Civil companies (partnerships) in Luxembourg
Interview with Alexandre André, tax specialist in Luxembourg, about professional partnerships in Luxembourg
In which situations would you recommend setting up a civil company in Luxembourg?
Alexandre ANDRÉ: There are two main situations in which it makes sense to create a civil company in Luxembourg:
- When several people want to acquire and manage real estate together. In this case, you would form a Société Civile Immobilière (SCI – Civil Real Estate Company).
- When several people want to co-own movable property (e.g., a collection of artworks or other valuables).
In both scenarios, the flexibility of a civil company allows for an efficient arrangement of co-ownership by defining how shares are divided, what each party’s rights and obligations are, and how the structure will be governed.
What are the main characteristics of a Luxembourg civil company?
Alexandre ANDRÉ: A civil company is an extremely flexible type of legal entity, well-suited to non-commercial projects. It must have a civil purpose, meaning it cannot regularly conduct commercial activities.
- Civil purpose: Its activities usually involve managing and administering assets or property on behalf of several partners.
- Liability: Under certain conditions, partners can decide in the articles of association whether they have unlimited and joint liability or not.
- Flexible organization: The rules of operation can be freely determined in the articles (who manages the company, how decisions are made, how profits are shared, etc.).
Is it complicated to set up a civil company from an administrative standpoint?
Alexandre ANDRÉ: The legal and administrative management of a civil company is relatively straightforward.
- Formation: There is no requirement for formation by a notary. The partners can draft the articles of association themselves and register them with the Luxembourg Business Register (LBR) so that the company has legal existence.
- Registered address: It is necessary to have a registered address, but there are many solutions in Luxembourg (professional domiciliation, using one of the partners’ addresses, etc.).
- Tax obligations: In principle, a civil company needs to file only one tax return each year (the tax return for jointly held collective enterprises and co-ownerships). The obligations therefore remain limited if the company does not carry out any commercial activity.
What are the limitations to creating a civil company?
Alexandre ANDRÉ: While a civil company offers significant freedom, it also comes with certain constraints:
- Carrying out a commercial activity: In principle, a civil company cannot regularly engage in commercial activities. If the company intends to carry out commercial operations (buying and selling, commercial leasing, etc.) regularly, then a commercial company should be established instead.
- “Prudent” management: Due to its civil purpose, a civil company must focus on managing its assets without a direct profit-making objective or repeated commercial speculation.
In summary
A civil company in Luxembourg is a very flexible and suitable vehicle for a group of partners looking to jointly manage real estate or movable property (for example, artworks) without conducting a commercial activity. Setting it up is relatively simple, costs are usually low, and its tax regime does not entail a heavy administrative burden. It is therefore an appropriate legal tool for jointly holding and managing assets under the clear framework of Luxembourg civil law.
