Executive Summary
Luxembourg is a landlocked country located in Western Europe, which borders with Germany, France and Belgium. It covers a total area of 2,586 sq km. Luxembourg is the capital and the biggest city of the country; German, French and Luxembourgish are its official languages.

Luxembourg is a parliamentary representative democratic country, governed by a Grand Duke, which is the only sovereign Grand Duchy of today. It is one of the wealthiest countries of the world with the highest GDP per capita. It is a member state of the EU, NATO, OECD and a number of other international organizations.

Luxembourg has a highly developed economy to which low unemployment and low inflation rate are characteristic. The economy is mainly based on provision of high level financial services. It is a popular jurisdiction for fund management, insurance as well as private banking in Europe. Many e-commerce companies establish their presence in Luxembourg.

The Euro is used on the territory of the country.

Luxembourg is one of the smallest countries in Europe, which is traditionally divided into five regions. Thick forests, and lowlands are characteristic to the country’s landscape. There are numerous small and big rivers on the territory of Luxembourg.

The country has a modified continental climate to which frequent rainfalls mild winters and cool summers are characteristic.

Map, Flag and Coat of Arm

Types of Company

Joint Stock Company (SA)

At least two shareholders, resident or non-resident private persons or corporate entities, may create this type of company, the minimum capital of which is EUR 31,000. Shares are freely transferable. A board of directors must consist of at least three persons. A company must have a registered office in Luxembourg. It needs to file annual accounts, but they must be audited only in case a number of employees exceeds 50 and/ or it exceeds a certain annual turnover.

Limited Liability Company (SARL)
A minimum capital of this type of company is EUR 12,400 divided in “participation certificates”, which may not be freely transferred. This company may have a maximum of 40 shareholders, and in case there are less than 25 shareholders, it is not necessary to arrange an annual general meeting of shareholders.

General Partnership
General partnerships must be registered and all the partners are fully and severally liable for a partnership’s debts and obligations. A general partnership can take two forms: Societe en Nom Collectif or Societe Civile.

Limited Partnership
At least one general partner with unlimited liability and one limited partner with liability limited up to the capital invested can create a limited partnership, which may take two forms: Societe en Commandite Simple (follows the rules of a general partnership) or Societe en Commandite par Actions (follows the rules of an SA).

Branch of a Foreign Company
In order to conduct a business activity on the territory of Luxembourg, a foreign company must obtain a permit of local authorities by registering its branch in Luxembourg.

Holding Company (SPF)
A Joint Stock company or a Limited Liability company may take a form of a holding company, which was used as an instrument for access to an offshore tax treatment in Luxembourg. This type of company was exempted from income tax, and no withholding tax on dividends was payable. This type of company had to  make capital contributions at a rate of 1% of subscribed capital, as well as subscription duty was payable on the annual basis at a rate of 0.2% of its shares value.

This company regime has been abolished due to the European Commission’s conclusion that it “distorted competition” and significantly reduced tax liabilities. Existing holding companies maintain their tax advantages till 2010.

As an alternative, a SPF structure has been introduced, which is aimed to the wealth management purposes.

This structure was introduced in 2004 and may take different corporate forms, including a form of a limited partnership.  Income derived from investment and capital gains are not taxed, distributions and redemptions by non-resident investors are exempted from withholding tax. In addition, wealth tax is not payable and a SICAR is exempted from VAT for management charges purposes. A company’s income is taxable as that of other corporate entities.

Tax year coincides with a calendar year in Luxmebourg.


Generally, a person is deemed to be a resident in Luxembourg if he stays there at least for 6 months in a tax year. Residence, and not the nationality, determines a persons’ taxation liability. Residents of Luxembourg are liable to pay taxes on their world-wide income.

Income tax has a scalable nature and is levied at rates up to 38%, depending on a total amount of an individual’s annual income. Social security contributions are payable. Municipal Business tax on profits is applied in addition to income tax on individuals who conduct a certain business activity in a particular structure (like sole proprietorship) and who exceed a certain amount of the annual income. Capital gains from selling a main place of residence is free from taxation, other proceeds from selling a real estate property are applied with tax.

Resident companies are liable to pay tax on their world-wide income. A company is considered a resident in Luxembourg if it is incorporated and managed from the jurisdiction. Corporation tax is levied at rates of 20% an 21%, depending on the amount of income. In addition to it, municipal tax on profits is levied when a total income of a company exceeds a certain amount, which may be charged at a rate up to 10.5%. Withholding taxes are or are not levied on different occasions, which must be addressed case by case.
A standard rate of VAT is 15%.

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