I. Trading and Service Company: concept

If a company carries on a skilled trade, industrial or other commercial activities, such company is a Trading and Service Company. In this regard, there is a distinction made in Luxembourg between Trading Companies, in the strictest sense, which possess legal personality and Commercial Associations which do not.

Trading Companies in the strictest sense include Public Limited Companies (PLC., Corp./SA); Limited Liability Companies (LLC., Ltd./SARL); Partnerships Limited by Shares (SCA); Limited Partnerships (LP./SCS); General Partnerships (SNC); Co-operative Societies (SC) as well as European Companies (SE). In contrast thereto, Commercial Associations are subdivided into Temporary Commercial Associations and Commercial Associations by Participation.

II. Formation

How a Trading and Service Company in Luxembourg is formed is determined by the particular legal form chosen. Irrespective of nationality or residence, any person may form a Trading and Service Company in Luxembourg.

Furthermore, it is required that all companies in Luxembourg carrying on commercial activities obtain prior written consent (a trade licence , autorisation d ́établissement) from Luxembourg's Ministry of Small and Medium-sized Businesses. The requirements therefor are, firstly, that the manager of a Trading and Service Company in Luxembourg possesses certain professional qualifications and, secondly, that the company has a physical presence in Luxembourg. Moreover, a Trading and Service Company is required to register the business and to apply to the competent tax authority for a value-added tax (VAT) ID. number in Luxembourg.

III. Tax structure of a Trading and Service Company

The following information on the tax structure exclusively addresses corporations in Luxembourg due to Trading and Service Companies in Luxembourg being predominantly formed as Public Limited Companies (PLC., Corp./SA) or as Limited Liability Companies (LLC., Ltd./SARL):

1. Corporation tax

Since January 1st, 2013, all corporations in Luxembourg have been subject to corporate taxation at a rate of 29.22%. This said rate consists of the following components: corporate income tax at a rate of 21% on income exceeding 15,000 EUR (or a rate of 20% for income not exceeding 15,000 EUR), the solidarity surtax at a rate of 7% as well as the municipal business tax at a rate of 6.75%.

All corporations resident in Luxembourg which do not require a trade licence and whose assets, securities and bank balance together exceed 90% of its balance sheet total are required to pay only the minimum corporate taxation of 3,210 EUR (3,000 EUR plus the 7% solidarity surtax).

Furthermore, corporations in Luxembourg are subject to withholding tax at a rate of 15% on their dividend distributions. In contrast thereto, royalties and interest payments as well as proceeds from liquidation or partial liquidation are tax-free in Luxembourg.

2. Net wealth tax

Corporations in Luxembourg are further subject to a net wealth tax at a rate of 0.5%. Corporations resident in Luxembourg are therefore subject to a net wealth tax on their total assets (assets in and outwith Luxembourg). However, corporations not resident in Luxembourg are subject to the said tax on their assets in Luxembourg only.

3. Value-added tax (VAT)

Trading and Service Companies in Luxembourg are liable to value-added tax (VAT)  at a rate of 15% on their activities. Notwithstanding this, certain supplies and services are subject to the reduced rate of value-added tax (VAT) in Luxembourg. For example, e-books are subject to a rate of 3%.

IV.    Advantages of forming a Trading and Service Company in Luxembourg

There is very little red tape surrounding the formation and management of a Trading and Service Company in Luxembourg. Moreover, Luxembourg's tax assessment framework in the form of the so-called “tax rulings” is flexibly administered. Questions on the scope of tax liability and undertakings relating to the taxation can be sought from Luxembourg's tax authority prior to the tax being due. In principle, these can be relied upon by both sides. In Luxembourg, such tax ruling procedures can be completed within weeks.

Luxembourg is a signatory to several double taxation agreements (DTA's) which prevent the double taxation of Trading and Service Companies.

LEGAL and TAX ADVICE and SUPPORT

Our lawyers and tax experts stand ready to advise you personally and free of charge during the decision-making process and throughout the formation/incorporation/setting up process of a Trading and Service Company in Luxembourg.

Please contact us by telephone through the following telephone number

00352 250 345 27

(Monday - Friday between 9am and 4pm)

or by e-mail at the following e-mail address
info(at)startup-luxembourg.com

or simply use our online contact form.

BRANCH OFFICES: FORMATION/INCORPORATION/SETTING UP PROCEDURE

The formation/incorporation/setting up of procedure of a branch office in Luxembourg is as follows:

  • The decision of the head office to form a branch office in Luxembourg (the branch office is not required to have its own articles of association)
  • The furnishing of the branch office in Luxembourg with its own capital (no minimum capital is required)
  • The appointment of the manager of the branch office and/or the authorised signatories
  • The application for a trade licence
  • Registration in Luxembourg's Trade and Companies Register and publication of the head office's articles of association in the Official Bulletin (Mémorial C)
  • Business registration and application for a tax number from Luxembourg's tax authority