Luxembourg

Doing Business in Luxembourg

Introduction

The Grand Duchy of Luxembourg is situated in the centre of Europe. It is a founding member of the European Union and a member of the OECD and NATO. The capital is Luxembourg City and is the centre of government, business and finance.

The legal system is based on French law and the tax system on German law. Population is approximately 500,000, 20% of whom are foreign nationals. The currency is the Euro.

The following features are Luxembourg’s strengths–the combination of these strengths makes Luxembourg attractive for foreign investors:

  • Political & economic stability
  • A stable and rewarding tax environment
  • The strength of the Luxembourg financial services industry
  • Business-friendly environment
  • A strategic position at the heart of Europe
  • A highly innovative and dynamic centre
  • Skilled and multilingual workforce (French and German are the administrative languages, and English is widely spoken)
  • Commitment to Europe
  • High quality living standards

A Stable and Rewarding Tax Environment

The tax framework is considered among the most stable and rewarding in Europe for companies, their shareholders and their employees. This is a key component of Luxembourg’s development to a major European financial centre. The tax authorities lead a constructive dialogue with taxpayers, have a business – friendly attitude and the quick and pragmatic regime of advance tax agreements responds to the requirements of international clients. Luxembourg is not a tax haven, but it offers one of the most flexible and attractive tax regimes within the EU.

Typical Luxembourg Structures

SOPARFIs (Sociétés de Participations Financières), SIFs (Specialized Investment Funds), SICARs (sociétés d’investissement en capital à risqué;Risk Capital Investment Companies), SPVs (Special Purpose Vehicles used in the context of securitizations) and SPFs (Société de Gestion de Patrimoine Familial; Private Wealth Management Companies) can accommodate any set of legal, tax and governance requirements that typically arise in the context of setting up an interesting investment structure.

The Luxembourg Tax Environment

One of the key factors in favour of a decision to base an operation in Luxembourg remains its favourable tax environment. Attractive tax legislation, social security system, and the lowest VAT rate in Europe (15%) greatly contribute to making Luxembourg an attractive jurisdiction. These advantages can be summarised as:

  • Attractive effective tax rates
  • Broad participation exemption regime
  • Significant exemptions from withholding tax on dividends
  • No withholding tax on non-profit linked interest, royalties, and liquidation proceeds
  • No controlled foreign companies (CFC) rules
  • No capital/stamp duties; no transfer taxes on the sale of shares in a Luxembourg company
  • Broad double tax treaty network
  • Light administrative requirements in terms of transfer pricing and thin capitalization
  • Advance tax clearing system
  • Attractive tax regimes in the field of SIFs, SICARs, SPVs, SPFs, IP, reinsurance, and investment funds

Specific Taxation Of Luxembourg Vehicles

The Luxembourg tax environment is extremely beneficial for investment structures, both regulated and unregulated.

The Soparfi

This is a special purpose corporate vehicle which is not subject to a specific regulatory regime and is subject to normal taxation (approx. 28.5%). In addition, since 2011, there is a new minimum income tax to pay of €1,575 and the SOPARFI must also pay an annual wealth tax of 0.5% on the net asset value with a minimum of €62 for a SA and €25 for a SARL.

The SOPARFI benefits from Luxembourg’s extensive network of double-taxation treaties and from the EU Parent–Subsidiary Directive. Despite being a fully taxable company the SOPARFI allows for tailor – made structuring providing for the exemption of many income and exit tax charges.

The SIF

The SIF is a vehicle for well informed investors which is more flexible than common UCIs (Undertakings for Collective Investments) or SICAVs. The SIF can invest in any type of securities, hedge funds, private equity structures, forex, real estate, etc.

SIFs are not subject to any Luxembourg taxes on capital gains or income; the sole tax due is a subscription tax of 0.01% on the quarterly net asset value. The application of tax treaties to SIFs in a corporate form is to be assessed on a case – by – case basis depending on the wording of the treaty provisions and their interpretation by the relevant foreign authorities.

The SIF is under the supervision of the Commission de Surveillance du Secteur Financier (CSSF). The central administration must be located in Luxembourg. A Luxembourg depositary Bank is required for supervision of the assets and safe keeping.

The minimum share capital is fixed at €1.250.000 to be reached within one year and must be subscribed by institutional, professional or well informed investors.

The SICAR

The Risk Capital Investment Company (SICAR) was created to invest its funds in risk or venture capital. The legal form can be corporate or partnership.

The SICAR is not subject to corporate, municipal business and net wealth tax; management fees and carried interest are VAT–exempt. SICARs are entitled to treaty benefits.

The minimum share capital is €1.000.000 to be subscribed by institutional, professional and well informed investors.

The SICAR is monitored by the CSSF and their directors must meet certain conditions. The SICAR must have an external Auditor and a depositary Bank. It is not submitted to the 0.5% capital duty; however a €1.250 fixed tax is applicable when the SICAR is set-up.

The SPF

The SPF is a vehicle to acquire, hold, manage, and sell financial assets, and a tailored tool to plan wealth, matrimonial, and inheritance planning for individuals. It is exempt from corporate income and net wealth tax and capital duty. The subscription tax is 0.25% p.a. on net assets capped at €125.000. There is no withholding tax on dividends, interest, and liquidation proceeds.

Share Capital

The minimum share capital depends on the vehicle. For a SOPARFI it would be €31.000 for a public limited company (société anonyme or SA) and €12.500 for a private limited company (société à responsabilité limitée or SARL).

A minimum of one shareholder is required. Details of the shareholders appear on the public file but bearer shares are allowed. However, if bearer shares are to be issued then the full amount of the authorised capital must be paid up at incorporation, so if discretion is required it is often preferable to use nominee shareholders. Generally we provide this service as part of the domiciliary service fee.

Directors

A minimum of one director is required. In case the company has two ore more shareholders, a minimum of three directors is required (for an SA) who may be corporate or individuals. Details of the directors appear on the public file so discretion may only be retained by appointing third party professionals to the Board. Generally we provide this service as part of the annual fees.

Local Requirements

The company must maintain a registered office address within Luxembourg and must also appoint a statutory auditor. Generally these services are provided as part of the annual service fees.

Annual Reporting

Books of accounts must be maintained at the registered office and updated on a regular basis. All Luxembourg companies must file annual accounts, which may have to be audited by an external auditor or a statutoty auditor (commissaire aux comptes).

Time Scale

Incorporation time is approximately 48 hours from receipt of capital and fees. Ready made companies are not generally available.

Disclaimer
Whilst every effort has been made to ensure that the details contained herein are correct and up-to-date, it does not constitute legal or other professional advice. IQTESADI does not accept any responsibility, legal or otherwise, for any errors or omission.

Lithuanian banks offer the standard range of facilities, including foreign exchange and international payments. There are no foreign exchange restrictions. You will need a local bank account if you open a company in Lithuania and we will be happy to help you with this.