Business entities in Luxembourg
Healy 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.
Frequently asked questions
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?Healy Consultants has compared different low-tax holding companies in Europe here.