Entering the Luxembourg Market

Luxembourg Market

The Grand Duchy of Luxembourg certainly ‘punches above its weight’, economically. One of the world’s smallest nations with a populaxtion around 630,000, it is ranked No.1 globally by the World Bank with Gross Domestic Product (GDP) per capita of over US$120,000.

Prestige also attaches to Luxembourg’s role both politically and economically. It is a founder member of the European Union and hosts many of the EU’s leading institutions – including the European Court of Justice – and has built a justified reputation as a global leader for private banking and financial services.

But incoming companies tempted to set up a subsidiary will find adjustments need to be made – and quickly. The demanding employment market is framed by strictly applied laws and regulations, and they cannot be ignored or side-stepped. However, there are speedier and more cost-effective alternatives to launching a subsidiary.

Work alongside our Professional Employer Organization (PEO) recruitment specialists, then utilise our Employer of Record (EOR), in-country experts, to handle every aspect of compliance. Employers can depend on our in-depth knowledge of Luxembourg and how to navigate its challenging legislative issues that revolve around its local corporate and employment laws, as well as European Union directives.

Starting a business in Luxembourg

Foreign companies opening a legal entity in Luxembourg typically select a Société á Responsabilité Limitée (S.a.r.l.), which has many of the characteristics of a private limited liability company, as their best option. Since company law reform in 2016 a simplified form of a company limited by shares, a Société par actions simplifiée (SAS) has provided an alternative.

The necessary stages for starting business operations include:

• Select a unique company name and log with the Trade and Companies Register (RCS)
• Obtain a Certificate of Good Standing from the RCS
• Deposit minimum share capital of at least €12,000 (US$13,564), which may be divided into various classes of shares
• Provide register of shareholders, which can number from one to 100
• Draw up the constitutional documents in the form of a Deed of Incorporation or Articles of Association in the presence of a notary, including details of the individuals on whose behalf it is signed; registered office; type of business; distribution of share capital; predicted timescale of operation; names of business managers and their responsibilities
• The documents should be drawn up in French or German. Documents can be drafted in English, for example, provided a French or German version is subsequently provided. In the event of dispute, French or German translations will take precedence
• Once signed the notary must register the deeds with the Registration Duties, Estates and VAT Authority, within 15 days
• The documents must be lodged electronically with the RCS to be published on the Electronic Companies Gazette (RESA)
• Apply for a business permit (autorisation de commerce), which can take up to three months
• There are no nationality requirements for managers or shareholders

Expanding Business into Luxembourg

The nation’s economic growth is driven by financial operations, but Luxembourg also boasts robust sectors in construction, IT, transportation and logistics, chemicals and engineering, automotive innovation, biotech, and tourism.

Although Luxembourg ranks outside the world’s top 60 for nominal GDP at 83.70 billion US dollars, the economy is set to strengthen further, growing 6.5% in 2021 and predicted growth at 3.7% in 2022 and 3.1% in 2023. Investment is expected to rise, alongside stronger consumption, supporting further growth.

Enclosed by Belgium, France and Germany, Luxembourg’s employment market proves a magnet for workers from those countries enjoying the free movement across borders to add to a well-educated, multi-lingual workforce.

Opening a business in any overseas territory brings issues. Moving staff across the world means lengthy processes to obtain visas and work permits. When employees are in place, who will handle payroll? How will your company deal with regulations on taxation, entitlements and benefits, termination, and severance?

Drawing up an international expansion blueprint is not enough. Your business plan will have to answer all these questions. Luxembourg welcomes foreign investment and recent legislation simplified the options for opening subsidiaries. However, the employment market is complicated by its mix of laws and collective agreements affecting employee benefits and entitlements. There are other questions too: where will you find distributors, manufacturers, and offices?

Luxembourg Business Facts

• Capital – Luxembourg city
• Population – around 630,000 at end of 2021
• States – Geographically divided in two – Oesling in the north and Guttland south and center. Politically there are 12 cantons divided into 102 communes.
• Official Languages – Luxembourgish, French and German
• Economy and world ranking – US$83.7 billion by end of 2021. Ranked No.1 globally per capita
• Leading sectors – Service and finance sector, hi-tech and software, oil and minerals, manufacturing, agriculture, beverages, animal husbandry
• Main exports – Manufactured products, vehicles, electrical machinery, computers, vehicle parts, oil and fuels, food, and beverages
• Main imports – Metalworking machinery, electrical equipment, steel and refined oil, vehicle parts, aircraft, and parts
• Main trading partners – Germany, France, Belgium, Netherlands, Italy, and UK
• Government – Federal and constitutional republic with a Presidential system
• Currency – Euro

Advantages and Challenges of the Luxembourg Market

Advantages of expanding into the Luxembourg market include:

• Workforce:  Well-educated, highly skilled, and motivated. Thanks to ‘freedom of movement’ between European Union countries, Luxembourg attracts multi-lingual staff from neighboring Germany, France, and Belgium
• Economic Environment:  Financially and politically stable
• Status:  European Union (originally as European Economic Community, EEC) founder member with Luxembourg City one of the EU’s official parliamentary capitals with Strasburg and Brussels
• Logistics: Well-developed infrastructure through road and rail to North Sea ports such as Amsterdam, Rotterdam, Zeebrugge and Hamburg
• Finance:  Recognized as a leading world hub for private banking, financial and insurance services

Challenges of operating in the Luxembourg market include:

• Setting Up: The World Bank’s most recent ‘Ease of doing business report’ ranked Luxembourg only 72^nd out of 190 nations due to protracted and varying procedures for registering different types of companies
• Taxation:  Business taxation is complex and requires many hours of processing
• Business Culture:  A fairly formal business hierarchy and strict separation between work and social life can create a difficult transition for incoming foreigners
• Dependence:  Despite steady growth year-on-year, Luxembourg is heavily dependent on its financial and banking sectors and potentially vulnerable to problems with the Eurozone
• Business Property:  It can take close to 160 days to obtain construction permits after dealing with at least four authorities and completing 12 registration procedures

Limited Company / Subsidiary or Branch in Luxembourg?

International companies targeting Luxembourg for expansion will typically choose a Société á Responsabilité Limitée (S.a.r.l.), which has most of the characteristics of a private limited liability company. A branch is an alternative for foreign companies exploring the market.

Subsidiaries have independent legal status from the parent company, which is generally free from responsibility for any debts or liabilities. Subsidiaries can have a different name from the parent company, pursue different business activities and form their own contracts.

Branches in comparison, are an extension of the parent company and are not a separate legal entity. Subsidiaries and branches have differences in how they are registered and operate.