Company formation services in Luxembourg

General overview

The Grand Duchy of Luxembourg, is a landlocked country in Western Europe. The country shares international borders with Belgium to the west and north, Germany to the east, and France to the south. Luxembourg’s geography offers two principal regions: the Oesling, a part of the Ardennes massif, a hilly region with large deciduous forests in the north, and the Gutland (“good country”), the relatively urbanized region in the south.

Luxembourg is a Constitutional Monarchy, a Parliamentary Democracy and a prominent financial centre. The country is a member of the Benelux Economic Union and was one of the founding members of the European Union. With an area of 2586 km² (999 sqm), Luxembourg is more than 10 times smaller than neighboring Belgium, or slightly smaller than the U.S. state of Rhode Island.

The Grand Duchy has a population of 645.000 inhabitants (in 2022), capital and largest city is Luxembourg-City (Lëtzebuerg), with about 130.000 citizens. Spoken language is Luxembourgish, administrative languages are French, German, and Luxembourgish. The currency is the euro (EUR).

The Economy

Luxembourg’s reputation is as a trustworthy political and economic partner. The economic policy of Luxembourg is characterised by the highly professional and dynamic spirit of the country.

Historically, the economy has been largely influenced by the steel industry. In the early 1970s the government made significant efforts to diversify the economy in order to avoid the risk of over-reliance on this one industrial sector and diversify and attract foreign multinationals. As a result of this reform, the economy of the country has been growing rapidly and nowadays relies on a much broader broad range of industries such as chemistry, plastics and synthetic materials, mechanics, machine construction, processing of ferrous, nonferrous metals, supplying parts to the automotive industry, precision instruments, as well as a burgeoning glass industry. All these industries improve the competitiveness of Luxembourg on the international market.

The most significant part of the Grand Duchy’s economy is its flourishing financial sector which comprise around 124 authorized banks in 2021, the second lowest number since 1994, 4,000 investment vehicles and over 20,000 holding companies. The largest 5 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 considered to be one of the most important financial centres in Europe that offers the entire spectrum of financial services in both corporate and private banking. It is the third largest investment fund centre in the world.

A highly competitive tax regime, strict banking secrecy laws and international business environment have also made Luxembourg one of the leading locations for corporate headquarters and a highly suitable jurisdiction for holding companies. These holding companies are often very advantageous from a structural, administrative, financial and fiscal point of view. Insurance, private pension funds, securitisation and venture capital investment vehicles also represent a large part of the financial sector and as a result have increasingly become a main source of employment.

As a result of its continuous economic growth, Luxembourg residents have very favourable standards of living, with the one of the highest GDP (Gross Domestic Product) per inhabitant (US$133,590, per inhabitant, a 13.82% increase from 2020) and the highest social welfare per head. There is low inflation, low unemployment and a balanced budget.

Political structure

The country is a representative democracy in the form of a constitutional monarchy headed by the Grand Duke Henri. The role of the Duke, however, is largely ceremonial. In practice the country is governed by the Cabinet of Ministers who exercise the executive power and by the Parliament which represents the legislative power in Luxembourg. The Cabinet of Ministers includes the Prime Minister, who serves as head of government. The Prime Minister is the leader of the political party or coalition of parties having the most seats in Parliament, known as the Chamber of Deputies. The members of the Chamber of Deputies are elected to a 5-year term. A second body, the Council of State (Conseil d’Etat), is composed of 21 ordinary citizens appointed by the Grand Duke, which advises the Chamber of Deputies in the drafting of legislation. However, the Council’s opinions have no binding effect.

The Grand Duchy is administratively divided into three districts, which are in turn divided into Cantons, Communes and Municipalities. Communes are administrative authorities possessing legal personality and administrating their patrimony. A Communal Council (Conseil Communal) is directly elected by the inhabitants. A Commune is administered by the mayor and the alderman (Collège des bourgmestres et échevins) chosen from the Communal councillors.

Laws, regulations and standards

The legal system of the Grand Duchy is mainly based on the Roman law. The Luxembourg Constitution provides with the constitutional provisions of the Grand Duchy, the fundamental rights of individual citizens and the organization of public bodies. It is superior to the ordinary law and to executive regulations, which have to be conformed to the Constitution.

The Luxembourg legislation consists of laws, codes and regulations. Many laws are based on French or Belgian legislation. An increasing amount of legislation has its source in European Union regulations, directives and decisions.

The main individually compiled codes are the Civil Code, Commercial Code, Penal Code, Criminal Procedure and Civil Procedure Codes. Current legislation for Luxembourg is first published in the official gazette – Mémorial.

The People

The population of the Grand Duchy is of approximately 645,000 inhabitants (in 2022). The Luxembourgers are generally fluent in French, German and English in addition to their mother tongue, Luxembourgish. French is frequently used as the administrative and business language, although German and English are also quite common in business circles.

This multilingualism is also a direct result of the relative small size of the country as well as its association with both France and Germany. When going abroad (which literally is not very far) the Luxembourgers have to speak other languages, simply because their own is not understood elsewhere. It is hardly surprising therefore that many Luxembourgers speak several languages. For those wishing to work in the business areas of Luxembourg it is an essential to speak at least one foreign language.

The Luxembourgers are known for their politeness and intelligence. In addition to their multilingual skills the Luxembourg people have other professional qualities such as punctuality, perseverance, practical approach to business and a capacity for work. Cosmopolitism and diversity of cultures may also be considered to be the main characteristics of the Luxembourgers.

On other hand, Luxembourgers are careful and prudent. They take time before they trust people and approach getting to know you in a deliberate, measured manner, which cannot be rushed.

Company registration

The Luxembourg corporate legislation defines six forms of entity through which business can be carried out from Luxembourg. Each of these 6 forms has a legal personality distinct from that of its members. The choice of legal form depends on economic and legal considerations (e.g. the extent of members’ liability, the extent to which shares are transferable, etc). No company may adopt a name giving rise to confusion with that of an existing company.

Principal forms of entities

The principal forms normally used are:

Société à Responsabilité Limitée (SARL) – or the private limited liability company.

Société Anonyme (SA) – considered to be the equivalent of the public limited company whose members are liable only to the extent of their contribution in the company’s capital.

Société en Nom Collectif (SENC) – considered to be a partnership, which may be formed by two or more persons all of whom are personally, jointly and indefinitely liable for the partnership’s debts. In principle, shares of an SENC are not normally transferable, though the articles of association may provide for departures from this rule.

Société en Commandite Simple (SECS) – or limited partnership, which is formed by one or more partners (the “general partners”) who are jointly and indefinitely liable for the partnership’s debts and by one or more “limited partners” whose liability, is limited to their contribution. Both SENC and SECS are not subject to tax in their own name, but to personal income tax which is payable by the partners to the extent of their share in the partnership’s income.

Société en Commandite par Actions (SCA) – or the partnership limited by shares. The SCA is comparable to the limited partnership (SECS), the only difference being that the limited partners’ shares are freely transferable.

Société Coopérative (SC) – or the cooperative company whose members’ responsibility may be limited by the statutes of the company to a certain amount. Shares of an SC are not transferable to third parties.

The SA and SARL companies

In practice, the SA and SARL have proved to be the most popular. The main features of these two corporate forms are presented in the summary table below:

Particulars Société Anonyme (SA)
Société à Responsabilité Limitée (SRL)
Minimum subscribed capital € 31,000 € 12,500
Minimum paid-up capital 25% 100%
Number of shareholders 1 minimum 1 to 40
Type of shares Registered or bearer Registered
Management Board of directors (1 if 1 shareholder, 3 otherwise) Director(s) (minimum 1)
Annual Shareholder’s Meeting 1 per year if more than 25 associates
Auditor required required if more than 25 associates
Report required not required

Trade permit

The Luxembourg constitution of 1868 guarantees to every citizen the freedom of trade and industry, as well as the freedom to establish a business. However, in the interest of industry and commerce and in order to guarantee the administrative supervision of the business environment of the country, local legislation lays down some specific conditions for access to and exercise of trades and occupations.

Under the law of 28 December 1988, a government permit is required for any industrial or trade activity to be carried out in Luxembourg. The permit is issued by the Ministry of Middle Classes based on the applicant’s professional qualifications and good standing. The permit is strictly personal, and cannot be transferred to other persons. Legal entities, including partnerships, must apply in the same way as physical persons, demonstrating necessary professional qualifications and good standing of the firm’s management.

Our company licensing services

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Disclaimer: While TBA & Associates strives to make the information on this website as timely and accurate as possible, the information itself is for reference purposes only. You should not substitute the information provided in this article for competent legal advice. Feel free to contact TBA Customer Services for advice on your specific cases.

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