Company Formation Services in Luxembourg

General overview

The Grand Duchy of Luxembourg
The Grand Duchy of Luxembourg is a landlocked nation situated in Western Europe. This country shares its international boundaries with Belgium to the west and north, Germany to the east, and France to the south. Luxembourg’s geographical landscape is characterized by two primary regions: the Oesling, which is a part of the Ardennes massif, featuring hilly terrain with extensive deciduous forests in the northern part, and the Gutland, often referred to as the “good country,” a relatively urbanized region located in the southern part.

Constitutional Monarchy and Parliamentary Democracy

Economic Landscape

Luxembourg is known for its reputation as a reliable political and economic partner. The nation’s economic policy is marked by its highly professional and dynamic spirit.
Historically, the steel industry had a significant impact on the economy. In the early 1970s, the government initiated substantial efforts to diversify the economy to reduce dependence on this single industrial sector and attract foreign multinational corporations. As a result, Luxembourg’s economy has experienced rapid growth and now encompasses a broad range of industries. These include chemistry, plastics, synthetic materials, mechanics, machine construction, ferrous and nonferrous metal processing, supply of components to the automotive industry, precision instruments, and a thriving glass industry. These industries enhance Luxembourg’s competitiveness on the global stage.

The financial sector represents a vital part of the Grand Duchy’s economy, featuring around 124 authorized banks in 2021, the second-lowest number since 1994. There are also 4,000 investment vehicles and over 20,000 holding companies. The top five banks are Societe Generale Bank & Trust, Banque de Luxembourg S.A., BGL BNP Paribas S.A., Banque et Caisse d’Epargne de l’Etat (BCEE), and Banque Internationale à Luxembourg S.A. (BIL). Luxembourg is recognized as one of Europe’s most significant financial centers, offering a complete range of financial services in both corporate and private banking. It ranks as the third-largest investment fund center globally.

The country’s highly competitive tax regime, stringent banking secrecy laws, and international business environment have established Luxembourg as a prime location for corporate headquarters and a favorable jurisdiction for holding companies. These holding companies offer numerous structural, administrative, financial, and fiscal advantages. Additionally, insurance, private pension funds, securitization, and venture capital investment vehicles play a substantial role in the financial sector and have become key sources of employment.
With ongoing economic growth, residents in Luxembourg enjoy a high standard of living, featuring one of the highest Gross Domestic Product (GDP) per capita, reaching US$133,590 per inhabitant, reflecting a 13.82% increase from 2020. The nation maintains low inflation, low unemployment, and a balanced budget.

Political Structure

Luxembourg is a representative democracy operating as a constitutional monarchy under the rule of Grand Duke Henri, although the Grand Duke’s role is primarily ceremonial. The country is practically governed by the Cabinet of Ministers, responsible for the executive power, and the Parliament, representing the legislative authority in Luxembourg. The Cabinet of Ministers includes the Prime Minister, who serves as the head of government. The Prime Minister leads the political party or coalition of parties with the most seats in Parliament, known as the Chamber of Deputies. Members of the Chamber of Deputies are elected to five-year terms. The Council of State (Conseil d’Etat), composed of 21 ordinary citizens appointed by the Grand Duke, advises the Chamber of Deputies in the development of legislation, although the Council’s opinions are not legally binding.

Administratively, the Grand Duchy is divided into three districts, which are further subdivided into Cantons, Communes, and Municipalities. Communes are administrative authorities with legal status, managing their assets. A Communal Council (Conseil Communal) is directly elected by the inhabitants, and the Commune is administered by the mayor and aldermen (Collège des bourgmestres et échevins) selected from the Communal councilors.

Laws, Regulations, and Standards

The legal system of Luxembourg primarily draws from Roman law. The Luxembourg Constitution establishes the constitutional provisions of the Grand Duchy, the fundamental rights of individual citizens, and the organization of public bodies. It holds superior status compared to ordinary laws and executive regulations, which must align with the Constitution.
The legislative framework in Luxembourg comprises laws, codes, and regulations. Many laws are rooted in French or Belgian legislation, with an increasing portion originating from European Union regulations, directives, and decisions. Significant individual codes include the Civil Code, Commercial Code, Penal Code, Criminal Procedure, and Civil Procedure Codes. Current Luxembourg legislation is initially published in the official gazette – Mémorial.

Company registration

The legislative framework in Luxembourg encompasses six distinct forms of business entities through which enterprises can operate. Each of these six forms enjoys legal personhood, setting them apart from their members. The selection of a particular legal form hinges on economic and legal considerations, including factors such as the extent of members’ liability and the transferability of shares. Furthermore, it is imperative that no company selects a name that could lead to confusion with an existing entity.

Primary Business Entity Structures

The primary business structures typically utilized include:

SA and SARL Corporations

In practice, the Société Anonyme (SA) and the Société à Responsabilité Limitée (SARL) have emerged as the most widely favored corporate structures. The key characteristics of these two corporate forms are summarized in the table below:

Trade permit

Luxembourg’s constitution of 1868 secures the freedom of trade and industry, as well as the liberty to establish a business for every citizen. However, with a view to safeguarding the administrative oversight of the nation’s business environment and promoting industry and commerce, specific conditions for access to and the practice of trades and occupations are outlined in local legislation.

According to the law dated December 28, 1988, any industrial or trade activity in Luxembourg necessitates a government permit. This permit is issued by the Ministry of Middle Classes, taking into account the applicant’s professional qualifications and good standing. Importantly, the permit is strictly individual and cannot be transferred to other entities. Legal entities, including partnerships, must adhere to the same application process, demonstrating the requisite professional qualifications and the integrity of the firm’s management.