and enjoys zero withholding tax on distribution payments. As Luxembourg is a member of both the EU and the World Intellectual Property Organization (WIPO), a Luxembourg company is the perfect vehicle through which to hold intellectual property rights that can be enforced internationally;
- Luxembourg is a popular domicile for registering European investment funds, as collective investment fund vehicles like SICAVs are legally exempt from all local taxes including corporation tax, capital gains tax and withholding tax;
- The European Union Parent Subsidiary Directive eliminated withholding taxes on dividends paid between related companies in Europe;
- There are no withholding taxes on interest, royalties or technical service fees paid to non-resident companies;
- A Luxembourg private equity firm (SICAR) is legally tax exempt for all income from bonds and equities. The SICAR law provides a full withholding tax exemption on dividends distributed to its shareholders. A SICAR must be authorized by the CSSF prior to commencing its operations;
- A foreign-owned company can invest in every business sector without restriction;
- Luxembourg boasts highly skilled labour with a literacy rate of 99% and a technologically advanced rate of 90%, making Luxembourg employees efficient and productive;
- Luxembourg is a founding member of the European Union, thus Luxembourg business registration offers virtually unrestricted access to the EU and Shenghen area market of 26 developed countries.
Disadvantages of Luxembourg company registration
- Luxembourg is considered a ‘tax haven’ by EU member states. Its membership of the European Union will continue to force the country to abandon legal tax exemptions on holding companies;
- If registering a Luxembourg subsidiary to operate locally, the company requires a business permit and must be managed by a resident director;
- A Luxembourg commercial trading company suffers company taxation at 21%. Consequently, entrepreneurs often choose only to register tax exempt holding companies to receive passive income when investing in Luxembourg;
- There is valid concern about Luxembourg’s banking secrecy laws, agreeing to OECD standards on exchange of customer information since 2009, which could be disadvantageous for business registration in Luxembourg;
- Starting a Luxembourg company takes up to three weeks, making the process lengthy and cumbersome;
Best uses of a Luxembourg company
- Luxembourg is a cauldron of international entrepreneurs mainly in the financial industry, where 50% of the population is foreign. There exist in Luxembourg the perfect ingredients for creativity and exchange of skills across industries and cultures, stoked by a liberal, entrepreneurial free market.
- Located in the centre of Europe, Luxembourg is in direct contact with many leading European markets such as Germany, Belgium, France and the UK.
- The lack of income tax on dividends received under the Soparfi scheme also makes Luxembourg an excellent choice for your firm’s European headquarters;
- As part of the EU, Luxembourg can receive payments from subsidiaries within the EEA without suffering withholding taxes on those payments. This is thanks to the EU Parent-Subsidiary Directive.
Luxembourg corporate banking solutionsLuxembourg is a renowned banking centre in the heart of Europe. It has a highly advanced infrastructure, making a Luxembourg bank account a secure, long-term solution for international entrepreneurs. The following information will help you determine whether a corporate bank account in Luxembourg is the optimum solution for you:
- Luxembourg is a reputable, politically-stable European country in which to open a corporate bank account;
- A corporate bank account in Luxembourg portrays an excellent image internationally, important to your suppliers and customers;
- The process to open a corporate bank account is straightforward;
- A business bank account is key to setting up a business in Luxembourg;
- Healy Consultants can open a corporate bank account on our Client’s behalf without our Client needing to visit Luxembourg. This is because of our close relationship with Luxembourg banks including HSBC, Standard Chartered, and Citibank;
- Entrepreneurs planning to open a Luxembourg bank account should note that the Grand Duchy is a member of the OECD (Organisation for Economic Cooperation and Development), which supports the exchange of bank customer information with fellow members;
- A Luxembourg corporate banking options offer accounts in multiple currencies;
- A business bank account in Luxembourg is supported by a range of additional banking services, including international trade services (import finance, export services, risk management, and e-commerce) and investment banking services (for international private Clients, international and local companies and trusts, charities, and personal and corporate pension schemes);
- For Healy Consultants to open a corporate bank account without the Client visiting Luxembourg, we require certain due diligence information including: notarized copies of passport and driving licence of all directors; the company’s corporate documents, including certificate of incorporation, memorandum and articles and directors/trustees resolutions. This documentation must be certified by the local branch of the Luxembourg bank (or by a notary public) in the Client’s home country and evidence of the company’s nature of business provided (e.g. sample invoices or purchase orders etc.).
Healy Consultants’ fees to help open a Luxembourg corporate bank account
Our fee to assist you to open a corporate bank account in Luxembourg amounts to US$3,950. This fee includes:
- Healy Consultants’ international banking team completing the Luxembourg corporate bank account application form on behalf of our Client, along with obtaining our Client’s signature;
- Preparing a detailed business plan relating to our Client’s company to support the application. The business plan provides information on the company’s activities, products and services offered, details of the company’s suppliers, and references to its Clients and intended markets;
- Submitting the completed application form and the business plan to the bank, together with the corporate, and personal due diligence documents outlined above;
- Attending an interview with a bank in Luxembourg by a local Healy Consultants officer on your behalf, describing your global business activities and explaining why you require the corporate bank account. As described above, Healy Consultants can open a Luxembourg business bank account without the bank signatory and beneficial owners’ presence;
- Paying the initial bank deposit to the Luxembourg bank on our Client’s behalf. A scanned copy of the bank deposit slip is emailed to our Client as verification of the same;
- Applying for internet banking facilities to allow our Client to conduct their banking activities remotely;
- Healy Consultants applying for a credit card, ATM card and cheque book, on the Client’s behalf, to complement the newly opened bank account;
- Healy Consultants’ international banking team receiving approval from Luxembourg for the opening of the corporate bank account;
- Healy Consultants receiving the internet banking login and password information in a sealed envelope, passed directly to our Client;
- Healy Consultants receiving a corporate cheque book in a sealed package that is passed directly to our Client;
- Healy Consultants receiving credit and ATM cards in a sealed envelope that is forwarded directly to our Client.
Please note that our fee to open the corporate bank account does not include the initial deposit required by the bank.
Business entities typesHealy Consultants will design the optimum corporate structure to support our Clients’ business needs. There are several business entities available for Luxembourg company setup, the most common being the limited liability company, locally known as the SARL. Luxembourg is also a great place to incorporate a holding company, which will allow our Clients to legally minimize tax over earnings sourced from other European countries.
The Luxembourg limited liability company (Société à responsabilité limitée)
- The LLC, locally known as sociétés à responsabilité limitée (SARL), constitute a popular vehicle for international businesses to set up a subsidiary in Luxembourg. The LLC can also be structured as a tax-efficient investment vehicle;
- An LLC can be setup in Luxembourg by i) a sole shareholder with ii) a minimum share capital of €12,400. Our Clients will also need to appoint one director who can be provided by Healy Consultants on request. A sole investor can set up an SARL with a minimum share capital of €12,400;
- An SARL is required to file financial statements annually. However, the appointment of an external auditor and audit obligations only apply if the company exceeds two of the three following thresholds: i) annual sales over €8.8 million ii) over 50 employees and iii) assets over €4.4 million;
- All companies wishing to operate and make sales within Luxembourg must have a business permit, which requires i) a manager resident in Luxembourg and ii) actual business premises. Pure investment vehicles and holding companies have no such requirement.
The Luxembourg financial holding company (Soparfi)
- A Luxembourg holding financial company is beneficial to our Clients in need for an EU-based holding company. Such business entity will indeed benefit from legal tax exemption on capital gains, dividends and interest remitted by subsidiaries, provided they are domiciled in i) an EU member state or ii) a country which has signed DTA with Luxembourg and has corporate income tax rate of at least 21%;
- A Luxembourg holding company can be setup by a sole shareholder. It is usually established through the setup of an LLC, with holding company objects clause in its Memorandum and Articles of Incorporation. It can also be set up in the form of a public limited company (SA). Healy Consultants can advise on the suitability of a Luxembourg holding company for your business and establish one on your behalf.
The Luxembourg public limited liability company (Société anonyme)The setup of a Luxembourg public limited company requires a minimum share capital of €31,000. The company may have an unlimited number of shareholders. Furthermore, the company is allowed to issue bearer shares. This entity can be used to access the financial markets through public or private issuance of bonds and equities. Such an entity is required to i) appoint one auditor and ii) submit audited financial statements.
The Luxembourg branch
- A foreign company can set up a business in Luxembourg by establishing a local branch. A branch does not enjoy a legal personality separated from its head office, which means the parent company is responsible for the branch’s liabilities. The branch must be registered with the Luxembourg trade register and requires a business permit;
- Registering a branch in Luxembourg is a simple process if certain steps are followed and the documents are properly submitted. The whole Luxembourg business setup process takes 3 weeks including obtaining a business permit and registration at the Trade and the Companies Registrar.
The Luxembourg representative officeWhile a Luxembourg representative office can be set up by a business based in any country, the office is not permitted to make direct sales in the country. Representative offices may only engage in activities which will not amount to carrying on business, for example market research.
The tax exempt IP holding company
- In 2007, the Luxembourg government passed a law concerning the taxation of royalties earned from intellectual property from unrelated parties. This law encourages investing in Luxembourg via research and development and adds incentives to set up a company in Luxembourg and/or register intellectual property there. This makes Luxembourg an excellent jurisdiction in which to set up a business in research-intensive industries such as i) pharmaceuticals and ii) software development;
- For such companies, a mere 6% corporation tax is payable on i) royalty income and ii) capital gains on the disposal of such intellectual property. In addition, the following tax benefits are also available: i) zero withholding tax on dividends to beneficial owners ii) zero withholding tax on interest paid to non-EU residents iii) zero withholding tax on royalties paid to all counterparties iv) access to Luxembourg’s extensive double taxation treaty network with over 60 countries and v) access to the EU Parent-Subsidiary Directive;
- Royalty income derived from intellectual property from non-group companies includes consideration for the use of any i) copyright on standard software ii) trade mark iii) registered design or model and iv) patents. Copyright in works other than software is not eligible for the reduced rate of tax on intellectual property in Luxembourg. The IP holding company is a fully tax resident company limited by shares and can be set up as a Luxembourg LLC or PLC.
The Luxembourg partnershipThis Luxembourg business structure is popular with accountants, architects, consulting engineers and lawyers. There are three types of partnerships including i) a general corporate partnership (SENC) ii) a limited corporate partnership (SECS) and iii) a corporate partnership limited by shares (SCA). At least one of the partners in each of these structures must be a general partner with unlimited liability.
Different types of business entities in Luxembourg
Luxembourg financial companiesLuxembourg is an attractive place for our Clients to provide financial services, thanks to well-designed prudential and other financial regulations and low taxation.
The Luxembourg securitization company
- Our Clients holding i) real estate ii) private equity and iii) other illiquid assets will find it advantageous to setup a Luxembourg securitization company. Such company will enable them to convert these assets into structured financial products which will then be sold more easily to investors;
- Because the earnings generated by the securitization company will be distributed to its investors, the securitization company will not have to pay tax on generated income. However, the securitization company is still liable to standard corporate tax in Luxembourg and as a result will have to pay a minimum corporate tax of up to €21,400. It will also have to submit audited annual financial statements.
The Luxembourg Specialized Investment Company (SIF)Our Clients willing to setup an investment fund in the European Union often choose to establish a Luxembourg Specialized Investment Fund. This type of business entity must have a capital of at least €1,250,000. The SIF is exempt from corporate income tax and net wealth tax, but will have to pay subscription tax of 0.01% representing 0.01% of its net asset value.
The Luxembourg Investment Company in Risk Capital (SICAF)An Investment Company in Risk Capital can be established to invest into venture capital and other risky securities. It must be setup with a capital of at least €1 million. While only qualified investors approved by the Luxembourg Financial Markets and Services Authority can invest in the company’s financial products, its management and financial strategies benefit from flexible regulations.
The Luxembourg Private Asset Management Company (SPF)
- The Luxembourg Private Asset Management Company can be setup by our Clients with a minimum share capital of €12,400. This business entity can be used to offer asset management services to both local and global Clients, provided they are individuals, not corporates. The company can also not get involved with management of companies in which it holds capital;
- A Luxembourg Private Asset Management Company is exempt from corporate income tax. It will however have to pay a subscription tax of 0.01% representing 0.01% of its net asset value;
- Along with the Liechtenstein Stiftung, the Luxembourg SPF is one of the best ways to manage your family’s wealth. Compare these two options with other wealth management structures on this page: Family wealth management vehicles.
10 steps to register a company
- Prior to Healy Consultants starting the incorporation process, our Client i) settles Healy Consultants’ fees, ii) signs and returns our Client Engagement Letter and iii) provides us all the required due diligence documents;
- Healy Consultants drafts a detailed engagement plan, mapping out by week each step to i) company incorporation ii) corporate bank account opening and iii) license grants, thereby optimizing transparency and setting Client expectations;
- Healy Consultants reserves the company name with the Luxembourg Commercial Register and prepares the company’s deeds of establishment and articles of association. The exact corporate structure is agreed with our Client;
- Healy Consultants assists our Client open a Luxembourg corporate bank account with a local or an international bank. Our Client deposits the paid up share capital of €12,400 and sends Healy Consultants a certificate of deposit and bank statement;
- Healy Consultants submits a detailed business application to the Ministry of the Economy and Foreign Trade including i) a copy of the shareholders’ and directors’ diplomas and resumés ii) a certificate of non-bankruptcy or a sworn statement of solvency iii) documentary evidence of the applicant’s respectability, e.g., a police report and iv) the draft articles of association;
- The Ministry of Middle Classes issues business licenses for all Luxembourg companies. If required, Healy Consultants will approach this Ministry of behalf of our Client;
- If required, the commercial license is issued by the Luxembourg Ministry of the Economy and Foreign Trade. If required, Healy Consultants applies for a financial services license from the “Commission de Surveillance du Secteur Financier” (CSSF);
- Subsequently, Healy Consultants assists our Client register for VAT and a corporate tax ID at the Administration de l’Enregistrement et des Domaines;
- Healy Consultants submits an application to the Company Registry Office and receives a Company Incorporation Certificate from the Ministry of Commerce. The Trade and Companies Register then arranges for the publication of the incorporation deed in the Official Gazette within 2 months of the company’s incorporation;
- Following engagement completion, Healy Consultants couriers a full company kit to our Client, including original Luxembourg corporate documents, unopened bank correspondence and a Client feedback survey.
Accounting and tax considerations
- All resident or foreign companies with a permanent establishment in Luxembourg are subject to corporation tax. Resident companies are taxed on their global revenue. A company is considered to be a resident taxpayer if its place of management is located in Luxembourg. Non-resident companies are liable to tax only on their Luxembourg-sourced income following business registration in Luxembourg;
- Luxembourg resident commercial trading companies suffer corporate income tax of 21% following Luxembourg business setup. In addition, Luxembourg commercial trading companies pay an annual tax of 0.5% levied on the company’s net assets;
- All Luxembourg companies submit annual financial statements to the Registrar of Companies following Luxembourg business setup. The financial statements are not published and are exempt from annual audit if i) the total balance sheet is less than €3 million and ii) turnover is less than €6 million or iii) there is a single shareholder;
- The Luxembourg tax year is the calendar year. Companies must file a paper annual tax return before the 31st May of each year following Luxembourg business registration. The filing date may be extended upon request until the 31st October;
- Luxembourg has signed bilateral taxation treaties with more than 60 countries including China, Japan, Germany, Russia, UK and USA. Luxembourg has bilateral tax treaties with all EU Member States;
- It is important our Clients’ are aware of their personal and corporate tax obligations in their country of residence and domicile; and they will fulfill those obligations annually. Let us know if you need Healy Consultants’ help to clarify your annual reporting obligations.
- Luxembourg has the lowest VAT rate in Europe at 15%. Luxembourg VAT is levied on Luxembourg entities i) buying and selling goods and services within Luxembourg ii) importing goods from non EU member countries and iii) purchasing services from a non-EU service provider;
- All Luxembourg business entities with expected operating turnover of at least €25,000 must register for VAT. The frequency of VAT filing changes according to the level of turnover:
- Luxembourg companies file VAT returns only once per year if turnover is less than €112,000;
- Quarterly and annual returns are required for businesses with operating revenue between €112,000 and €620,000; and
- VAT returns must be filed every month by businesses with turnover exceeding €620,000.
- Annual VAT returns are due before May 1st of the following year, while interim (monthly and quarterly) returns must be filed by the 15th day following the end of the reporting period.
Corporate tax exemptions
- A Luxembourg holding company (Soparfi) is legally tax exempt from all local taxes including corporation tax, capital gains tax and withholding tax following business registration in Luxembourg. Subsidiaries of the Soparfi must be domiciled i) in a country with a corporate tax rate of at least 11% ii) in an EU member state or iii) in one of the 60 countries with a double tax treaty with Luxembourg;
- A Luxembourg financial assets holding company (SPF) is legally tax exempt from all local taxes including corporation tax, capital gains tax and withholding tax;
- A Luxembourg Intellectual Property and Royalty Collection Company only incurs corporation tax of 6% and benefits from zero withholding tax on payments to non-residents;
- A Luxembourg Investment Funds Company is legally tax exempt from all local taxes including corporation tax, capital gains tax and withholding tax;
- The sale of shares in a Luxembourg company is legally tax exempt from capital gains tax. A Luxembourg holding company is legally tax exempt on dividend income and capital gains on sale of shares in a subsidiary company;
- A non-resident trading branch of a foreign company is legally tax exempt from all local taxes including corporation tax, capital gains tax and withholding tax;
- A Luxembourg private equity (SICAR) is legally tax exempt for all income from bonds and equities. The SICAR law provides a full withholding tax exemption on dividends distributed to its shareholders. A SICAR must be authorized by the CSSF prior to commencing its operations.
Luxembourg withholding tax
- The EU Parent – Subsidiary Directive allows gross payments of dividends, interest and royalties between related companies in the EU;
- There are no withholding taxes on interest, royalties or technical service fees paid to non-residents, whether corporate or individual;
- Luxembourg company dividends are paid gross to resident and non-resident shareholders who are resident in an EU member state or to shareholders resident in one of the 60 countries with a double tax treaty with Luxembourg;
- Dividends distributed to offshore companies, trusts and individuals are subject to a withholding tax of 15%;
- Luxembourg banks and other Luxembourg Financial Service Providers are required to withhold tax at a rate of 35% from interest paid on the accounts of EU residents, unless the account holder has elected to send the following information to the tax authorities of the country in which they are residents: i) information about the period ii) the amount of interest paid and iii) the account holder’s identity.
Other tax considerations
- Luxembourg holding companies usually are not allowed register for VAT, for example the SPF and Soparfi.
- In order to comply further with OECD and EU requirements, Luxembourg issued in 2011 additional transfer pricing guidelines. Luxembourg companies realizing intra-group financing transactions must i) document their finance margin and ii) evidence sufficient capital is put at risk to justify the margin and iii) must have a real presence in Luxembourg (e.g. a majority of local board members);
Legally tax exempt holding companies in LuxembourgThe majority of our Clients use Luxembourg tax-exempt holding companies for Luxembourg business setup, rather than as an EU trading hub. The table below compares the different holding companies:
Soparfi SPF IP Co Company tax on dividend income 0% 0% 0% Company tax on capital gains 0% 0% 0% Company tax on interest income 0% 0% 0% Corporate tax on royalty income 6% Not allowed 6% Corporate tax rate trading income 30% Not allowed Not allowed VAT registration required Yes No Yes Corporate bank account HSBC London HSBC Hong Kong HSBC Singapore Royalty withholding tax 0% 0% 0% Dividend withholding tax 5% 0% 0% Interest withholding tax 0% 0% 0% Allowed to own patents Yes No No Allowed to own real estate directly No No No Commercial trading allowed Yes No No Allowed to own subsidiaries Yes Yes Yes Corporate directors allowed Yes Yes Yes Corporate shareholders allowed Yes No No Minimum share capital €12,500 €12,500 €12,500 Minimum shareholders 2 2 2 Minimum directors 3 3 3 Audited accounts required No Yes No Annual tax return required Yes Yes Yes Luxembourg registered office Yes Yes Yes Public register of shareholders Yes Yes Yes Limited liability company Yes Yes Yes Double tax treaty benefits Yes No Yes EU directives benefits Yes No Yes Incorporation period 3 weeks 3 weeks 3 weeks Total company incorporation costs € 25,670 € 28,670 € 25,670
The tax exempt SPF holding company
- A Luxembourg SPF (Société de Gestion de Patrimoine Familial) is a private, global, family wealth investment vehicle specifically designed to meet the business needs of family-owned holding companies. Thus the exclusive object of the SPF is the acquisition, holding, management and disposal of international financial assets;
- Following Luxembourg business setup, the SPF is legally tax exempt from i) Luxembourg corporate tax ii) withholding tax on distributions to shareholders iii) capital gains tax arising from the sale of SPF shares and iv) liquidation revenues from the SPF;
- An SPF is only allowed to receive dividends from listed companies in the EU. An SPF cannot own real estate, patents or intellectual property rights. However, the SPF can hold a stake in other structures which carry out or invest in such activities;
- The SPF is not allowed to engage in any commercial trading activity including i) trading goods and services ii) retail and wholesale iii) import and export or iv) earning fees of any kind. An SPF cannot engage in any administrative activity or financial services on behalf of third parties/affiliated companies. However, the SPF can hold a stake in other structures that perform such activities;
- An SPF neither enjoys the benefits of European Union Directives nor Luxembourg double tax treaties, nor can it register for EU VAT. Consequently, an SPF suffers withholding tax of 15% on directorship fees paid to non-residents;
- When dealing with subsidiaries, an SPF is prohibited from i) earning fees of any kind ii) managing subsidiary companies or rendering any kind of services and iii) granting interest bearing loans to subsidiaries;
- An SPF cannot be publicly traded on the Luxembourg stock exchange nor issue public bonds;
- Each year, an independent Luxembourg auditor must issue a certificate of non-objection to the Registry Administration if the SPF i) publishes its annual statements ii) observes the provisions of company law and iii) the company’s activity remains within the legal framework. Failure to comply with the same leads to cancellation of the SPF license;
- A Luxembourg SPF can be set up under the legal form of a public limited liability company (SA), a private limited liability company (SARL), a corporate partnership limited by shares (SECA), or a cooperative society. Only natural, individual shareholders allowed.
Tax exempt investment funds in Luxembourg
- Luxembourg is the global leader for cross-border distribution of investment funds. With a market share in cross-border fund distributions amounting to 74.6% on a worldwide basis, Luxembourg is Europe’s largest center for investment funds and the 2nd largest investment fund center worldwide. Over 3,860 investment funds are registered in Luxembourg; 2,450 are umbrella funds with more than 11,990 different sub-funds;
- Luxembourg investment fund entities (SICAV and SICAF) are exempt from corporate income tax and capital gains tax. Luxembourg levies no withholding tax on distributions paid by investment funds, except where the EU Savings Directive applies regarding interest payments to EU residents;
- The financial sector is under the supervision of the ‘Commission de Surveillance du Secteur Financier‘ (CSSF). Registration of investment funds requires ministerial approval, while the CSSF is responsible for supervising funds
- Luxembourg investment funds have the following annual obligations:
- Annual reports must be certified by an auditor licensed in Luxembourg;
- Appoint a custodial bank headquartered in Luxembourg. The custodian monitors the fund’s assets, ensures that the issuance and re-purchase of stock and shares/stakes takes place in compliance with law and that revenues/profits are applied in a manner in accordance with the company’s articles of incorporation;
- Minimum capital may not be less than €1,250,000.
- Other Luxembourg investment fund conditions:
- The investment managers or consultants require certification/licensing by the oversight board for financial markets. There are no limitations regarding the nationality of the companies or individuals who administer the fund or perform consulting work;
- The Fund is only suitable for professional (institutional) investors, such as banks and insurance companies.
VAT in LuxembourgLuxembourg boasts the lowest VAT rate in Europe at 15%. However, this is no longer useful to web or digital businesses as VAT on digital services must now be charged in the receiving country through the mini one-stop-shop (VATMOSS). The VAT authority in Luxembourg is the Administration de l’Enregistrement et des Domaines. The VAT identification number for resident and non-resident businesses and taxable persons is a ten digit number in the format xxxx xxx xxx.
Who pays Luxembourg VATLuxembourg 15% VAT is levied on:
- Luxembourg entities buying and selling goods and services within Luxembourg;
- Luxembourg entities importing goods from non-EU countries;
- Luxembourg companies enjoying services from a non-EU service provider. A service is deemed to be rendered in Luxembourg if the supplier or the Luxembourg company has a permanent establishment in Luxembourg;
- Intra-EU community acquisition of goods in Luxembourg.
Who enjoys VAT exemption
- Pure Luxembourg holding companies usually are not allowed register for VAT, for example the SPF and Soparfi;
- Luxembourg companies supplying goods and services to non-EU companies need not charge VAT on these transactions;
- Luxembourg companies providing management services for investment funds enjoy VAT exemption;
- VAT exemption for most banking and insurance activities carried out by Luxembourg companies;
- Revenues generated from the lease and sale of real estate in Luxembourg.
VAT refunds in Luxembourg
- To apply for a VAT refund, a Luxembourg company must i) submit the application to the Administration de l’Enregistrement et des Domaines, ii) state the name and full address, an email address, and the business activity for which the goods and services are bought and iii) declare that no goods or services were delivered to Luxembourg, and iv) provide bank account details, the VAT number and tax reference number;
- The non-EU residents’ claims must cover one year and cannot have a value lower than €250. The application, signed by the company’s representative, must be deposited at the ‘Administration de l’Enregistrement et des Domaines‘ followed by the VAT certificate from the state where the company is located, the original invoices, the import documents, a declaration that the applicant hasn’t made taxable supplies in Luxembourg, and a declaration that any amount that is in addition will be reimbursed to the Luxembourg VAT authorities.
- The Registre de Commerce et des Sociétés is the official trade register of companies and associations in Luxembourg. Accessibility to the Luxembourg Trade Register is simple and the information available includes i) company address ii) name of shareholders and directors and iii) date of incorporation;
- The company directors are appointed, replaced and dismissed by the shareholders. The identities of shareholders and directors are on the public register;
- Luxembourg banks and other Luxembourg financial service providers are required to withhold tax at a rate of 35% from interest paid on the accounts of EU residents, unless the account holder has elected to send the following information to the tax authorities of the country in which they are resident: i) information about the payment period; ii) the amount of interest paid and iii) the account holder’s identity;
- All resident and non-resident Luxembourg companies must i) file a declaration at the Administration de l’Enregistrement et des Domaines and ii) submit annual financial statements to the Luxembourg trade register and iii) lodge an annual return confirming names and addresses of all directors, the principal place of business and details of shareholders and their shareholdings;
- The incorporation deed and articles of association of a Luxembourg company must be written in French or German and comprise i) the identity of the natural or legal person or persons by whom or on whose behalf the incorporation deed has been signed ii) the registered office iii) the corporate objects and iv) the amount of paid-up capital;
- The process of deregistering a company is dictated by the Government. This process will take a minimum of 6 months. Healy Consultants’ fee to project manage company de-registration is €1,450. During this 6 months period it is mandatory to maintain a resident company secretary and a legal registered office.
Interesting facts about Luxembourg
- In March 2010, the Sunday Telegraph reported that most of Kim Jong-Il’s US$4 billion in secret accounts was in Luxembourg banks;
- The country is widely used in corporate structuring for cross-border investments, but due to its place in Europe’s political environment it must constantly adapt its tax legislation to avoid conflict with the tax authorities of other EU countries. For example, the classic tax exempt Luxembourg 1929 Holding Company was outlawed on 31st December 2010. The regime was held to be an illegal state aid by the European Commission. The European Commission is now investigating further allegations of Luxembourg state aid in the form of private tax deals with international companies;
- The government of Luxembourg has successfully attracted many start up companies; eBay, Amazon and Skype are just three technology companies to have moved their European headquarters to Luxembourg;
- The most significant part of the Grand Duchy’s economy is its flourishing financial sector, which comprises more than 200 banks, 1,900 investment funds and 20,000 holding companies;
- The population of the Grand Duchy is of approximately 449,000. The Luxembourgers are generally fluent in French, German and English in addition to their mother tongue, Luxembourgish;
- In 1867 Luxembourg gained independence from Germany and organized itself as a constitutional monarchy with the legislative power vested in a democratically elected parliament. The legal system is based on the Napoleonic code and is therefore similar to the Belgian and French legal systems;
- Luxembourg is an EU member with a stable government, economy and legal system and therefore portrays a positive image to Clients, suppliers and investors;
- Foreign employees working full time in Luxembourg often feel “bored” because of the lack of intellectual entertainment in the country.
- How much do I need to invest to register a company in Luxembourg?
The minimum share capital required to register a Luxembourg SARL is €12,395, divided into shares of at least €25. To register a societé anonyme in Luxembourg, the minimum capital contribution is €31,987. The shares of an SA may be split into shares of no par value, or shares with a par value of at least €1.24.
- Is a resident director required in order to do business through a company registered in Luxembourg?
Yes. Companies registered and operating in Luxembourg require a business permit must be managed by a director resident in Luxembourg. If our Clients register a company in Luxembourg but make no sales, then no resident director is required.
- Is the Luxembourg company registry searchable?
Yes, the public may freely search the commercial register in Luxembourg after signing up for an account online. However, the website is available only in French and German.
- Can I set up a SARL in Luxembourg with a corporate director?
Yes, a company or other legal entity may be appointed as the director of a Luxembourg company, whether a SARL or an SA.
- Is a Soparfi or an IP holding company different from a SARL or an SA?
No. The Soparfi and IP holding company regimes are tax rules, rather than a different form of legal entity. Both SAs and SARLs may be used as a Soparfi or IP holding company.
- Where can I find more information about how to set up a company in Luxembourg?
Kindly refer to Healy Consultants’ page on how to set up a Luxembourg company.
- What other options are there for holding companies in Europe?
ealy Consultants has compared different low-tax holding companies in Europe here.
- If I want to incorporate a company in Luxembourg, do I need to visit the country?
No. Healy Consultants can legally incorporate your Luxembourg company without you needing to travel.
- What is the minimum number of directors required for a Luxembourg company?
A Luxembourg company requires a minimum of one director and corporate directors are allowed.
- Is a resident director required?
Only companies carrying on business in Luxembourg require a resident director. Holding companies, which do not require a business permit, do not need a resident director.
- What is the minimum number of shareholders required for a Luxembourg company?
A minimum of one shareholder is required.
- Are shareholder/director details available for public viewing?
- Is a Luxembourg company required to submit an annual tax return and/or financial statements?
A Luxembourg company is obliged to submit an annual tax return and/or financial statements. It is also required to have its accounts audited.
- How much tax does a Luxembourg Company pay?
- Luxembourg trading company
A Luxembourg SA or SARL that qualifies as a trading company pays 21% corporation tax on global income exceeding €15,000 (US$21,700) and 20% corporation tax on global income below that amount. However, tax relief is available via the double taxation treaties Luxembourg signed with more than 60 countries.
In addition to corporate tax, a Luxembourg trading company pays a Municipal Business Tax (ICC) ranging between 6% to 12% percent depending on location, which is levied on taxable income above €17,500 (US$25,300). Capital gains realised by the Luxembourg trading company is treated as ordinary income and is taxed accordingly.
- Societe de Gestion de Patrimoine Familial (SPF)
Although it pays no corporate tax, an SPF is subject to an annual subscription tax of 0.25% on debts exceeding eight times the paid up capital, up to a maximum of €125,000 (US$166,000) per year.
An SPF is subject to Luxembourg corporate tax and wealth tax if in a year it derives (for more than 5% of its total dividend income) dividends coming from non-listed foreign companies which are not subject to an income tax comparable to the standard Luxembourg corporate income tax rate.
There is a withholding tax of 15% on dividends paid to non-resident shareholders, unless reduced because of the double tax agreements signed by Luxembourg and other states.
- Luxembourg trading company
- Does a Luxembourg company benefit from Double Taxation Treaties?
Yes. Luxembourg has signed Double Taxation Treaties with more than 60 countries including China, France, Germany, Italy, Japan, the Netherlands, Singapore, Spain, the UK, and USA.
- How much do I need to invest to register a company in Luxembourg?
Useful links for LuxembourgGovernment and public authority websites:
- Luxembourg Tax Authority
- Luxembourg Company Registrar
- Central Bank of Luxembourg
- Luxembourg Stock Exchange
- Investment Authority
- Chamber of Commerce
- Luxembourg airports
- Visiting Luxembourg
- PWC- Income tax 2013
- Deloitte – Taxation and Investment 2013
- Banking in Luxembourg
- The Luxembourg Nationality Law
- EUDO Citizenship Observatory
- Luxembour Employment Law
- Luxembourg Insurance Law
- PWC – Banking in Luxembourg 2014
- Tax Justice – Financial Secrecy Index 2013
- PWC – Setup in Luxembourg
- BDO – Doing business in Luxembourg 2013
- Why Luxembourg? A unique location to expand your business
- Invest in Luxembourg
- Luxembourg aiming to be European financial hub for Chinese RMB
- Why Luxembourg?
- Euronews – end to banking secrecy in Luxembourg
- Deloitte – The Luxembourg banking industry
- Why Luxembourg is the best place to invest offshore from
- Jean-Jacques Rommes – Luxembourg business out of regulation
- Luxembourg as a future Clean Tech hub
- Luxembourg, a dedicated pharma and healthcare hub
- Luxembourg – The Tax Haven Revamps its Image