Are you looking for investment opportunities in Europe? Have you ever consider investing in Luxembourg? Well, what many investors do not know is that Luxembourg is a conducive place for setting up a business; all this has been made possible by continuously evolving and flourishing economy. As a matter of fact, over the last few years, many foreign companies have set up camp in the area. The good news is that if you wish to start a business in Luxembourg, the process is not complicated.
It generally begins by inquiring more about the market you intend to enter as a foreigner and follow related legal formalities. This means that you will need a business license for the business or company so that you can operate in the country. At times, special authorization may be required for certain business investment.
The Legality Aspect – Legal Forms
Before tackling with the legality part of the process, one has to decide whether they want to open a commercial company or a sole proprietorship. However, it is important to note that you can change the legal form at a cost of course.
- Sole Proprietorship
When it comes to a sole proprietorship, the merchant, artisan, entrepreneur, or founder is the sole owner of the business and the only policymaker. In other words, the sole owner is the directing personnel in the business. This means that he or she is fully liable for the business’s debts and outcome. With this option, there is no minimum capital and requires company statute.
- Commercial Company
When it comes to a commercial company, you have the option to choose between a company that you will be accountable for the company’s debts, depending on the amount available; or a partnership that your obligation for the company’s debt on your personal property will be limitless.
- Stock Companies
These are companies that are impersonal and sustained by its contributors or investors. The company’s shares can be accessed freely and investors/shareholders obligations are limited to a specific amount they contributed.
This includes both collective and limited partnerships. This type of business is similar to individual companies or sole proprietorship. The only difference is that partnerships are generally a business agreement between two or more parties/partners. In this option, both are liable for the company’s debts. As a matter of facts, the transfer of shares is only possible when all partners consent to it.
- Hybrid Companies
These kinds of businesses are generally considered as limited liability. This is mainly due to the fact that the partners have limited financial obligations that go hand in hand with the amount they contributed in terms of capital.in such a company, it consists of a few partners. Furthermore, the disposal of shares or sales is controlled through strict conditions.
The truth is that only a profitable company is the only business that can swallow the effects of starting or launching costs. This is because a business’s constitution takes the form of a notarial deed. Furthermore, a registration tax of € 75 applies, not forgetting amendments and head office transfer to Luxembourg,
The good news is that companies that have already set up in assimilated or another European Union country can operate freely in Luxembourg. However, a business owner is required by law to first notify the Direction générale PME et entrepreneuriat of their activities. This is the General Directorate of entrepreneurship and SMEs.
One is required to produce the EC certificate provided by their home country’s Chamber of commerce when they notify local authorities. If they do not have this document, they should provide any other type of document that proves their authorization to operate in their home country and a proof of Chancery Tax payment. Other documents that will be needed include a copy of a criminal report, proof of similar field of work at least for the last two years, and nationality certificate.
When it comes to companies that have been set up outside the European Union, the owners must apply for a business license.
A business licenses application can either be filed through the Direction générale PME et entrepreneuriat, online (guichet.lu service), or the nearest Chamber of Commerce. As such, you have to produce certified documents showing your qualification according to your specific qualification, identity card, professional integrity, proof of chancery tax payment, and draft statutes in terms of the company.
When it comes to professional integrity, the responsibilities fall under the company’s director or manager. Nevertheless, if the final decision is to make Luxembourg your residence for more than 10 years, then you will need the following documents when applying for a business license:
- A sworn statement on possible management positions with the company(s) over the past three years. This should include any management position in a company in Luxembourg or the shares you hold in a company in the area
- Criminal Record
For non-resident or a person who has lived in Luxembourg for less than 10 years, will need the following documents:
- The latest non-bankruptcy statement
- A sworn statement of possible management positions from different companies during the past three years
- An affidavit or criminal record from a country one has lived in for the last 10 years
There are some companies and because they provide certain intellectual services; they are exempted from certain requirements. The professional or owner of the business can make the applications at the Direction générale PME et entrepreneuriat to ensure that they are excepted from a certain requirement. However, in such a case, if employment will be involved, operation statement has to be made. At the same time, they have to register for value added tax (VAT) if their yearly turnover is expected to exceed € 25,000.
The Trade Name
The fact is that before setting up a company, one needs to have a trade name. This trade name can be made through Registre de commerce et des sociétés (RCS) website. The moment you have completed with the application, your free or paid trade name will be issued within 20 days; which after you can download it.
Setting Up An Individual Company
Assuming that you have already decided on the kind of company you wish to set up, you should present your registration documents or company’s statute to the RCS. It is important to note that an individual entrepreneur or a sole proprietor is required by law to register as a natural person, meaning e-filling or over the help desk with the RCS (fees apply). Well, no matter the method you prefer following, you will be required to produce the following documents:
- Existing business license
- Duly filled registration e-form
- Family book or marriage certificate
- Marriage contract if any
- Business acquisition declaration if any
- Identity card
- Power of attorney if any
- A delegation of authority through a signature if required
- And registering for VAT at the Administration de l’enregistrement et des domaines.
Block And Unblock The Capital
The minimum capital needed to start a business has to be deposited in the bank before signing a company’s constitution. As such, the deposited amount is blocked until the setting up of the company. This process is supported by certificate blocking, which must be produced to the notary before starting the business. The amount will only be released when the certificate issued is released by the solicitor regarding the final version of the company’s article.
A company’s constitution is only used to define its operations. In cases of European companies, anonymous companies, and limited liability companies, the statues must be drafted before a lawyer. When it comes to cooperatives, and general partnership, the statues can be of their own (drafting their own constitution), wither through agreements or using the services of a lawyer.
Of course, with a partnership, some sections of the constitution will be considered null and void. Examples of such clauses include; providing all profits and losses to a single partner, or sections where some partners are not obligated from their contribution to losses and much more.
Remember, newly formed companies and those modifying their statutes are required to file their constitution with RCS for publication. Forms established under private agreements must be scanned and e-filed with the RCS, together with a duly filled requisition form. On the other hand, you can seek help from the assistance help desk. Constitutions that have been published before a lawyer must be produced to the RCS by the lawyer himself.
VAT registration is made possible the moment you open a bank account with the company’s name. The first declaration must be made to the tax office by the owner and can be done through online (guichet.lu) or by mail (only after downloading relevant forms). The documents that must be produced together with the registration form are a copy of the business’s constitution, a copy of the manager or director, and partner’s IDs. If you want to know more about Luxembourg VAT then read the piece we linked to.