A small country in the center of Europe, at the border with France, Luxembourg is nonetheless a rich and attractive country. Luxembourg is an ideal business location for foreign entrepreneurs. On the other hand, starting a business in this country can be challenging for those who are not aware of the processes and implications of company formation in Luxembourg. However, these challenges can be overcome with the help of experts in this field and considering the advantages that Luxembourg offers to companies incorporated in the country, it’s well worth taking this step.
Steps for company formation in Luxembourg
First of all, it is necessary for the founder to apply for a residence permit. The permit is valid for 5 years and is renewable for 10 years. At this stage, all you have to do is complete all the administrative steps for company formation in Luxembourg: obtaining a VAT number, the company’s statutes must be registered with a notary and afterward published in the Mémorial (the equivalent of the Grand Duchy official gazette) and register the company at the Commercial Register. It’s also possible to incorporate in Luxembourg without obtaining a residence permit, as long as a representative who is a resident is appointed.
The business plan
This is an important step for company formation in Luxembourg but it’s not mandatory. The constitution of a business plan allows the future owner to check the rate of investment return of their company and the finances required to carry out their future business activities. In a business plan, several elements must be included:
- All aspects related to the company (history, legal form, financing);
- The initial financing plan;
- The projected income statement;
- The purpose of the company.
Common legal forms
SARLs (Limited Liability Companies) are in the majority when it comes to company formation in Luxembourg. The partners are responsible according to the limit of their contribution to the share capital. It’s necessary to have at least two founders to create a limited liability company. The SA (Société Anonyme) is also very popular in Luxembourg. This type of company can be formed by one or more individuals, depending on the type of administration. Finally, the SARLU (SARL unipersonelle) can be managed by only one person, regardless of nationality.
The social capital required for company formation in Luxembourg simply depends on the chosen legal form. For example, for a limited liability company, the minimum share capital is € 12,500. The capital must be deposited in a bank account in Luxembourg. The company’s shares are then divided into equal sums. For an SA, the amount differs. The share capital amounts to approximately € 30,000. The SA has the power to redeem all of its shares.
The income tax varies according to the annual income. It is, in particular, 0% for companies with a turnover less than or equal to € 9,750 € and 38% for those with a turnover of over € 34,500. The tax rate for companies also depends on the company’s profits (between 20 and 22%).
Regarding the corporate tax, also known as the community income tax, the rate used is 20% of the operating profit for companies whose taxable income is € 15,000 maximum. For those exceeding this amount, the tax rate used is 21%.
In addition, the communal commercial tax is calculated according to the profit. Companies that have a profit up to € 17,500 can benefit from tax reductions. The wealth tax depends on the balance sheet of the company. Also, a contribution to the Chamber of Commerce is mandatory and must be made every year.
In conclusion, the process of company formation in Luxembourg is not as complicated and as long as the legal requirements are met, entrepreneurs should not encounter any difficult problems when they go through the necessary steps.