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Company incorporation - Luxembourg

Incorporation of a SOPARFI company in Luxemburg

The world's wealthiest country by GDP and one of the smallest in size, Luxembourg provides a unique low-tax environment for international investors. It is also a founder member of the EU, a fact that sits oddly with its status as a tax haven. The country is widely used in corporate structuring for cross border transactions, but due to its place in Europe’s political environment it is constantly adapting its tax legislation to avoid adverse conflict with the tax authorities of other EU countries. Due to its progressive and adaptive approach, Luxembourg is, and will remain, a beneficial country for international business structuring. As a result, Luxembourg’s tax laws frequently come under scrutiny from other EU states and are prone to change. So, if you want to capitalise fully on the many advantages of opening a company in Luxembourg talk to us about company formation, bank accounts and everything else you need to know. We will steer you safely through Luxembourg’s complex tax regulations.

Luxembourg - a low-tax environment?

Not at all - purposely the tax benefits in Luxembourg are carefully structured to ensure minimal disruption with other EU countries. In many ways it is a high-tax country – corporate income tax is 31%, individual tax rates are higher and there’s a wealth tax on top. On the face of it, the corporate structure in Luxembourg is similar to that of most other EU states, with most companies adopting the usual joint stock or limited liability formats. However within this standard structure is a strictly-defined class of holding company. Qualify for this – and corporate income tax can sink to below 1%. For expert advice, we can put you in touch with one of our local specialists in tax planning.

Standard corporate structure

These are the main forms of standard-tax business entity:

  • - joint stock company (SA), minimum share capital €30,000; requirements include at least three directors, a registered office in Luxembourg, and audited accounts if the company exceeds a certain size
  • - limited liability company (SARL), minimum share capital €12,400, no more than 40 shareholders; requirements include at least three directors, a registered office in Luxembourg, and audited accounts subject to size
  • - general partnership, limited partnership, and branch of foreign company

Set up a low-tax company in Luxembourg

There are two main kinds of low-tax business entity – the 1929 Holding company and the Soparfi. In fact, it would be more accurate to define a Soparfi as tax-efficient rather than low-tax. Neither type of company is a legal entity in its own right. Rather, they employ one of the above forms, such as an SA or a SARL, as their legal base. The rules governing low-tax holding companies are strict and it is essential that you comply with them at all times, otherwise your company will lose its low-tax status.

What are the features of a 1929 Holding company?

  • - minimum share capital of €31,000; at least 2 shareholders and 3 directors
  • - audited accounts required; registered office must be in Luxembourg
  • - company cannot trade or lend money except to its subsidiaries
  • - activities restricted to owning shares in other companies
  • - exempt from corporate income tax and wealth tax
  • - only taxes are 1% tax on subscribed capital and 0.2% tax on shares issued

A 1929 Holding company with funds in excess of €24.8 million – one billion francs in Luxembourg’s former currency – has Billionaire Holding status. This entitles it to an even more favourable tax regime. The minimum tax liability of a Billionaire Holding company is €50,000, much less than an equivalent 1929 Holding company would pay.

What are the features of a SOPARFI company?

There are two main kinds of low-tax business entity – the 1929 Holding company and the Soparfi. In fact, it would be more accurate to define a Soparfi as tax-efficient rather than low-tax. Neither type of company is a legal entity in its own right. Rather, they employ one of the above forms, such as an SA or a SARL, as their legal base. The rules governing low-tax holding companies are strict and it is essential that you comply with them at all times, otherwise your company will lose its low-tax status.

  • - subject to normal corporate income tax
  • - audited accounts required; registered office must be in Luxembourg
  • - eligible to benefit from double-taxation treaties (unlike 1929 Holdings)
  • - some beneficial tax treatment of profits and dividends

Recruiting staff?

The unemployment rate in Luxembourg is low but businesses have little trouble recruiting staff as the labour pool is bolstered by workers commuting into Luxembourg from neighbouring countries. The workforce is well educated and is particularly attuned to the financial services sector.

What is the regulatory environment like?

Luxembourg is regarded as rather more bureaucratic than some other EU member states. It complies with EU directives on labour, health and safety etc, and indeed on most taxation issues, apart from the particular circumstances of low-tax holding companies. Domestic and foreign investors alike have the right to establish business enterprises in Luxembourg.

Financial incentives available

In addition to being a tax haven, which is a considerable financial incentive in itself, Luxembourg has a number of schemes designed to promote investment. It has established a framework for investment incentives to counter the country’s historic reliance on the steel sector, and grants are available to encourage investment in other manufacturing and high-tech industries. The government also provides equity funding for certain kinds of investment, particularly in development areas.

Banking facilities

Luxembourg is a major centre for financial services, and there are more than 200 banks in a country whose population is below half a million. Luxembourg offers world-class banking facilities. Most international banks are represented here. You will need to open a bank account in Luxembourg and we can advise you on this.