Starting a business is a dream for many people, but the real question is, how? In this article, we will guide you with the necessary steps, processes, and administrative requirements to start a business in Luxembourg.
By the time you finish reading this, you will be well aware of starting a new business, things to consider before launching, registration, documentation, and information on financial aid.
Thanks to its thriving business environment Luxembourg distinguishes itself as a top choice for startups, and company incorporation. The extensive network of double tax treaties, spanning over 86 countries presents a significant advantage to businesses.
Moreover, the financial sector in the city attracts opportunities for all kinds of global investments, optimization, and fundraising. And lastly, the city’s multicultural workforce with linguistic and talent diversity binds it all together.
Are you eligible to start a business in Luxembourg?
Luxembourg has over 142,523 registered businesses, with Finance, insurance, and real estate being the most popular. If you’re a local, the documentation for you is pretty straightforward.
However, a resident permit is needed for all third-country nationals from outside the EU or EFTA (European Free Trade Association – Iceland, Liechtenstein, Norway, and Switzerland).
Obtaining a business permit
Businesses can obtain a permit from MyGuichet.lu. To be prepared the license, you must provide evidence of professional integrity and professional qualification.
You can apply for the permit online or via post. As a new business owner, you can also seek and use guidance from the House of Entrepreneurship – a central point of contact for guidance and support to both aspiring entrepreneurs and existing businesses. It remains dedicated to assisting project owners and business managers at every stage of their entrepreneurial endeavours.
Most permits are granted within two weeks, provided you have given all the documents, but it can take up to 3 months on the higher side. Once you have obtained the permit, the number must appear on your business stationery and the website.
To make it easy, refer to the below process of setting up.
Registering your business
Once you finish your documentation, it’s time to give your business some identity. Luxembourg has various options for you to pick from – from a solopreneur to a freelancer, from a company to a non-profit organisation. Let’s understand what this means.
- Self-employment: Also known as a freelancer or a sole proprietorship, it is one of the easiest ways to break into starting a business. The exclusive appeal of this legal form is the simplicity of obtaining documentation, registration, and other administration activities. Since there is no clear distinction between an entrepreneur’s wealth, their personal and professional holdings are considered to be one. You can read all about it here.
- Partnership: An extension of self-employment; here, the critical difference is that you can have more than 1 owner – jointly responsible for handling business debts. There are three kinds of partnership contracts.
- General partnership can be set up through an agreement between two or more owners.
- Limited partnership – At least one partner has limited liability, meaning their liability only extends to their investment in the company
- Special limited partnership – Primarily serving as an additional investment vehicle suited for investment funds. The main difference between a special limited partnership and a limited partnership is that the former does not have a legal personality.
- Capital Company: Under this legal form, the company is established as an individual entity. In Luxembourg, the 3 most common types are SA (public company), the SARL (Private limited liability company), and the SARL-S (Simplified limited liability company).
These bifurcations come with their capital requirements, part of which needs to be paid when the company is formed. The minimum share capital for SA, SARL, and SARL-S is fixed at EUR 30,000, EUR 12,000 and between EUR 1 & EUR 12,000 respectively. - Other legal business forms: While we have touched base on the most common types of business arrangements that allow you to get started with limited blockers, let’s explore a few unique propositions as well:
- European company (SE): Suitable for large MNCs with a minimum shareholder capital of EUR 120,000.
- Cooperative company (Société coopérative – SCOP): Owned and run by employees without minimum share capital requirement.
- Civil company (Société civile – SC): This arrangement is created to manage immovable assets or intellectual professions.
- Societal impact company (Société d’impact sociétal – SIS): To amplify a social cause, for instance, sustainability, gender equality, etc.
MyGuichet.lu has covered all the requirements to set up these entities, head to the website to read more.
Financial aids for your business
Beyond the money you put into the business, Luxembourg supports its startup and business founders in multiple ways to meet their financial aid needs.
The Ministry of the Economy provides SME loans to Luxembourg’s SMEs, primarily to strengthen their competitiveness in the market. You can read about it here.
The Ministry also runs financial aid to support tourist infrastructure, details of which can be found here.
Société Nationale de Crédit et d’Investissement, also known as the SNCI, is another popular option for companies’ medium and long-term investments. It also grants loans to newly incorporated SMEs.
Mutualité de Cautionnement et d’Aide aux Commerçants, a mutual loan company operated by the Luxembourg Chamber of Commerce, guarantees loans from authorised lenders.
Moving onto the unique financial aid, Luxembourg also has dedicated assistance to the space industry – the Luxembourg Space Agency. Furthermore, another fund dedicated to early growth innovative startups in European technology is the Luxembourg Future Fund.
Administrative exigencies
Once you’re through with the legal form of your business, the next two crucial steps in starting your business in Luxembourg are tax registration and obtaining social security.
Tax registrations
All businesses in Luxembourg need to pay income tax, and sometimes, as per applicability, a communal business or property tax. At a glance, tax in Luxembourg can be divided into below parts for individuals and companies. Today, we will discuss what it means for businesses.
Start by registering for tax through the Luxembourg Inland Revenue. This must be done shortly after business registration, followed by registering for value-added tax if the turnover exceeds €35,000.
- Corporate income tax (CIT): CIT in Luxembourg is 17%, with an additional 7% solidarity contribution on income tax for worldwide taxable income exceeding EUR 200,000.
- Municipal business tax (MBT): This is applicable on profits, with a maximum effective rate including solidarity contribution at 24.94%
- Capital gains: This is treated as ordinary income and taxed accordingly. Certain exemptions can be sought, subject to a few conditions.
- Exemption on dividends: Dividends are fully exempted, subject to a few conditions
- ATAD: This covers deductions of interest payments, general anti-abuse rules, controlled foreign companies, hybrid mismatches, and exit taxation.
- Net wealth tax: This is charged on the net asset value of a company as of January 1st of every year
- Withholding tax: Withholding taxes have a standard rate of 15% on dividends, 0% on royalties, and 0% on interest (unless the EU Savings Directive applies).
- Registration duty: A fixed duty of EUR 75
- Investment tax credit: A few assets parked under depreciable fixed assets are liable for a tax credit of 13%
- Value-added tax: Standard VAT is applicable at 17%, with reduced rates of 3%, 8%, and 14% for specific goods.
- All necessary information for the inscription and procedures related to VAT can be found here
Registration for Social Security
In Luxembourg, Social Security registration can be done through the CCSS. There are a few options where you can register as a self-employed owner or an employer if you plan to employ staff.
If you are self-employed as a consultant, designer, architect or any other craft, you must pay social contributions. Beyond this, all organizations also need to declare the start of employment of each candidate to the Joint Social Security Centre.
The social security contributions account for 25% of the gross salary – 16% of which is made to pension insurance. The contribution is divided equally between the employer and the employee.
Finding an office
For more permanent locations, you can check traditional platforms like Immotop or AtHome, which will help you acquire office spaces across the city. It would help if you also started with coworking spaces in Luxembourg, which usually require low set-up costs and are great places to work and network.
Other resources
Courses
House of Training provides both online and in-person training covering a variety of business disciplines. nyuko specialises in delivering tailored training and coaching services for entrepreneurs in Luxembourg. Start Your Business offers business training specifically designed for job seekers who are registered with ADEM and aim to start their own business in Luxembourg.
Luxembourg-City Incubator runs a startup support program, offering expert mentoring and coaching to entrepreneurs. Chambre de Métiers offers training courses across various craft and professional domains.
Website
MyGuichet.lu is your best friend while setting up a business – it has all the data from registration to details around processes. Another great resource that helps you set up is the solution’s section on the Chamber of Commerce Luxembourg.
Guidance from the authorities
- Startup Luxembourg: A public initiative by the Ministry of Economy and Luxinnovation.
- Ministry of Economy: A one-stop destination for all things starting-up in Luxembourg.
- LuxInnovation: For expert advice and personalized support on your innovation activities.
- Chamber of Commerce Luxembourg: Supporting body for every stage of a company’s lifecycle.
- Contacts for opening a bank account
Conclusion
In a nutshell, Luxembourg has one of the most accommodating and incubating environments for startups. The governing bodies encourage founders to give their vision meaning, helping the economy generate more jobs and opportunities. The political and social stability along with business incentives make it a unique location with umpteen benefits.
For a quick recap of the process, refer to the below image to get the ball rolling on your new endeavours.