Luxembourg: Top 9 Challenges Of Doing Business In Luxembourg

Despite its strong economic credentials, doing business in Luxembourg can be a difficult task without prior knowledge of the corporate landscape. Here are some of the areas that can trip up a business new to the grand duchy.

It might be small, but tiny Luxembourg packs a punch on the international business stage. Nestled in the heart of Europe, Luxembourg's size means it has necessarily taken on outside influences to stay relevant, and its diverse activities help make it competitive, strong and stable. It's also the easiest place in the world to trade across borders, according to World Bank rankings.

The country is a founder member of the European Union, NATO and the UN, and the city of Luxembourg is the seat of several institutions and agencies of the EU. It is a political centre as well as a financial hub for the region. With strong economic credentials, doing business in Luxembourg can be a difficult task without prior knowledge of the corporate landscape. Here are some of the areas that can trip up a business that is new to the grand duchy.

1. Starting a business

Luxembourg was ranked 70th in the world for ease of starting business by the World Bank in 2017, and 63rd overall for doing business. Lawyers, doctors, statutory auditors, banking and certain financial services and insurance are covered by different laws to the majority of businesses, so your area of commercial activity will govern how easy it is to set up and start trading. You'll also need to register for income tax, VAT and social security. All of these procedures can be completed online via the portal, business.lu

2. Proving your professionalism

To apply for a business permit from the Ministry of Small and Medium Sized Businesses, you will need, among other things, to provide evidence of your professional qualifications and your professional integrity. The way you do this will depend on your profession and background - but the good news is you can provide documents in German, French or English.

3. Organised labour

Companies and individuals carrying out commercial activities must become members of the Luxembourg Chamber of Commerce, while skilled craftsmen must become members of the Chamber of Trades. This will be done automatically; the tax authorities will notify the relevant chamber on your behalf.

Luxembourg also has a strong history of workforce representation, with works councils found in most businesses. These are a "shop-floor" organisation representing workers as a local complement to trade unions, and must be kept informed and included in major business decisions. This can be a challenge for businesses used to employment-at-will labour laws.

There is a minimum statutory wage (salaire social minimum) - the highest in the world - which applies to all employees and assures fair payment. The exact rate is determined by the employee's age and qualifications.

4. Infrastructure

It takes an average of 11 procedures and 157 days to receive construction permits in Luxembourg, and several inter-governmental departments must be consulted during the process, such as the Cadastre Administration, the Environment Department, the Urban Department (service de l'urbanisme) of the Commune and the Ministry of Works. Getting an electrical connection is somewhat quicker, taking five procedures and 56 days. Planning, as always, is essential if building or connecting new premises.

5. Physical establishment

To apply for a business permit in Luxembourg, you'll need to have a fixed physical establishment in the country. There are various rules about size and what constitutes "substance" for different regulations, and there are many regulators keeping a keen eye on this aspect of international business. Having a substantial office is one way to stay on the right side of tax regulators. Local partners such as TMF Luxembourg can help to make sure your business meets the necessary requirements.

6. Financial services

Banks and other professionals of the finance sector (PFS) have different rules and processes for doing business in Luxembourg. They need to obtain a license from the Minister of Finance, with the CSSF (Financial Sector Supervisory Commission) responsible for preliminary analysis of applications for approval.

The main conditions for banks are:

  • The legal form of the establishment
  • The central administration and infrastructure (administrative and accounting organisation, internal control procedures)
  • The quality and structure of the shareholders
  • The repute of the members of the management and supervisory boards, administration bodies and shareholders
  • The professional experience of those in charge of day-to-day management
  • The financial resources
  • Adequate creditworthiness
  • Membership of a deposit guarantee scheme or an investor protection scheme.

Conditions for PFS – divided into investment firms, special PFS such as registrar agents and corporate domiciliation agents, and support PFS –are fairly similar, with the main difference being that minimum capital requirements are lower.

7. Tax obligations

There are 23 tax payments to be made each year by businesses operating in Luxembourg, taking around 55 hours a year to process. Corporate tax rates are very competitive, although certain levies - such as property tax and net wealth tax - can take a bite out of personal and company earnings. There have been a number of recent changes to the Luxembourg tax environment to align the country to global standards. You can read about them here.

Individuals are taxed on worldwide income. You are considered a resident if you are fiscally domiciled in Luxembourg, or if you reside in the country for more than six months in one year. Expats are granted special tax exemptions in an effort to attract skilled foreign workers to the country.

8. Choosing the right investment fund

Luxembourg is the go-to destination in EMEA in the investment funds space due to the flexibility of vehicles with their different legal forms. But when it comes to choosing the right investment fund, there are some key factors that must be considered. These include the fund size, nationality and tax residency of investors and the nature and complexity of the investment strategy.

Working with a service provider that has experience with structures across the full investment spectrum is recommended.

9. Culture

Business is a very formal ordeal in Luxembourg, and there is a distinct segregation between personal and corporate life. Small talk is important in building rapport, but be sure not to ask personal questions. Luxembourgish is the national language, although French, German and English are widely spoken.

Talk to us

TMF Group has a large and strong presence in Luxembourg, and the necessary accounting, tax, HR and payroll, corporate secretarial and capital markets knowledge to help you navigate these key business challenges.

Whether you want to set up in Luxembourg or streamline your existing operations, Contact us today.

Learn how we help our global clients adapt to local rules and regulations.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions