Handed an unlabelled atlas and asked to point to Luxembourg on a map, many people would struggle to pinpoint this tiny landlocked nation (it’s sandwiched between Belgium, Germany, and France, for the record.)
This is arguably Luxembourg’s greatest strength for SMEs looking to expand into the central European market – with excellent trading links, low corporate taxes, and a stable economy, this nation is a fine choice of destination.
Does Luxembourg welcome overseas businesses?
Luxembourg enjoys a reputation as a country that is hugely welcoming to foreigners, often seeing senior-level executives from other European nations enter the country in senior white-collar positions. It’s a little trickier to establish yourself in Luxembourg as a UK resident in a post-Brexit world, but if you can cut through the red tape, you will be made to feel comfortable.
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What industries are most popular in Luxembourg?
The banking and finance sector is hugely prominent in Luxembourg, and any business model centred around this industry is likely to be welcomed. Other major contributors to the national economy are agriculture and steel, though CIT services are also growing increasingly popular.
Is it easy to set up a business in Luxembourg?
We’ll be blunt – the easiest way to set up a business in Luxembourg is to open a branch of your existing company. However, if you prefer to open a new subsidiary entity, here are the steps:
How to set up a business in Luxembourg
- Appoint a resident director that lives in Luxembourg, or complete the process of gaining entry to the country yourself
You can get a short-term C visa if you only plan to remain in the country for 90 days – just about long enough to open the business and appoint a representative
- Find a trading address in Luxembourg
You can rent an office space, or use a company formation agent to help
- Decide on your business structure
See the section of this guide about types of business entity in Luxembourg
- Choose a company name
And ensure it is available with the Registre de Commerce et des Sociétés, aka RCS (Trade and Companies Registry)
- Open a business bank account and deposit your share capital
Request certification from the bank that this step has been completed and the funds are accessible on demand
- Create articles of incorporation
(In most cases, these will need to be in French) and have them notarised.
- File these articles of incorporation
Do this with the RCS and pay your share capital
- Publish the articles of incorporation
On the Recueil Electronique des Sociétés et Associations (Electronic Journal of Companies and Associations)
- Register with the Centre Commun de la Sécurité Sociale
aka CCSS (Social Security Common Center) to make social security payments
- Register with the Administration des Contributions Directes
aka ACD (Luxembourg Inland Revenue) for tax purposes, as well as the Administration de l’Enregistrement, des Domaines et de la TVA, or AED (Registration Duties, Estates and VAT Authority) and Administration des Douanes et Eccises (Customs and Excise Agency) if applicable
On paper, you can skip all these steps and purchase a shelf company in Luxembourg. This is not necessarily advisable, though. It’s expensive, and many associates will be reluctant to trade with a business they feel does not know or understand their needs. Starting an entity from scratch will be deemed more trustworthy.
Can I run a business in Luxembourg while living overseas?
You can run your business in Luxembourg from overseas, negating the need to jump through the hoops required to establish residency in the country, but you’ll need to appoint a resident director to act in your stead and represent your company.
Cultural considerations when running a business in Luxembourg
If you wish to trade in Luxembourg, you will need to understand some of the local business culture. Things to bear in mind include:
- Most business associates in Luxembourg speak French, though a handful will prefer to communicate in German or traditional Luxembourgish. English is rarely spoken, so you’ll likely need some language lessons or a translator
- Despite these ties to France and Germany, never compare Luxembourg to these countries. The people of Luxembourg have fierce national pride and take their independence from larger neighbours very seriously
- Formality is the order of the day in business affairs in Luxembourg, so always dress smart but conservatively and mind your Ps and Qs in meetings. Above all, always be punctual – lateness is considered a huge insult in Luxembourg and will damage your reputation
- Be polite, but do not waste time with idle chatter before meetings. Business and personal lives are typically kept separate in Luxembourg, and your associates will likely be keen to get to work sooner rather than later
What business structures are supported in Luxembourg?
There are multiple business structures supported in Luxembourg. You can operate as a sole trader, but that will lead to considerably more complex tax arrangements. If you wish to start a subsidiary company, the most common business structures are as follows:
|Type of Luxembourg business entity
|What is it?
|Société en Commandite par Actions(SCA)
|A partnership with a Luxembourgian representative. One partner with have the protection of limited liability, but the other has unlimited liability.
|Société à Responsabilité Limitée(SARL)
|The ever-popular limited liability company, which keeps your business financial and legal affairs separate from your personal standing.
|Société à Responsabilité Limitée Simplifiée(SARL-S)
|Essentially a sole trader acting as a business. This business model requires no capital investment and can be set up much faster, but it’s only open to a handful of industries, imposes trading restrictions, and you’ll need a permit from the Ministère de l’Economie (Ministry of the Economy.) It’s unlikely that any plans to open an SME will qualify as a SARL-S, but it can’t hurt to investigate.
|Société par Action(SA)
|A public company, wherein shares will be sold to individuals on a limited liability basis. This structure is the reserve of very large businesses.
|Société par Action Simplifiée(SAS)
|A combination of a SARL and an SA – the legal protections of the former and all the administrative and procedural headaches of the latter. Unless you expect your SME to go supernova, you’re better off sticking with a SARL model.
Alternatively, you can open a branch of your overseas business in Luxembourg. This will often be faster than starting a new company from scratch, but you will not enjoy any separation of your legal and financial affairs from the parent company to your branch in Luxembourg.
Taxation in Luxembourg
If you want to do business in Luxembourg, you must understand the taxation rules and regulations that will impact your bottom line.
What is the corporate tax rate in Luxembourg?
Luxembourg operates a standard corporate tax rate of 15% on all annual profits of €175,000 or lower and 17% above this. These rates qualify Luxembourg as a tax haven.
Luxembourg has a double taxation treaty with the UK, so you will not be taxed twice on any business profits generated in Luxembourg.
What are the employee income tax brackets in Luxembourg?
Employees in Luxembourg will need to pay income tax on their wages. Income tax in Luxembourg is complicated as it involves multiple taxation sources, and taxpayers are divided into three categories.
- Class 1 – Single taxpayers with no dependents, aged under 65
- Class 1a – Single taxpayers with children or aged 65 or over
- Class 2 – Married taxpayers
As a rule of thumb, here is an idea of how income tax contributions will break down. Due to the complexities of taxation in Luxembourg, these sums are provided as cash amounts rather than percentages.
|Class 1 tax
|Class 1a tax
|Class 2 tax
An employer must withhold income taxes at the point of payroll, alongside social security contributions payable to the Centre Commun de la Sécurité Sociale. An employee’s contributions are 1.65% for health and care insurance and 8% for pension insurance.
How are taxes paid in Luxembourg?
The tax year in Luxembourg mirrors the calendar year – January 1st to December 31st. Tax returns and associated payments must reach the Administration des Contributions Directes no later than March 31st of the following year.
Payroll and hiring employees in Luxembourg
Hiring the right talent can make or break a company. Ensure your Luxembourgian business interests are staffed by the best possible talent.
Does Luxembourg welcome overseas talent?
As Luxembourg is such a small country, the authorities have long accepted that bringing talent in from overseas will frequently be essential to plug skills gaps in the national economy. However, Luxembourg has a low unemployment rate and is keen to preserve this, so not just anybody from outside the EU or EEA can move to the country and work.
Who needs a visa or work permit to work in Luxembourg?
Anybody with an EU, EEA, or Swiss passport can work in Luxembourg without restriction. If you are from a third country, including the UK, you will need to apply for a work permit to be employed in the country legally.
If you hope to import talent from overseas, the Agence pour le Développement de l’Emploi (National Employment Agency), aka ADEM, must be notified of the vacancy. The ADEM will insist that the position is advertised to the local labour force for two months. If this role remains unfilled after this time, you will be permitted to move an employee to Luxembourg.
What employee benefits are compulsory in Luxembourg?
Employees of a Luxembourgian business are entitled to the following mandatory benefits by law:
- No less than 26 days of holiday per year
- 2.8% of salary paid to the Centre Commun de la Sécurité Sociale for health insurance
- 8% of salary paid to the Mutualité des Employeurs pension scheme
- 1.1% of salary paid to the Association d’assurance accident (Accident Insurance Association)
- 26 weeks of sick leave, of which 77 days are payable at 100% salary
- 20 weeks of maternity leave, paid by the Centre Commun de la Sécurité Sociale at a rate of minimum wage or above
- 10 days of unpaid paternity leave
Employment law considerations in Luxembourg
At the time of writing, the minimum wage in Luxembourg is €10.70 per hour, or €1,850.70 per month, for any employee over 18.
Any time you wish to fill a role in Luxembourg, ADEM must be notified of the vacancy.
Cultural considerations when hiring employees in Luxembourg
If you wish to run a business in Luxembourg that relies upon the local labour force, ensure you understand some of the nuances you will encounter. These include:
- Hierarchy rules in Luxemburg, so your employees will be highly subservient and respectful of your authority – do not expect to be challenged on your decisions
- Your employees will likely work hard, but unpaid overtime is not the norm in Luxembourg Expect raised eyebrows if you ask staff to stay late. Asking them to work Sundays will likely be outright refused in a rare show of defiance
- While not a mandatory benefit by law, most Luxembourgian employees will expect a bonus month’s salary payment, known as the prime de fin d’année (end of year allowance), to be written into their contracts. If you fail to include this perk, you may struggle to attract talent
- Personal holiday is very important to employees in Luxembourg, so you’ll need an extremely compelling reason to decline holiday requests on business grounds
FAQs about setting up a business in Luxembourg
Still have questions or are seeking a swift answer to a basic query? Here are some of the most frequently asked questions about establishing a business in Luxembourg.
If you’re looking to set up a business in Luxembourg, your primary options are a Société à Responsabilité Limitée (SARL), which is a limited liability company; a Société à Responsabilité Limitée Simplifiée, which is a simplified version of the above open to restricted trades; or a Société par Action (SA) – a public company.
Setting up a company in Luxembourg takes a while because there is a lot of red tape to cut through – it could be several weeks before you are fully up and running.
Expect to pay around 1.3 times an employee’s annual salary in Luxembourg.
The minimum share capital of a SARL in Luxembourg is €12,000 (around £10,300), while an SA will need €30,000 (closer to £26,000.) This capital will need to be paid up upon incorporation.
Yes, and this should be one of the first things you do, as you’ll need to deposit your share capital before your business is ratified.
Luxembourg typically follows the standard working week of 40 hours, from Monday to Friday. Many businesses take a two-hour lunch break in Luxembourg, starting a little earlier and finishing slightly later to accommodate this.
The usual supplementary benefits, such as private pensions and health insurance, will always be popular in Luxembourg. In addition, most companies pay a prime de fin d’année (end of year allowance) in December. This will essentially amount to a bonus month of salary to be added to taxable payroll, though some companies extend the payment to six weeks of salary.
While Luxembourg does not recognise “at will” dismissal, an SME with less than 15 employees can typically terminate a contract with good reason (such as gross misconduct or breach of contract.) You’ll still need to provide a reason in writing. Larger companies need to notify the Ministère de l’Economie of any plans to dismiss an employee without notice or severance.
The standard holiday entitlement for employees in Luxembourg is 26 days per year, and any requests for a holiday should be honoured. As an employer, you’ll need to provide a compelling reason for declining a holiday request.
Yes, if you are keen to avoid the bureaucracy involved in opening a subsidiary company in Luxembourg, you can form a branch of an existing business. There will be no share capital involved in this process.
If you are not a Luxembourgian citizen and do not hold a passport issued by another EU or EEA country, you will need a work permit and/or visa to legally work in the country.
Most people that aim to work in Luxembourg and need a visa will apply for a C visa (valid for 90 days) or a D visa (lasts for one year and can be renewed). There is no specialist startup visa for Luxembourg. If you stay longer than 90 days, you will also need a Carte de Séjour (residence permit.)
Expect to pay €50 (a little over £40), plus any processing fees, for a standard working visa in Luxembourg.