Guide to Setting Up a Subsidiary Company in Luxembourg

Luxembourg is a part of the European Union. According to the IMF, the country has the highest per capita GDP and is considered a high-income economy. The country’s economy highly depends on industries like banking, steel, and other services. Hence, you can easily start a subsidiary in Luxembourg in these industries. 

Luxembourg has a GDP of $82 billion and a GDP rank of 72. The GDP of the country is growing at 3.1%. The country has an employment rate of 72.1%. Hence, you can easily find people to work with if you decide on setting up a  subsidiary in Luxembourg. 

Luxembourg is a part of northwestern Europe, and countries like Belgium, France, and Germany surround it. Hence, you can serve these neighboring countries when you start the incorporation of a foreign subsidiary in Luxembourg. 

Creating a subsidiary business in Luxembourg is the simplest option to enter the country. Because it is a different legal entity from the parent company, there is less paperwork to perform, and there are tax advantages. Companies can profit from the nation’s expanding infrastructure and highly qualified workforce. 

Read on to learn how to successfully develop your company by establishing a subsidiary business in Luxembourg.

What are the Types of Subsidiaries in Luxembourg?

Luxembourg allows the incorporation of different types of companies. Some of them are as follows:

Private limited liability company

• A private limited liability company is also known as Société à responsabilité limitée or S.à r.l. in Luxembourg. 
• It is one of the most popularly incorporated company types, as its shareholders have no personal liability.
• A private limited liability company must have a minimum of 1 shareholder, which can go up to 100. 
• The share capital brought in by the shareholders is divided into different classes of shares based on their features and the type of ownership. The company cannot trade these shares on the stock exchange. 
• A single manager or a group manages a private limited company in Luxembourg.
• All those who start a private limited liability company must bring a share capital of at least EUR12,500. 

Public limited liability company

• Société Anonyme, or S.A., is a public limited company with at least one shareholder. There is no cap on the maximum number of shareholders.
• Like a private limited company, the owners of the public limited company have no personal liability. 
• If the company has a single shareholder, the sole director manages the company. In other cases, a board of directors with at least three members manage the company.
• The board of directors must have three directors. The supervisory board or an executive must manage the company. 
• The shareholders bring in a share capital of at least EUR 30,000. The company can trade these shares on the stock exchange.

General partnership

• A general partnership is known as Société en nom collectif or SENC. Two or more partners incorporate it.

• The partners of a general partnership in Luxembourg have unlimited liability. Hence, they are responsible for all the company’s debts and liabilities. 

• The partners can start the subsidiary business in Luxembourg with any share capital. 
• The company must file its annual reports if its revenue exceeds EUR 100,000. 

Limited partnership

• Limited partnership is also called Société en commandite spéciale or SCSp. These partnerships must have at least one general partner and one limited partner. 
• There is no requirement for a minimum share capital while incorporating a partnership. 
• The limited partners’ liability is limited to their contribution towards the share capital. 
• The general partners are liable for settling all the company’s debts and liabilities. 
• The best thing about a limited partnership is they have great contractual freedom and flexibility to structure their company. 

How to Set Up a Subsidiary in Luxembourg?

You must take a few steps to establish a subsidiary business in Luxembourg. Let’s look at these steps:

Step 1: Reserve a name for your company

• Before you incorporate a subsidiary business in Luxembourg, you must choose your company’s name. 
• The name must be unique. You can check if your proposed name is available by submitting four types of documents to the Trade and Companies Register. 
• The Trade and Companies Register fill out its response and sends the documents back to you. The response indicates if the name is available for your subsidiary system in Luxembourg. 

Step 2: Deposit the minimum capital

• The company’s promoters must open a bank account and transfer the share capital amount to the account. 
• The bank then remits an escrow stating that the share capital has been blocked in the escrow account at the bank. 
• Once the notarial deed of incorporation of a foreign subsidiary in Luxembourg is issued, you can ask the bank to unblock the funds. 

Step 3: Prepare the notary drafts and notarize the company deed

• The company’s incorporation takes place in front of the Luxembourg notary public. 
• The notary of Luxembourg then prepares a deed of incorporation that includes the articles of association. The National Chamber of Commerce’s E-space Enterprises can help with the model of documents. 
• By law, the Luxembourg notary is responsible for covering all expenses associated with the company’s establishment and registration, including the notary fee of EUR 450.
• The notary must create a detailed invoice once the company is incorporated.

Step 4: Business Application License 

• To start operating in Luxembourg, you need to obtain a business license. 
• You must provide proof of knowledge to either the Ministry of Middle Classes for a Commercial Activity or the Ministry of Economy for industrial activities.
• There are a few documents you must submit for the business license. The Ministry of Economy provides a list of documents for Industrial Activities.
• The Ministry of Economy examines the draft of the Articles of Association, the company name, and other details.
• Companies can submit business permit applications before executing the notary deed.
• You can complete the entire process online at www.guichet.lu. 

Step 5: Registration at the one-stop shop

• The notary public collects all taxes and fees for incorporating a subsidiary system in Luxembourg. 
• Within two months of the company’s formation, the Trade and Companies Registry arranges for the incorporation deed and publishes it in the Official Gazette.
• The Trade and Companies Register gives an official number to the company that acts as a company identification number. 
• You must apply for a VAT and social security number at the one-stop shop. The shop then submits all the relevant documents to the authorities. 

Step 6: Unblock the share capital

• Once the incorporation process is complete, the notary public issues a release certificate. The certificate is known as certificat de déblocage. The certificate marks the company’s establishment. 
• The certificate, along with the incorporation deed, is then shared with the bank. The bank releases the share capital once it receives the certificate.

Benefits of Setting Up a Luxembourg Subsidiary

There are several advantages of setting up a subsidiary business in Luxembourg, which are listed below:

• The tax regulations in Luxembourg are pretty good, making it attractive for all kinds of foreign businesses who want to establish a subsidiary system in Luxembourg. 
• You can register a subsidiary system in Luxembourg online. The country has simplified the registration process by moving several incorporation steps online. 
• The country is ranked 72nd in the ease of doing business index. Hence, it is easy to incorporate a subsidiary business in Luxembourg. 
• Luxembourg experiences a massive influx of tourists, making it easy to enter diverse businesses. 
• Subsidiaries can operate separately from the parent company, shielding it from costly lawsuits or errors.

Documents to Prepare When Opening a Subsidiary in Luxembourg

You must collect a few essential documents before opening a subsidiary business in Luxembourg. Some important documents include the following:

• Articles of Incorporation
• Incorporation deed
• Memorandum of Association
• Completed and duly signed application form
• Tax stamp 
• A recent certificate of non-bankruptcy if the director is not a resident of Luxembourg
• EU certificate
• Certificate of registration with the social security authorities
• The applicant’s identity proof
• The applicant’s police record or affidavit

What Business Forms Can Luxembourg Subsidiaries Take?

The business environment in Luxembourg supports different types of business entities. Hence, a subsidiary business in Luxembourg can take different forms depending on the budget and the nature of business activities. You can establish both a partially-owned and a wholly-owned subsidiary business in Luxembourg.

However, Luxembourg’s most incorporated business type is a private limited liability company. The company gets easily incorporated with a share capital of EUR 12,500. These companies can be incorporated using relatively simple procedures. Their most important characteristic is that the owners or partners have limited liability, preventing them from utilizing their assets to settle the company’s debts.

Luxembourg Subsidiary Laws

You must abide by all local labor laws and government-imposed requirements for your subsidiary system in Luxembourg to operate without any hassles. Integrating these laws aims to create a framework for the firm’s operation. These ancillary laws also seek to safeguard employees’ rights within your business.

The certificate of incorporation of a foreign subsidiary in Luxembourg and the registration certificate for the subsidiary system in Luxembourg must belong to the parent company. To ensure that all business activities run smoothly, you must also open a bank account in Luxembourg.

Post-Incorporation Compliance

Once the company gets incorporated, you must meet the compliance for a foreign subsidiary in Luxembourg. Here are a few post-incorporation compliances for businesses in Luxembourg:

• If the company has more than 60 shareholders, a general meeting is mandatory at least once a year. If the company is a public limited company, it must organize one of its general meetings at the Grand Duchy of Luxembourg. 
• The company must file annual tax returns every year post its incorporation. 
• A company must take approval for the balance sheet and the profit and loss account statements from the shareholders.
• The company must file its annual accounts with the Luxembourg Register of Commerce and Companies. 
• If the company has more than 60 shareholders, it is mandatory to appoint an auditor. 
• You must also register the business at the one-stop shop to get registered with the tax authorities.
• Ensure to make all tax payments on time on your employees’ behalf every month. 

Taxes on Subsidiaries in Luxembourg

A subsidiary business in Luxembourg functions like any other regular business that operates in the country. Hence, the standard corporate tax rates of 24.94% apply to the subsidiary system in Luxembourg. 

However, businesses earning less than EUR 175,000 must pay corporate taxes at 15%. Entities considered tax transparent, like the general and the limited partnerships, are not covered under the current corporate tax rates. 

The corporate tax includes a 7% solidarity tax payable by companies. The corporate tax rate also levies a municipal business tax, which comprises 6.75% of the corporate tax rate. 

Tax Incentives for Businesses Setting up a Subsidiary in Luxembourg

Taxation of foreign subsidiaries in Luxembourg is among the world’s most progressive and flexible. The law provides multiple incentives to companies based on their requirements. Some incentives include risk capital, audiovisuals, environmental protection, employment to the country’s unemployed residents, research, and development. 

Companies involved in R&D initiatives get financial support from the government and the tax incentives they can avail of. Businesses in experimental development can avail of these incentives.

Other Important Considerations

A subsidiary business in Luxembourg takes around a month to complete all the formalities before your company hits the ground. It would be advisable to take a few weeks off to concentrate on expanding your business and meeting all legal obligations. You can delegate the task to another business executive or work together if your parent company keeps you occupied.

You must also stick to a budget to complete each phase of establishing a subsidiary business in Luxembourg. Before beginning a foreign subsidiary system in Luxembourg, create a budget to help you maintain control.

How Can Multiplier’s Employer of Record Help You Hire and Expand in Luxembourg?

You may need guidance to comply with all applicable labor laws and municipal ordinances if you want to establish a subsidiary business in Luxembourg. For assistance in overcoming this growth barrier, use a service partner like Multiplier. Multiplier will handle all formalities in entering a new market, so you don’t need to worry. Our knowledgeable staff assists you in establishing a subsidiary system in Luxembourg and is conversant with local and international rules. We ensure that Luxembourg’s labor laws and conventions are carefully adhered to. With a EOR like Multiplier, you can quickly establish teams internationally and take advantage of new market prospects.