Summary:
- If the start-up shall operate under the form of a legal person, it must first be incorporated.
- The start-up must establish a registered office (several options are available).
- The start-up must obtain a business license (autorisation d’établissement) from the Ministry of Economy prior to conducting any commercial, craft, industrial or liberal activities.
- A start-up which performs its activities without holding a business license can face penalties.
- Activities conducted occasionally and on an irregular basis are however in principle exempt from obtaining a business license.
- The conditions to be met by a start-up in order to be granted a business license are (i) having a fixed physical establishment in Luxembourg and (ii) a day-to-day manager with proper professional qualifications and professional integrity.
- Business licenses are usually granted by the Ministry of Economy within a couple of weeks, provided that the application is complete.
- A business license, once granted, will remain valid for an indefinite period of time (unless it remains unused for a period exceeding 2 years). Some changes however trigger the requirement for a new business license, other changes only require a notification to the Ministry of Economy.
- Upon receipt of the business license, additional formalities with other Luxembourg administrative bodies shall be carried out.
(Featured Image: Mathieu Laurent, Partner at Luther and Robert Goerend, Senior Associate at Luther / Image Credit © Silicon Luxembourg / Olivier Minaire)
I. Registered office
Once the start-up has chosen the legal form under which it wants to be incorporated, it has to establish its registered office in Luxembourg. Different options are available, as the start-up may:
- purchase an office space provided that it has the financial resources to make a real estate investment (which is rarely the case); or
- lease an office space (a plethora of hubs and incubators exist in Luxembourg that offer equipped and operational office spaces on advantageous renting terms); or
- sublease an office space (provided that the original lease agreement authorizes the sublease).
Entering into a domiciliation agreement is not an option for start-ups which require a business license, since the law of 2 September 2011 regulating the activities for which a business license is required (the “Law”) precludes this possibility.
II. Business license in Luxembourg
Economic activities and commercial, craft, industrial or liberal activities exercised in Luxembourg are subject to a business license (autorisation d’établissement) granted by the Ministry of Economy (the “Ministry”).
Obtaining a business license does not exempt the business license holder to apply for other types of authorizations necessary for some specific activities (e.g. professional activities of the financial sector).
A. Scope of the Law
1. Activities falling within the scope of the Law
The Law clearly states that it is not possible to carry out in Luxembourg, for profit purposes, whether as a main or ancillary activity, any commercial, craft or industrial activities, or certain independent professions, without holding a business license.
The Law provides the following definitions for commercial, craft and industrial activities as well as independent professions:
- any economic activity consisting in carrying out trade acts as defined in the Luxembourg Commercial Code is considered as a commercial activity (activité commerciale). For instance, travel agent activity, general trader activities, real estate activity and new technologies activities constitute commercial activities;
- any economic activity consisting of production, transformation, repair or providing services related to the list of craft activities which is defined by the regulation dated 1st of December 2011, as amended from time to time, is considered as a craft activity (activité artisanale). For instance, baker, carpenter and painter activities constitute craft activities;
- any economic activity consisting of production of goods with standard or automated production means, with the exclusion of the craft activities, is considered as an industrial activity (activité industrielle); and
- any activity consisting in providing intellectual services is considered as an independent profession. For instance, architects, accountants and economic advisors (conseiller économique) are independent professions (professions libérales). It has to be noted that a legislative reform is underway to amend the Law in order to abolish, among other things, the requirement for a business license for the “economic advisors” who following the reform, will only require to hold a basic business license authorizing the undertaking of an economic activity consisting in carrying out trade acts.
2. Exemptions from the business licence
Some activities can be carried out without a business license:
- activities consisting in holding participating interests in other companies (SOPARFI);
- intra group activities (e. activities carried out with affiliated companies); and
- activities carried out occasionally and on an irregular basis. However a case by case analysis is required based on the duration and frequency of the activity (g. typically the one shot deals involving companies set up for a single transaction)
B. Conditions required for obtaining a business license
1. Conditions related to the physical establishment
The Ministry requires the proof that the start-up has a fixed physical establishment in Luxembourg, adequate for the scale and nature of the business to be carried out and equipped with the administrative and technical installations suitable for its activities.
In order to verify whether this condition is met, the Ministry requires to be provided either with a lease or a sublease agreement or any document that proves the ownership of the premises by the start-up.
2. Conditions related to the holder of the business license
The business license is granted to an individual representing the start-up as its manager. This individual can be an EU resident or a non EU resident. It should be noted that a non EU resident needs to obtain the prior approval of the Ministry of Foreign Affairs in order to be able to act as a business license holder.
While submitting the application to the Ministry, the business license applicant must be able to demonstrate to the Ministry that he will be able to take care of the start-up’s management on a regular basis.
The Ministry assesses (a) the professional integrity (honorabilité professionnelle) and (b) the professional qualifications (qualification professionnelle) of the applicant.
a) Professional integrity
The Ministry carries out administrative investigations with respect to the professional integrity of the business license applicant. Any element which is revealed by the administrative investigation and which can have an incidence on how the future activity of the start-up will be carried out can be taken into account by the Ministry to assess the professional integrity of the business license applicant.
In practice, the Ministry assesses the professional integrity of the applicant based on the following documents:
- the applicant’s criminal record;
- a sworn declaration to be submitted by the applicant, indicating any management positions held by him during the 3 years prior to the application; and
- a notarial declaration of non-bankruptcy by which the applicant declares that he has never been involved in a bankruptcy (only if the applicant has resided in Luxembourg for less than 5 years).
The Law and case law set out a number of cases where the lack of integrity is automatically established. For instance:
- repeated absence of mandatory legal filings with the Luxembourg Trade and Companies Register or failure to keep accounting records in accordance with legal requirements;
- providing fake declarations or documents while submitting the application;
- having carried out commercial activities in the past without holding a valid business license;
- outstanding social security payments and taxes and/or the accumulation of significant debts towards public organizations.
The following cases do not systematically constitute a lack of integrity:
- previous prison sentences of the applicant;
- previous involvement of the business license applicant in an insolvency case, provided that the insolvency is not due to the negligence of the business license applicant or is not a result of the infringement of legal provisions. In certain cases, where the business license applicant has been previous involved in insolvency, the Ministry can subject the granting of the business license to completion of specific trainings in the management of companies.
b) Professional qualifications
The business license applicant must prove that he possesses the required professional qualifications.
The extent and nature of the professional qualifications may vary according to the nature of the start-up’s business.
For instance, the professional qualification required for commercial activities can be met in case one of the following criteria is met:
- possessing appropriate degrees and diplomas (g. a university or higher education diplomas certifying the completion of a full study cycle of 3 years)[1];
- having exercised a professional practice of three years in the relevant activity; or
- having accomplished accelerated trainings provided by the Chambre de Commerce (http://www.lsc.lu/accueil/) or the Chambre des Métiers (http://www.cdm.lu/) on subject matters such as labor law, social law, company law, accounting, company’s management, etc.
As a result of the above, a business license applicant with no university degree can still fulfill the conditions related to professional qualification by demonstrating that he has practiced the relevant professional activity for three years or has accomplished specific trainings.
It should be stressed that a legislative reform is underway that aims to amend the Law in order to abolish, among other things, any prerequisite for professional qualifications for basic commercial activities.
C. Documents to be submitted with the application file
As part of the application, the following documents have to be sent to the Direction générale PME et Entrepreneuriat of the Ministry either by post or online:
- a fully executed and signed application; a sworn declaration regarding any management position that the applicant held in other companies prior to the application;
- proof of the payment of a stamp duty of 24 € which can be obtained from the Administration de l’Enregistrement et des Domaines or a payment of 24 € into the IBAN account LU09 1111 7026 5281 0000, BIC code: CCPLLULL;
- a certified copy of the applicant’s passport/ID Card;
- a certified copy of the relevant diplomas or university degrees or any other document demonstrating that the applicant has sufficient professional experience;
- a copy of the applicant’s personal criminal records (“extrait de casier judiciaire”);
- if the applicant is a non-resident or has been a resident for less than 5 years in Luxembourg, he has to provide a recent declaration of non-bankruptcy (sworn statement given before a notary public); and
- the articles of association of the start-up (only if the business operates under the form of a legal person).
Additional documents can be requested on a case by case basis.
These documents must be submitted either in English, German or French. Otherwise, a translation into one of these languages will be required.
D. Costs and timeframe for processing the application
Apart from a stamp duty of 24 €, the processing of the application file by the Ministry is free of charge.
There is no specific timeframe for the Ministry to process the application file. The timeframe depends on the complexity of the file. However, the Law states that the Ministry must hand down its decision within a period of three months following the receipt of the complete application file and failure to do so corresponds to the acceptance of the application.
In practice, the average timeframe for obtaining a business license, provided that the application file is complete, is between 2-3 weeks.
E. Once the business license is granted by the Ministry
Once the start-up is in possession of a business license, it has to limit its activities to the ones covered by its business license. e.g. if the business license has been granted for commercial activity, it cannot be used to carry out craft activities.
The business license is personal and cannot be transferred. Only the business license holder can commit the start-up with respect to the activities covered by the business license.
The business license takes the form of a card which has to be permanently kept on the start-up premises and has to be produced upon request. The business license number must be indicated on all regular mails, e-mails, websites and invoices.
1. Scope of the business license
Once the start-up is in possession of a business license, it may commence conducting its business. However, it has to limit its activities to the ones covered by its business license.
2. Validity of the business license
A business license once granted will remain valid for an indefinite period of time unless some changes trigger the requirement for a new business license. e.g. change of the holder of business license or any modification or extension in relation to the corporate object of the start-up triggers the requirement for a new business license. Other modifications such as modification of the name of the start-up, its legal form or address, provided that it remains in Luxembourg, shall only be notified to the Ministry within one month.
Finally, a business license will become invalid if it is not used for a period of more than two years, or if the start-up has put an end to its activities covered by the business license, or in case of judicial liquidation or bankruptcy of the start-up.
The Ministry can also withdraw the business license if it notices serious infringements to the Law or other legal provisions.
3. Temporary authorization
In case of departure of the holder of business license (e.g. resignation of the manager that was holding the business license), the Ministry has to be informed within one month and a new application with a new applicant shall be filed with the Ministry.
In the meantime, a request for a six month temporary authorization renewable for another additional six months can be submitted to the Ministry. In that respect, a simple letter addressed to the Ministry is in principle sufficient. However a detailed motivation letter is required in case of request for renewal of the temporary authorization.
F. Penalties in case of breach of the provisions of the Law
Police officers and agents in Luxembourg are in charge of investigating infringements to the Law and its relevant regulations.
The main penalties in case of breach of the provisions of the Law are:
1. Fines
Fines ranging from 500 € to 250,000 € can be imposed on the start-up in breach of its obligations.
2. Shutting down
Shutting down of the physical establishment of the start-up can be imposed for a period of 2 months to 5 years or until a business license is duly granted.
3. Dissolution and liquidation
The breach of the provisions of the Law are considered as serious infringements to the Luxembourg company law and a district court in Luxembourg dealing with commercial matters, upon request of the Public Prosecutor, can order the dissolution and the subsequent liquidation of the start-up.
4. The fate of the contracts
The Law is silent as to the consequences of the absence of a business license on contracts entered into by a company which is not in possession of a business license. It seems that the higher courts in Luxembourg favor the fact that the absence of a business license does not render the contracts entered into by a company with no business license voidable. However, this unenforceability of the contacts entered into without a business license cannot be confirmed with certainty since some isolated case law and some decisions of the lower courts in Luxembourg have favored the unenforceability of the contacts entered into in the absence of a business license.
G. Other formalities
Upon receipt of the business license, a start-up shall also carry out other formalities with other administrative bodies as follows:
- affiliation with the Social Security Centre (Centre commun de la sécurité sociale) as self-employed persons or as employee if intending to recruit staff;
- registration with the Luxembourg Inland Revenue (Administration des contributions directes); and
- registration for VAT with the Land Registration and Estates Department (Administration de l’enregistrement et des domaines).
