Setting up a business in luxembourg
The process of setting up a business in Luxembourg differs on numerous points from neighboring countries. Even though it is not a complicated process, it requires careful analysis of each steps.
The business license
One essential particularity is the obtention of a business license. Any commercial, industrial or craftsmanship activity in Luxembourg (even if clients are all foreign) requires a business license, no matter the form of the business (sole ownership, SA, SARL…)
A business license is delivered by the Ministry of Finance (Direction Générale PME et Entrepreunariat) based on an application filed by the company demonstrating:
- On the one hand, the presence of an honorable and competent manager. Concretely, it means that the manager of the business must have the diplomas for the sectors that require one (architect, engineer…) and can provide a criminal record that shows no offense that is incompatible with the management of a business (bankruptcy…). The manager also needs to be relatively close to Luxembourg to effectively manage the day to day operations of the company.
- On the other hand, the existence of the necessary infrastructure for the exercise of the activity. It means that the business must at least have a store if it is a commercial business, an office for a business that provides services or a workshop for a craftsman.
The business plan
The creation of a business plan is not mandatory in Luxembourg. However, it is useful for the entrepreneur in order to check the return on the investment and the liquidity needs of the company. Very often, entrepreneurs consider capital expenditures in their calculations but sometimes fail to take into account stocks and receivables (the payment delay given to clients) which need to be financed and can require a lot of capital.
The form of the business
The business can either be a sole ownership or a company.
- The sole ownership is simpler to put in place since it simply results from the registration with the tax authorities (and sometimes trade register) of the person who exercises a professional activity. That form is the simplest but it has two disadvantages. Firstly, it is disadvantaged taxwise. Secondly and most importantly, in case of bankruptcy, third parties have a claim on all the assets of the entrepreneur. In practice, this form is reserved for small scale or accessory activities.
- Companies: the most common forms in Luxembourg are the SA (with a minimum capital of 30 000 EUR) and the SARL (with a minimum capital of 12 000 EUR). When choosing between the two types of structures, the entrepreneur must take into consideration the type of shareholder structure (s)he wants for the future. In a SA, shareholders are, in principle, free to sell their shares to whoever they want. In a SARL on the other hand, shareholders must approve the introduction of a new shareholder. Companies can also be formed as a SARL-S but that type of structure does not inspire much confidence from third parties and banks.
