Facts about Grand Duchy of LUXEMBOURG
Country:Area: 2586 Km2
Currency: EURO
Population: 602.005 (1er janvier 2018)
Business Hours: 08:00 – 17:00
Official Languages: Luxembourgish, French, German
Public/National Holidays: 01 January - New Year’s day, flexible – Easter Monday, 01 May - Labor day, flexible – Ascension day, flexible – Pentecost, 23 June - National Holiday, 15 August – Assumption, 1 November – All Saints day, 25 & 26 December – Christmas.
1. Why Country Luxembourg
Political frameworkThe Grand Duchy became fully independent in 1867 and has today the political system of a constitutional monarchy with a Prime Minister. The Grand-Duchy is a full member of all major international institutions and a founding member of the European Union.
What makes Luxembourg unique is:
- Stable political environment with a strong reputation for pro-business legislation and administration
- Accessibility and pro-active involvement of the government with respect to businesses which relocate personnel and operations to Luxembourg
- Access to a market of over 100 million consumers within a 250 km radius
- Excellent basic infrastructure and logistical network (airport, railway)
- High-performance communication network at competitive rates
- Experienced, well-trained and multilingual workforce (French and German are official languages, English is widely spoken)
- A multilingual and multicultural environment, including strong educational institutions
- Attractive tax legislation and social security system (for companies, employers and employees)
- Lowest VAT rates in Europe
2. Legal Framework
The Luxembourgish Legal system is similar to the French Legal system, based on a multitude of codified laws. The Luxembourgish Legal system is characterized by the principle of separation between legislative, executive and judicial powers. The Legal system is divided into Public Law – subdivided into several branches among which: constitutional law, administrative law, finance law, European law and Private law – subdivided into many branches among which: civil law, criminal law, company law, labor law.In Luxembourg, the main piece of legislation governing commercial companies is the law of 10 August 1915, as amended on commercial companies (the 1915 Act). The 1915 Act was largely influenced by the liberal Belgian and French legislation of that period. Today, the Luxembourg legislation still reflects the open economic policy prevalent at the beginning of the last century. The Luxembourg legislator always seeks to maintain the maximum flexibility possible in implementing the EU directives into Luxembourg law.
3. Banking
BankingLuxembourg’s success in the financial sector was originally driven by external factors. Subsequently the industry took advantage of its highly experienced and skilled work force, its substantial international clientele and the favourable regulatory environment and widely expanded its range of services and products. As of today 136 banking institutions offer the entire spectrum of corporate and private banking services.
Investment Funds
Luxembourg is an international center of excellence for asset management, management of funds and the distribution of funds. Today, Luxembourg is the undisputed leader in cross-border sales of investment funds, Europe’s largest center for investment funds and 2nd largest investment fund center worldwide.
4. Financial Regulatory Authority
The law of 5 April 1993, (as amended) on the financial sector, governs the companies active in the financial sector that are subject to supervision by the Financial Sector Supervisory Commission (Commission de Surveillance du Secteur Financier - CSSF).5. Taxation
5.a) Corporate TaxLuxembourg corporations are subject to the following taxes:
- 26,01% of taxable income for corporations established in the city of Luxembourg (this includes corporate income tax, municipal business tax and the contribution to the employment fund).
- 0,5% of net assets (net wealth tax).
- a minimum wealth tax of 535 € for capital companies and 4.815 € for Soparfi companies, which have as main objective the detention of participations.
The tax is non-refundable, but deductible from income taxes.
5.b) Personal Tax Rates
Luxembourg is one of the EU Member States with the lowest effective taxes and social security charges for individuals. Resident taxpayers are subject to income tax on their world-wide income. Non-resident taxpayers are only subject to income tax on Luxembourg-sourced income.
Taxable income is assessed on the basis of total income less exemptions, deductible expenses and allowances. The law provides for many exemptions and deductions, especially for families with children. Income tax is progressive, with rates between 0% and a maximum 42%, and is assessed on the basis of the taxpayers’ family status. This tax rate is itself increased by an employment fund contribution of 7 %.
There is no net wealth tax for individuals.
5.c) Social Security
Social security contributions are also levied on income as follows: health insurance of 3.05% and pension insurance of 8% on professional income and a dependency contribution of 1.4% on all income.
5.d) Customs & Excise Duties
Customs and Excise levied are:
- customs duty (duties and taxes charged on imported goods)
- excise duty
- tax on motor vehicles (road tax disc - vignette fiscale)
- road and motorway tax for heavy goods vehicles (e-vignette)
- tax on licensed premises (taxe de cabaretage)
5.e) V.A.T.
The standard rate of VAT is 17%, but certain types of goods and services are subject to reduced rates of 3%, 8% or 14%.
In order to register for VAT in Luxembourg, certain conditions must be fulfilled.
The company has to do business subject to VAT and turnover in Luxembourg has to be higher than 30.000 €
You will need the address, the names of the associates, a bank account and a copy of the constitutional act of the company.
- Up to 112.000,01 € in turnover you only need to file an annual VAT declaration.
- Between 112.000,01 € an 620.000,00 € in turnover you need to file a quarterly and annual VAT declaration.
- Up to 620.000,00 € in turnover you need to file a monthly and annual VAT declaration.
5.f) Tax Incentives
Participation exemption
Luxembourg’s participation exemption regime provides for an exemption from income, withholding and net wealth tax for qualifying investments held by qualifying entities. The exemption from income tax is extensive, covering dividends, capital gains and liquidation proceeds. In addition, no withholding tax on dividend distributions applies if the conditions for the participation exemption are fulfilled. Finally the net asset value of participations qualifying for the participation exemption is exempt from net wealth tax.
Size of participation
The minimum participation that qualifies for the exemption is:
- 10% participation; or
- an acquisition price of at least € 1,200,000 to qualify for the dividend and liquidation proceeds exemption; or
- an acquisition price of at least € 6,000,000 to qualify for the capital gains tax exemption.
Minimum retention period: uninterrupted period of at least 12 months
Deduction of expenses
Expenses directly related to a participation that qualifies for the exemption (e.g. interest expenses) are only deductible to the extent that they exceed exempt income arising from the relevant participation in a given year.
Decreases in the acquisition cost of a participation that qualifies for the exemption are deductible. The exempt amount of a capital gain realized on a qualifying participation is, however, reduced by the amount of any expenses related to the participation, including decreases in the acquisition cost, that have previously reduced the company’s Luxembourg taxable income.
5.g) Permanent establishments
In Double Tax Treaties, the “Permanent Establishment” is defined as a fixed installation where a company has all or a part of its activity.
Generally, it means:
- Headquarter
- a branch
- an office
- a factory
- a workroom
- a mine, a quarry or all other working place of natural funds
- a building site or a taking up site, only if it lasts more than six months.
Indeed, if a company carries on its activities on a regular basis in an establishment in which it employs human and materials means, this company will be taxable there, and on all the profits made by this establishment.
6. Main Types of Corporate Forms
In Luxembourg there are 7 legal forms of corporations:1. Société anonyme (S.A.) – Public company limited by shares.
2. Société européenne (S.E.) – European company.
3. Société en commandite par actions (S.C.A.) – Corporate partnership limited by shares
4. Société à responsabilité limitée (S.à r.l.) – Private limited company
5. Société à responsabilité limitée simplifiée (S.à r.l.-s) – Simplified limited liability company
6. Société en commandite simple (S.C.S.) – Limited corporate partnership
7. Société en nom collectif (S.N.C.) – General corporate partnership
8. Société coopérative (S.Coop.) – Cooperative company
7. Company Incorporation
The availability of the name of the company must be checked with the Luxembourg trade and companies register (Registre de Commerce et des Sociétés - RCS) prior to the incorporation of the company. The articles of association are drafted by the founding shareholders and must, for certain types of entities, be adopted by notarial deed. The articles of association may be in French, German or English. If the articles are in English, they must be followed by a French or German translation.The following documents must be provided to the notary on the day of the incorporation of the company:
- a blocking certificate certifying that the contributed capital is blocked in the bank account in view of the incorporation of the company; or
- an auditors’ report in case of a contribution other than in cash;
- a copy of a duly signed and dated proxy for the representation of a founding
shareholder (the original version must follow); and
- a beneficial ownership certificate certifying who the beneficial owners of the company are.
Company name
The articles of association must be registered and filed with the Luxembourg trade and companies register and published in the Luxembourg Official Gazette (the “Mémorial”). The notary commonly deals with these formalities for the company.